Please read the managerial challenge and answer the following question.

What is initially curious about the negative and statistically significant season dummy variables for Christmas and Valentine's Day?

ease In urban parking fees or bridge tolls? Will automobile commuting decrease by 5, 10, or 20 percent? Will a sales tax increase boost revenue enough to cover a projected budget shortfall? This chapter discusses some of the techniques and problems associated with estimating demand. MANAGERIAL CHALLENGE Demand for Whitman's Chocolate Samplers Whitman's Sampler is a mid-priced gift box of assorted advertising, promotional expenditures on displays, better quality chocolates sold through the drug store dis and packaging choices, as well as two seasonal tribution channel. Whitman is a 170-year-old firm now dummy variables for Christmas (November/December) owned by Nestle who also owns Russell Stover Candies, and Valentine's Day (January/February). You are Lindor and Ferrero Rocher, with which the Sampler is charged with estimating the dollar sales response of often displayed on Rite-Aid or CVS endcaps. The target each of these variables. The best-fit regression model is market is "men in trouble" who wish to pick up some log-linear: thing unexpected for wives and girlfriends. The 1-pound Sampler is one-fifth as expensive as the four-piece log$Sales = 13.23 - 0.86log Price Godiva's chocolatier assortment but much better choco- - 0.02log Adver + 0.24logPromo late than in candy bars or bagged chocolates at the gro- - 0.17Packaging - 0.25N/D - 0.14J/F cery store. At Christmas and Valentine's Day, the candy aisle at the drugstore expands with seasonal and private where the R-squared is 0.54, and the t-scores for each label boxed chocolates at a steep discount. Whitman's variable are as follows: has $9.99 and $11.99 traditional and sugar-free 12 oz Price 4.30, Adver 0.51, Promo 1.52, Packaging -3.82, boxes, and these prices are stable throughout the year. N/D -4.74, JF -1.75. The General Manger asks you Fifty-four bimonthly observations have been col how to interpret each factor and what decision recom- lected on Whitman's marketing mix including price, mendation, if any, is warranted. Cont MANAGERIAL CHALLENGE Continued Later, you discover that the 0/1 Packaging dummy Discussion Questions variable (signifying a change for 14 bi-months of the traditional royal gold color of the Sampler box to crim- What is initially curious about the negative son red) interacts strongly with the promotional expen- and statistically significant seasonal dummy diture variable Promo. Reestimating the model to variables for Christmas and Valentine's include this interaction effect, you obtain Day? Now that you understand the competitive log$Sales = 11.65 -0.90logPrice - 0.03log Adver supply of private label seasonal product, pro- + 1.37log Promo + 1.59 Pack - 0.24N/D vide an explanation of the negative signs on the seasonal dummies in the demand func- - 0.145/F-0.13Packaging * Promo, tion that matches Whitman's desire to main- where R-squared is now 0.60, and the t-scores for each tain stable prices? variable are as follows: Price 4.53, Adver 0.65, Promo 1 Why would Whitman's prefer stable prices in 2.35, Packaging 2.26, N/D -4.83, J/F -2.80, Packaging * this year-round heavily branded boxed can- Promo -2.67. Interpret any noteworthy changes and dies market? again make recommendations. 1 What role should Whitman's volunteer to After sorting out the role of Whitman's in seasonal play in the private label candy business of candy sales, you find the General Manager of the Sam- their channel partners CVS and Rite-Aid at pler product is not surprised by your findings. She Christmas and Valentine's Day? responds to your presentation and recommendation to continue to maintain $9.99 and $11.99 prices throughout the year and not match discount private T-scores are a hypothesis test statistic obtained by dividing the estimated coefficients by their standard errors. With 54 observations and seven r.h.s. label prices at Christmas and Valentine's as a "No variables, a t-score of 2.0 or higher confirms statistically significant effects. brainer." 4-1 STATISTICAL ESTIMATION OF THE DEMAND FUNCTION