Markdown Pricing Optimization at Bloomindales - 1215 Words

Chris Watt, Sarah Elmer, Kyle Luithly 1 May 2015 Pricing and Revenue Management Implementation of Pricing and Revenue Optimization Introduction Perhaps one of the most difficult managerial decisions in the 21st century is the decision to make a decision. Analysis paralysis, endless meetings, and corporate structure have made it painstakingly difficult to come to any real conclusions. So when the Chief Financial Officer, Bruce Berman, of Bloomindale’s was tasked with decision to implement ProfitLogic’s Pricing Optimization (PO) system, he called upon Daniel Gabbay, an analyst in the finance division, to make sense of the numbers and guide his decision making process. Berman was considering implementing a PO system to quantify the markdown†¦show more content†¦Fortunately, performing these non-parametric techniques for just a few of the possibilities would give insight as to whether we were on the right track and the time spent analyzing the data in this manner could prevent a long arduous path to an erroneous conclusion. Statistics is a science, and like all science, it requires testing. And after this initial testing and concluding that the PO System does increase revenue—this assumption is perfectly reasonable to make since ProfitLogic is still in business—we could then build a model to determine by how much revenue will be increased and what the payback period might be. Building the Regression Model As previously mentioned, no analysis is given for the regression model, so we shall at least attempt to ask the appropriate questions needed to make an intelligent decision. We begin by looking at the structure of the regression model prior to performing the diagnostic procedures. First, we must understand why the consultants chose to model the revenue in the markdown period as a product of the observed performance in the regular period, the PL effect, Department effect, the promotions effect, and a constant. If there are no PL effects, department effects, or promotions effects, then the revenue is simply a function of the overserved performance in the regular price period. This is logical, as adding in an â€Å"effect† simply scales the revenue.