A large grocery chain has product categories (for
example, beverages, paper products, and meats) managed by separate
Category Managers (CMs). Each
product in a category has an identifying code called a Stock
Keeping Unit, or SKU.
The chain has 1,000 stores in the four U.S. Census regions. The beverage CM wants
to understand the effect of price and promotions on one of her beverage SKUs
(called SKU1 for this problem).
She manages four SKUs, labeled SKU1 to SKU4,
so there are three "competitor" brands even though all four SKUs
come from the same company. In a sense, SKU2 to SKU4 cannibalize
sales from SKU1, so she definitely wants to know the extent of the cannibalization. This could be summarized by a price elasticity ...