Alphonsos Department Store

1) How effective is Alfonso’s newspaper advertising at predicting sales? How effective is Alfonso’s newspaper advertising at predicting market share?

Hypothesis Test Criteria:

H0: β = 0  newspaper advertising is not a significant factor affecting sales

H1: β ≠ 0  newspaper advertising is a significant factor affecting sales

F-value = p-value = 0.962 > alpha = 0.05  accept the null hypothesis; newspaper advertising is not a significant factor affecting sales. This model is not significant for alpha = 0.05.

R2 = 9.8338E-05 which indicates that little to no variation in sales can be explained by newspaper advertising.

2) Does it actually increase Sales or does it simply borrow forward?

The information presented in the case suggests that newspaper advertising borrows forward sales rather than actually increasing it. Given that consumers only have so much to spend, the newspaper advertisements do not necessarily increase sales in any given week, but rather transfer sales between departments in the week the advertisement is published, and borrow from potential sales in upcoming weeks.

The sales of the department stores do not increase in a linear fashion with the expenditure incurred on newspaper advertising for Alfonso’s or other stores. The regression output shows that there is a high positive correlation between the increase in sales for Alfonso’s and sales for all other department stores in a given week despite the fact that other department stores spend far less on advertising, suggesting that there are additional factors affecting the increases in sales for all stores.

3) What do you recommend and why?

The regression analysis of Alphonso’s sales indicates that