10/27/2015 Alfonso’s 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 newspaper advertising is not significant in
explaining the variation in sales. This information should be presented to board as statistical evidence
supporting the claim that newspaper advertising does not enhance sales and market share.
Newspaper advertising as a percentage of sales for Alfonso’s is 0.71% while it significantly lower for other
department stores averaging around 0.20%, while there is only about a ~1million difference in average
sales between Alfonso’s and all other stores.
Recommendations:
1. Conduct a more thorough statistical analysis of sales using additional marketing factors to determine if
they are significant factors in affecting sales.
2. Consider reducing the advertising expenditure for newspaper sales, given the evidence that it is not a
significant factor in affecting sales.
3. Consider the “borrow forward” effect of discounts to help reduce cannibalization of other products in the
department store – advertising should be targeted to attract consumers to Alfonso’s over other
competitors, rather than to attract current Alfonso’s customers to purchase different products within the
store.