BC3406 Business Analytics Consulting

Data Hackathon
Paula’s Choice

Seminar 1
Team 06
Instructor: Assoc. Prof. Damien Joseph

Group Members
Ang Boon Ping U1310951H
He Ling Lu U1410267C
Peng Yi U1410935G
Zhou Jing Yuan U1320538J

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Table of Contents

Executive Summary
1.Strategy for Combination of Products and Marketing ................................................................. 3
1.1 Combination of Products....................................................................................................... 3
1.2 Marketing Strategy: ............................................................................................................... 3
2. Items to Be Discontinued ............................................................................................................ 4
3. Forecast of Sales ......................................................................................................................... 4
3.1 Forecasts for Online Sales ..................................................................................................... 4
3.2 Forecasts for Retail Sales ...................................................................................................... 4
4. Projected Stock Model for forecasting stock to purchase from Head Office each month .......... 5
5. Stock Replenishment Model for Different Channels .................................................................. 5
6. Identify the Location of Paula’s Choice’s Next Physical Store .................................................. 6
Appendix A (Data Definitions)
Appendix B (Methodology and diagrams for selecting 5 bundles)
Appendix C (Assumptions, method and tables for selecting SKU to discontinue)
Appendix D (Methodology for sales forecast)
Appendix E (Top 10 SKU requiring 3* (3SMA)
Appendix F (Map plot)

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Executive Summary
1. Strategy for Combination of Products and Marketing
Bundles derived through using association rules function in SAS enterprise miner, choose the
rules with low support to avoid cannibalism (average support = 0.34%) and high confidence
(average confidence = 20 %) to ensure the items are related. The bundles are also chosen as the
products complement the functions of each other. (See Appendix B for full methodology)
1.1 Combination of Products
Bundle Name SKU/Item
(Original
Price/Bundle Price)
Calm Sensitive 9157: Calm Sensitive 9167: Calm Sensitive 9187: Calm
(Oily/Combination) Cleanser Toner Sensitive Nighttime
Bundle (Oily/Combination) (Oily/Combination) Moisturizer
(Oily/Combination)
($118, $106）
Skin Recovery 1050: Skin Recovery 1460: Skin Recovery 1860: Skin
Bundle Softening Cream Daily Moisturizing Lotion Recovery
($118, $106) Cleanser SPF 30 Replenishing
Moisturizer
Extra Strength Acne 6000: Clear Acne Pore 6110: Clear Extra 6210: Clear Extra
Treatment Bundle Normalizing Cleanser Strength Acne Cream 5 Strength Acne
($100, $90) BP Exfoliating
Treatment 2%
BHA (Salicylic
Acid)
Repairing & 8720: PC4Men Soothe + 8730: PC4Men Daytime 8740: PC4Men
Treatment Bundle for Smooth Treatment 2% Protect SPF 30 Nighttime Repair
Men BHA (Salicylic Acid)
($132, $119)
Anti-Aging and 7800: Resist Youth- 7830: Resist Perfectly 7837: Resist
Repair Bundle Extending Daily Balanced Foaming Weightless
($99, $89) Hydrating Fluid SPF 50 Cleanser Advanced
Repairing Toner

1.2 Marketing Strategy:

Product bundling strategy to boost sales:
● For each bundle, there would be a 10% discount compared to purchasing individual items
to entice customers to purchase the bundles.
● The bundles will be introduced by sales staff to customers in physical stores. For online
sales, bundles will be shown at their respective categories. Bundles will also be suggested
to a customer whenever 2 out of 3 items in any of the bundles are added in the cart.
Strategies to promote Paula’s Choice and increase brand exposure
● Host skincare workshops that mainly focus on acne or damaged skin treatment, and
provide samples for participants

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 ● Television/Radio/Social Media advertising to increase exposure
● Engage influencers or popular bloggers to review products to boost credibility

2. Items to Be Discontinued
While most of the products of Paula’s Choice has proven record of sales, some does not. To
ensure the steady growth of Paula’s Choice, it is necessary to identify and discontinue those
products. The following criteria was used to determine which products to discontinue (See
Appendix C for assumptions and methodology):
● Average Monthly Sales (AMS) = 0 or Minimum Order Quantity (MOQ) > 18*AMS
[157 out of 275 SKUs]
● Out of the 157 discontinued products, 80 of the products are discontinued as their
AMS=0. For the other discontinued products, we chose to compare MOQ with 18*AMS.
This is because most of Paula’s Choice products are stable 3 years unopened, so the
products may become unmarketable if these products were kept any longer than 18
months and there would be high costs of obsolescence. (See Appendix C, Exhibit 1 & 2
for the full list of discontinued SKUs)
3. Forecast of Sales
Forecast of Sales provides essential information for business it of the sales and crucial
information for replenish of products.
3.1 Forecasts for Online Sales
The online data are obtained from the SQL file which contain data from Sept 2014 till Nov 2016.
As monthly unit sold fluctuates greatly, we use the 3-month moving average to estimate in order
to get a smooth trend. After consolidating sales data using 3-month Moving Average, we
discovered that there was an increasing trend in online sales (see Appendix D). Therefore, we
build a regression model to verify this trend:
Sales (3M) = 1631.8 + 19.583 *month_index (Nov 2014 = 1, trailing)
Therefore, 6-month, 12-month and 18-month forecasts for online sales are then calculated by
substituting the month indices into the regression formula developed and the estimates are as
follows:
Projected 6M sale (Jan 2017 - Jun 2017) = 13374.489 Units
12M sales (Year 2017) = 27453.966 Units
18M sales (Jan 2017 - Jun 2018) = 42238.431 Units
3.2 Forecasts for Retail Sales
However, we used another method for retail sales because we did not observe any significant
trend from the graph (see Appendix B). The regression equation for the trend line is:
Sales (3M) = 953.29+ 0.848 * month_index (Apr 2016 = 1, trailing)

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As the p-value for coefficient of X-variable is (see Appendix D) is 0.603066, which is
insignificant at 5% level of significance. Based on the information, we decided to assume
constant sales level (average sales from Jan 2016 to Nov 2016 = 958.09 Units) when making
predictions.
Projected 6M sale (Jan 2017 - Jun 2017) = 958.09 * 6 = 5748.54 Units
12M sales (Year 2017) = 958.09 * 12 = 11497.08 Units
18M sales (Jan 2017 - Jun 2018) = 958.09 * 18 = 17245.62 Units
4. Projected Stock Model for Forecasting Stock to Purchase from Head Office Each Month
The team has developed a projected stock (SKU) replenishment model for forecasting stock to
purchase from the main head office each month:
Units to order (at start of month) = Desired inventory level - inventory forecast for 3 months later
Desired inventory level = Safety Stock (1 month) + Cycle Stock (1 month)
Inventory forecast for 3 months later = Current month inventory + incoming inventory from
orders made previously - projected sales current month next 2 months
The past sales moving average for the past 3 months (3SMA) was used to estimate projected
sales as well as the level of stock required for 1 month. We choose to keep one month of safety
stock since that if 2 month of safety stock was used for our calculation, it would mean that we
aim to hold an inventory level of 3*(3SMA) for all products. This can incur unnecessary
inventory holding costs.
Final Model:
Units to order = 5 * (3SMA) - Current Inventory - Incoming inventory from orders made
previously. If units to order<0, do not order; and if units to order<MOQ, order at MOQ.
For some SKU with high variation of units sold, we might need to keep additional inventory to
prevent items being sold out. The degree of variation would be evaluated and cross compared
using CoV, Top 10 products that require 3* (3SMA) are 2017, 7779, 6100, 7850, 7650,7720,
7827,7829, 5900, 2019. (refer to Appendix E, exhibit 1 for details)
Without assuming normal distribution, only Chebyshev's theorem could be applied, keeping 1
month of safety stock is only sufficient at most for 75% of the case which corresponds to a CoV
over 0.5. Thus, we filtered SKUs with CoV>0.5, then sorted the SKUs based on Average
Monthly Sales (AMS). The items with top 10 AMS in this list were selected as the products that
require 3*SMA. This is because the items with higher sales are likely to have more relevance to
Paula’s Choice.
5. Stock Replenishment Model for Different Channels
After acquiring the stock from the head office to the warehouse, the inventory needs to be
distributed to the respective locations. We believe that for each sales channel, the stock

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replenishment model will be similar as they would all be acquiring stock monthly from the main
warehouse of Paula’s choice.
Units to get from warehouse = Safety stock (1 month) + Cycle Stock (1 month) - Current
Inventory (at order date)
Similar to the projected stock model, we will use (3SMA) as the estimate for 1 month’s worth of
stock. As the lead time is smaller (1 month), we assume that keeping a safety stock of 1 month is
sufficient for all SKUs.
Final Model:
Units to get from warehouse = 2*(3SMA) - Current Inventory (at order date), if units to get
from warehouse <=0 do not order
6. Identify the Location of Paula’s Choice’s Next Physical Store
Some factors to be considered when choosing the location for the flagship store are identified in
the table below:
Factor Analysis
Addresses of Customer addresses were extracted from the “mg_sales_flat_order_address”
Existing data set, and plotted on Google Maps to identify the distribution of existing
Customers customers around Singapore. (Appendix F, Exhibit 1) From the diagram, it can
be seen that there is a higher customer density in the central/town area as well
as the east area.
Brand Paula’s Choice seeks to be a middle to high end brand which sells effective
positioning & skincare at a reasonable price. Its target audience are people that are between
target 20-34 years old and have an income of $2500 to $6000 per month. The choice
audience of location has to take into account the areas where people from this
demographic frequent.
Competitors The major competitors of Paula’s Choice are identified to be Kiehl’s and Estee
Lauder. With reference to Appendix F, Exhibit 2 & 3, majority of the store
locations of these competitors are in the central/town area. If Paula’s Choice
locates its flagship store near to these competitors, Paula’s Choice can gain
exposure among its competitors’ customers and may even result in these
customers switching to Paula’s Choice.
Accessibility As a flagship store, its location has to be easily accessible with high human
and human traffic in order to generate more walk-in customers. High accessibility will also
traffic be preferable as well for existing customers to visit.
Based on these factors, we have identified ION Orchard as a prime location of the new flagship
store. Located right outside Orchard MRT in the central/town area, it is a popular shopping
destination for shoppers looking for middle to high end goods. In addition, both of Paula’s
Choice’s major competitors have a store located within ION Orchard, so it already has a steady
stream of shoppers of skincare products. Although the rental prices in the town/central area are
high, we believe that it is still worthwhile for Paula’s Choice to place its flagship store in ION
Orchard as it would help Paula’s Choice better establish itself as one of the major players of the
skincare industry in Singapore.

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Appendix A (Data definitions)
1. “Mg_sales_flat_order_item”: Online sales data from mid August 2014 to December 2016
2. “Mg_sales_flat_order_address”: Data set containing address data of customers
3. “Historical Sales - Online and SKU”: Data set containing SKU list with name, price,
volume, weight and other details. Also includes online sales data from January 2016 to
January 2017
4. “FULL YEAR ITEMS SALE BC”: Data set containing Store BC’s sales data from
January 2016 to December 2016
5. “FULL YEAR ITEMS SALE FP”: Data set containing Store FP’s sales data from
January 2016 to November 2016
6. “SKU MOQ”: Data set containing minimum order quantity for each SKU
7. “Stock Inventory Report - Assume at 1 Feb 2017”: Data set containing stock inventory
level at February 2017
8. “Line Item Orders - Online”: Data set containing line item orders with

Appendix B (Methodology and diagrams for selecting 5 bundles)

Methodology:
1. Transaction data for 2016 sales was drawn from “Line Item Orders - Online”, “FULL
YEAR ITEMS SALE FP”, “FULL YEAR ITEMS SALE BC” data sets
2. Association rules done using SAS Enterprise Miner
3. Link Graph from the association rules is shown below

For this link graph, the layout of the node uses spring force where each linkage is treated as a
spring until the graph is stabilized. The color of the node indicates the number of item sold,
where blue circles indicate lower sales, while red indicates higher sales. The linkages strength
are determined by the confidence of the rule.

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The above five cluster are chosen as the bundle as they are related. The center part of the graph is
intentionally avoided due to spillover effect.
Appendix C (Assumptions, methodology and tables for selecting SKU to discontinue)
Assumptions:
● All SKUs existed since August 2014
● For the “mg_sales_flat_order_item” data set, quantity sold = <qty_ordered> -
<qty_cancelled> - <qty_refunded>
Methodology:
1. Converted “mg_sales_flat_order_item” into xml format
2. Created new variable <Quantity sold> = <qty_ordered> - <qty_cancelled> -
<qty_refunded> in “mg_sales_flat_order_item”
1. Created new variable <month> and <year> in “mg_sales_flat_order_item”
2. Pivot table created to count sum of items sold per month
3. Averaged sales data for online channel by removing August 2014 and December 2016 as
they are incomplete, and adding the Dec 16 and Jan 17 data from
“historical_sales_online_and_SKU”
4. Calculated average sales for FP and BC, disregarding December 16 data for BC as it is
incomplete
5. Aggregated averages to get monthly average sales for SKU for all channels
6. First, there are 80 SKUs with AMS = 0 which would definitely be discontinued out of the
275 SKUs. We then compared MOQ to 18*AMS which would discontinue 77 out of 275
SKUs.

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Exhibit 1: Discontinued SKUs because average monthly sales = 0
Discontinued as AMS=0
2051 2129 2160 5569 7967 9147 91512 91562
2060 2130 2167 6002 7970 9157 91521 91571
2069 2137 2169 7677 7979 9167 91522 91572
2100 2139 2769 7799 8020 9177 91531 91580
2107 2140 3110 7920 8029 9187 91532 91587
2109 2147 3119 7927 8737 9908 91541 91641
2110 2149 3140 7929 9107 9940 91542 91651
2117 2150 3149 7930 9117 91501 91551 91661
2119 2155 3357 7937 9127 91502 91552 91671
2120 2159 3707 7939 9137 91511 91561 92063

Exhibit 2: Discontinued SKUs as Minimum Order Quantity > 18*Average Monthly Sales
Discontinued as MOQ>18*AMS
1059 3609 6137 7667 7747 7867 8727 9159
1259 3709 6217 7669 7749 7880 8729 9169
1359 5009 7607 7679 7789 7969 8747 9179
1469 5209 7609 7687 7807 8509 8749 9189
1907 5579 7617 7689 7809 8519 8760 9945
2330 5709 7619 7697 7819 8529 9109 90530
3109 5809 7629 7699 7837 8707 9119 91589
3257 5909 7639 7717 7839 8709 9129
3259 6009 7647 7719 7847 8717 9139
3359 6107 7649 7729 7857 8719 9149

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Appendix D (Methodology for Sales Forecast)
Online Forecasts using 3-month Moving Average

We used the linear regression model (Y = 19.583X + 1631.8) to predict sales:

Projected 6M sale (Jan 2017 - Jun 2017) = 19.583 * (28 + 29 + 30 + 31 + 32 + 33) + 1631.8 * 6
= 13374.489 Units
12M sales (Year 2017) = 19.583 * (28 + 29 + 30 + 31 + 32 + 33 + 34 + 35 + 36 + 37 + 38 + 39)
+ 1631.8 * 12 = 27453.966 Units
18M sales (Jan 2017 - Jun 2018) = 19.583 * (28 + 29 + 30 + 31 + 32 + 33 + 34 + 35 + 36 + 37 +
38 + 39 + 40 + 41 + 42 + 43 + 44 + 45) + 1631.8 * 18 = 42238.431 Units
Retail Forecasts Using 3-month Moving Average

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 Coefficie Standard t Stat P-value Lower Upper Lower Upper
nts Error 95% 95% 95.0% 95.0%
Intercept 955.8363 18.7372 51.01277 4.85E-20 916.3042 995.3683 916.3042 995.3683
X Variable 0.847953 1.643361 0.515987 0.612509 -2.61923 4.315141 -2.61923 4.315141

The formula for linear regression of 3-month moving average is Y = 0.848X + 953.29, implying
that sales increase for less than 1 unit every month. However, the p-value for X variable is
0.612509, which is insignificant at 5% level of significance. Therefore, we conclude that there is
no significant relationship between sales units and time series and consequently, we assume that
sales are consistent for every month. Based on the information, we decided to assume constant
sales level (average sales from Jan 2016 to Nov 2016 = 958.09 Units) when making predictions.
Projected 6M sale (Jan 2017 - Jun 2017) = 958.09 * 6 = 5748.54 Units
12M sales (Year 2017) = 958.09 * 12 = 11497.08 Units
18M sales (Jan 2017 - Jun 2018) = 958.09 * 18 = 17245.62 Units

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Appendix E (Top 10 SKU requiring 3* (3SMA)

Exhibit 1: Top 10 SKU requiring 3* (3SMA)

Appendix F (Map plot)

Exhibit 1: Plot of customer addresses (Singapore)

Exhibit 2: Estee Lauder store locations (Singapore)

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Exhibit 3: Kiehl’s store locations (Singapore)

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 BC3406 TEAM 06
Ang Boon Ping (U1310951H)
He Linglu (U1410267C)
Peng Yi (U1410935G)
Zhou Jing Yuan (U1320538J)

Solu%ons Just For You

Agenda
Strategy for Combina%on of Products

SKUs to be discon%nued

Forecast of Sales

Stock Replenishment Models

A New Flagship Store: Paula’s

Choice’s Next Chapter
 01

Strategy for Combination of Products

Calm Sensi-ve Skin Recovery Extra Strength Repairing & An--Aging and
Bundle Bundle Acne Treatment Treatment Bundle Repair Bundle
Oily/Combina-on Bundle for Men

Boost Sales Increase Exposure

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SKUs to be Discontinued

Average Monthly Sales (AMS) = 0 or Minimum Order Quan-ty
(MOQ) > 18*AMS
List of 80 products discontinued as AMS=0 List of 77 products discontinued as MOQ>18*AMS
2051 2129 2160 5569 7967 9147 91512 91562 1059 3609 6137 7667 7747 7867 8727 9159
2060 2130 2167 6002 7970 9157 91521 91571 1259 3709 6217 7669 7749 7880 8729 9169
2069 2137 2169 7677 7979 9167 91522 91572 1359 5009 7607 7679 7789 7969 8747 9179
2100 2139 2769 7799 8020 9177 91531 91580 1469 5209 7609 7687 7807 8509 8749 9189
2107 2140 3110 7920 8029 9187 91532 91587 1907 5579 7617 7689 7809 8519 8760 9945
2109 2147 3119 7927 8737 9908 91541 91641 2330 5709 7619 7697 7819 8529 9109 90530
2110 2149 3140 7929 9107 9940 91542 91651 3109 5809 7629 7699 7837 8707 9119 91589
2117 2150 3149 7930 9117 91501 91551 91661 3257 5909 7639 7717 7839 8709 9129
2119 2155 3357 7937 9127 91502 91552 91671 3259 6009 7647 7719 7847 8717 9139
2120 2159 3707 7939 9137 91511 91561 92063 3359 6107 7649 7729 7857 8719 9149
 03

Online/Retail Forecasts
Forecast Equa%on for Online Sales Forecast Equa%on for Retail Sales
3000 1400

2500 1200

1000
2000
y = 19.583x + 1631.8 y = 0.848x + 953.29
800
1500
600
1000
400

500 200

0 0
Months Months

Sales 3.per.Mov.Avg(Sales) Linear (3.per.Mov.Avg(Sales)) Series1 Series2 Linear (Series2)

Projected 6M sale (Jan 2017 - Jun 2017) = 13374.489 Units Retail sales es%mate to be constant = 958.09 Units

12M sales (Year 2017) = 27453.966 Units Projected 6M sale (Jan 2017 - Jun 2017) = 958.09 * 6 = 5748.54 Units

18M sales (Jan 2017 - Jun 2018) = 42238.431 Units 12M sales (Year 2017) = 958.09 * 12 = 11497.08 Units
18M sales (Jan 2017 - Jun 2018) = 958.09 * 18 = 17245.62 Units

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Stock Replenishment Models

Desired Inv.
Safety Stock (1 month)

Cycle Stock (1 month)

Es%mated Inv.
Current month inventory + orders made previously

Order = Desired Inv. –

Projected sales current month next 2 months
Es%mated Inv.

Purchase model from HQ: Units to order = 5 * (3SMA) - Current Inventory - Incoming inventory
from orders made previously. If units to order<0, do not order; and if units to order<MOQ, order at
MOQ.
Stock replenishment model for Store BC, FP, Online Channels: Units to order = 2*(3SMA) – Current
Inventory

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A New Flagship Store - Paula’s Choice’s Next Chapter

Accessibility &
Human Traffic
Brand Posi-oning
& Targe-ng Audience

A MUST
HAVE
Compe-tors
ION Orchard Singapore
Address Exis-ng
Customers
 Thank you

NTU TEAM 6 @NTU TEAM 6 NTU TEAM 6 TEAM6@mail.com