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Model Validation - Practical Exercises
Elsa Wong
Created on March 7, 2025
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Model Validation Practical Exercises
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Exercise 3: Base Price Elasticity
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Exercise: Identifying Incorrect Elasticities You have been provided with a list of elasticity values from the FMCG sector. Your task is to identify which of these values do not make sense based on what you know about typical elasticity ranges.
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Instructions: Review the elasticity values provided. Identify any values that are unrealistic or incorrect based on typical expectations for elasticity in the FMCG sector.
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Exercise 3: Promo Price Elasticity
Title Top
Exercise: Identifying Incorrect Elasticities You have been provided with a list of elasticity values from the FMCG sector. Your task is to identify which of these values do not make sense based on what you know about typical elasticity ranges.
4.78cm
Content Top
0 cm
6.35 cm
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Instructions: Review the elasticity values provided. Identify any values that are unrealistic or incorrect based on typical expectations for elasticity in the FMCG sector.
7.54 cm
Image Bottom
Middle 0cm
15.93cm
15.93 cm
Left Margin
Right Margin
0.26cm
0.26cm
Exercise 4: Baseline
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Exercise 5: Baseline
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Exercise 6: Baseline
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Exercise 3: Promo Price Elasticity - Corrected
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Exercise 3: Identifying Incorrect Elasticities
Solution
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Promo Price Elasticity Values:
- -0.9: Reasonable, indicating moderate elasticity.
- -1.8: Reasonable, suggesting high elasticity.
- -3.0: Unusual, as it indicates extremely high elasticity; promo price elasticity rarely exceeds -2.
- 1.5: Incorrect, as elasticity should be negative, reflecting the inverse relationship between price and demand.
- -0.6: Reasonable, indicating moderate elasticity.
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Exercise 3: Base Price Elasticity - Corrected
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Exercise 3: Identifying Incorrect Elasticities
Solution
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Base Price Elasticity Values:
- -0.5: Reasonable, indicating inelastic demand.
- -1.3: Reasonable, indicating elastic demand.
- -2.5: Unusual, as it suggests very high elasticity; typically, base price elasticity ranges between -1 and -2.
- -0.8: Reasonable, indicating inelastic demand.
- 0.2: Incorrect, as elasticity should be negative, reflecting the inverse relationship between price and demand
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Exercise 4: Baseline - Corrected
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Answer: The baseline is too high in the black quadrant; it should align more closely with sales when no promotion is played.
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Exercise 5: Baseline - Corrected
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Answer: At the end of the scope, the baseline should decrease more rapidly to zero. This is a common issue encountered when reviewing the modeled baseline, and you should coordinate with your Data Analyst to address and resolve it.
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Exercise 6: Baseline - Corrected
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Answer: The baseline is incorrectly following sales as if no promotion is occurring, which should not be the case. You need to inform your Data Analyst to address this issue.
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