4. Methodology 4.1 Estimation of Parameter of Space elasticity demand ‘The log linear function is a common function taken for representing demand, ‘The function will be of the form D=asf (x) where ais some Sacle constant and f(xais a multiplicative function of variables af fecting the demand. For demand which is assumed to be dependent only on space and cross space elasticity, the function will be of the form Dy =a* (S)% + TiS)... oA), a = Latent demand for product i, S; = Space allocated to product i, Sj = Space allocated to product j. a = Direct Space elasticity of demand for product i,and By = Cross space elasticity of demand of product i w.r.t product j The expression is similar to the expression used by (Marcel Corstjens & Doyle. 1981), ‘The given function can be converted in log-linear function by taking log on both sides, The resulting equation will be InD, = Inat alnS;+ TPB, * VS) oes wT) 30For a function like this, the coefficients of the terms are also the coefficients of the elasticity of demand w.r.. that variable. Partially differentiating both sides w.r.t5;, we get 10D, 1 eS aries Ds SH S,ODi Das, WH which is nothing but the direct space elasticit ty of demand. nilarly if we differentiate the expression (7) with respect to S), we get 1aD; 1 at gee Das, eS 9) Equation (9) is the expression for the cross space elasticity of demand of product i wart, product j. The last expression concludes that if we run a log linear regression, the coefficient of any of the variable is the coefficient of variable elasticity of demand. 4.2 Estimation of parameters of Utility based model ‘The utility based model is based on the research finding of many researchers that consumers some initial decision like selection of stores or product categories and then they make decision on the selection of product and number of SKU’s to be purchased (Lehmann, 1991). It is a type of sequential or hierarchical decision making. The total demand in this model can be written as D = K(PQ), (10) 31where K is the number of customers visiting the store per day, & PQ = Average number of purchase of a particular product per customer Then imber of customer visiting the store K can be ean be expressed as K = 9+ f(T, Dy, P,Ne), -..(KOk & Fisher, 2007)... (al) where @ = Scale constant T = Temperature of the day Dy = Day of the week & P = Average Promotion & N- = Number of counters Operational on a given day Average number of purchase can be written as PQ=n*peq, (12) where Probability of a visitng customer purchasing from given category p = Probability that a given product is chosen from the given category. & q = average quantity of purchase of product chosen Purchase incidence from the category 1 is modelled as a binary choice as. T= > (McFadden, of al, 1973) oncom Tre vere 13) Where a = expected utility of category. a can furthur be modelled as a linear function of various demand drivers. 32‘The equation (13) can be re-written as 1 1-4 inal (14) Dividing equation (13) by (14) we get. ee C3 ware (1s) ‘Taking log, we have Log (5) a (16) The expected utility of the category « is modelled as a linear function of various demand drivers for the subcategory like temperature, days of the week, number of counters operational on any day and average promotion on the given eategory. « can be written as aay +¥2tT +73 Dy t¥e*N +¥_+P (Bucklin & Gupta, 1992)...(17) We can compute 7, the probability of purchase incidence for the subcategory, from sales data as the ratio of the number of customers who bought any product in the given category to the number of customers who visited store on any day. Further, the product choice can be modelled with the MNL framework. The probability of selection a given product is given by 4 pS)= 2 4 (1g) : Exes) I As earlier modelling for purchase ineidence, we ean write Pi) _ Log (2) =y. (19) The utility derived from a given product w can be modelled as a linear function of variables like temperature, days of the week, difference in price of the product and the average price of products in the category and number of personnel’s helping or promoting the product at the product counter. u can be written as 33yy = by + 02 *T + 55 # Dy + 5g * Py + 55.(Cooper & Nakanishi, 1988)....(20) Probability of purchasing a given product can be obtained as the ratio of total number of product sold and the total number of person who bought something from the category. ‘The average quantity purchased by a customer, q can be obtained as the ratio of number of units of a given products sold to the number of person who bought anything in the given product category. Also, q can be modelled as a linear funetion of variables like temperature, day of the week and number of personnel’s helping or promoting the product at the product counter Gy = Oy + Oy FT +03 + Dy + 04 ¥N. ...(Chintagumta, 1993). .-eonee(21) As we will be able to estimate all the expression as stated above, we can calculate the demand of the product at a given store. The demand of the product can be calculated as DPy= Kenedy (22) From the earlier work is concluded that price, days of the week and consumer service are important variables in the selection of the store and purchase from a given store, 4.3 Data Collection The present work is an exploratory research, The cross-sectional data was collected from a hyper store located in the eastern part of the country. The store is a part of a company dealing in retail business and has almost 200 stores across India including hypermarkets and superstores, The company has almost 2 million customers per month around the country. The store selected for study is spread in almost 20000 square feet of area and carries almost 60000 SKU’s. 34‘The data was collected for a period of three months from February 2013 to April 2013. Ideally a variety of products should be tested but we narrowed down to the product categories which satisfies the following criteria. The number of product during the study period in the category did not increase or decrease, The price withis the category is not going to change appreciably during the study period. The selection was also from the retailer’s categorization of the product as food and non food item. The frozen food products were discarded on the basis of limited shelf space availability. Small sized products were discarded as it was difficult to capture data for them, Based on these criteria, the two categories viz, 600 ml pet bottled soft drinks from food and mosquito repellents from non food category were chosen. The presence of competing products taking almost equal space and having prices almost similar also makes consumer substitute their initial preference. Also, these products are sometimes instantaneous purchases For space elastic demand model, the demand was taken from the POS data, For space allocation, the data was recorded on daily basis. No interference was made into the daily working of the staff members. The spaces allocated to the products were recorded every day. Once the shelves were arranged in the moming, no refilling was done throughout the day. The monitoring of the shelves in some products is done two folds, The store staff and the staff from the company keep an eye on the stocks and the sales. But this was only in some produets and not on every product. For the MNL model, the number of customers entering in to the store was taken from the records of the person at the entry of the store. A single entry system is followed by the store, The person at the entry carries a machine and as and when someone enters into the store, the counter i moved by him. The number of billing of the store was recorded from the POS data which also included the number of bill generated for a 35given category and number of person buyi 1g anything from the category and the sub- category. Any promotions made either by the company or the store was recorded, Any in-store advertisement done by the store or supported by the company were also recorded. The other factors recorded were number of billing counters operational each day and the number of personnel at the shelves of each product which is an indicator of the service provided by the store for the customers. The selling price and cost of the product were also recorded and any change in them at any point was recorded. 36