Dolores Romero Morales
Autumn 2022
Analytics and Big Data
Final Assignment
You are required to complete the three parts of this assignment. You should submit a single word processed
report consisting of no more than 10 pages, excluding appendices. Please do not submit an Excel spreadsheet.
Part 1 – Garden S.L.
Garden S.L. markets a stew under the brand name “Lentils Tonight” in Spain. This consists of lentils, morcilla
(Spanish black pudding), chorizo (spicy red sausage), onions, garlic, tomatoes, carrots, bay leaves, and paprika
powder.
Lentils Tonight is an established brand, and although its sales are not large, it is a consistently profitable item.
Sebastián Canales has just joined Garden S.L. as brand manager, and Lentils Tonight has been assigned to
him. His first task is to prepare a sales forecast, and a budget for promotion and advertising for the next year.
He collected the historical data. These data included sales of Lentils Tonight, and also the expenditures for
promotion and advertising. Also included is an index of “general economic conditions” in Spain. High values
of the index indicate “good” economic times.
Sebastián was quite puzzled by the great variability in the sales of Lentils Tonight from quarter to quarter, and
also at the great variations in past expenditures for promotion and advertising. There had been a long-standing
dispute in the company about the relative effectiveness of promotion and advertising on Lentils Tonight sales.
His predecessors had tried various different things, but no one had been able to determine what had and what
had not been successful. Some sceptics felt that both promotion and advertising expenditure were wasted,
since neither seemed to affect sales. Others felt that promotion was effective, but the effect was merely to
reduce future sales. That is, they felt that brokers and store managers bought heavily during promotion periods,
and then didn’t order in subsequent periods until inventories were back to normal. The effect of advertising
was equally confusing, since sales seemed to vary greatly even during periods when advertising was relatively
constant.
If this wasn’t confusing enough, the economist in the Economic Analysis Department insisted that Lentils
Tonight was a “counter-cyclical” product, meaning that it sold better in bad times than in good. His theory
was that lentils was a less expensive meal than other meals, and people ate more of it during tough times.
Furthermore, he felt that there was a seasonal pattern in sales, with more being sold during colder months that
in the summer.
The file LentilsTonight.xlsx contains 60 quarterly observations for the following variables:
sales - quarterly sales of Lentils Tonight (thousands of tins)
prom - promotion expenditure in the quarter, adjusted for inflation (thousands of euros)
adv - advertising expenditure in the quarter, adjusted for inflation (thousands of euros)
index - economic index of general economic conditions in Spain
q1, q2, q3, q4 - quarterly dummy variables
The first row of data corresponds to a quarter that includes January, February and March.
Address the following questions, making sure to describe the modeling approach used:
(i) Use least squares regression to model Lentils Tonight sales data. In your report, make sure to diagnose and
interpret your final model.
(ii) For Quarter 61, the company has decided to spend 100,000 euros on promotions and nothing on
advertising. There is uncertainty regarding the value of the economic index for Quarter 61 and the Economic
Analysis Department has forecasted it to be 130. What advice would you give the company regarding the
forecasting of sales for Quarter 61?
(iii) The Economic Analysis Department has also produced a distributional forecast for the economic index
for Quarter 61, i.e., instead of having a point estimate of 130, we have a whole probability distribution at hand.
Explain what tools you would use to advice the company regarding the forecasting of sales for Quarter 61.
Part 2 – Revenue Management
MARE is an airline operating a two-flight network, namely New York-Atlanta and Atlanta-Dallas, to serve three
itineraries, namely New York-Atlanta, Atlanta-Dallas and New York-Dallas. The latter is an itinerary that joins New
York with Dallas, with a stopover in Atlanta. MARE has assigned a 130-seat aircraft to the New York-Atlanta flight
and a 150-seat aircraft to the Atlanta-Dallas flight. The company has a simple pricing scheme based on a full fare,
regular fare, and a discount fare. These fares are determined for each of the three itineraries. Given these fares the
demand realizes. All the relevant information on this airline network can be found in the table below.
Itinerary
New York-Atlanta
New York-Atlanta
New York-Atlanta
Atlanta-Dallas
Atlanta-Dallas
Atlanta-Dallas
New York-Dallas
New York-Dallas
New York-Dallas
Fare Type
Full
Regular
Discount
Full
Regular
Discount
Full
Regular
Discount
Fare Amount ($)
165
120
110
130
120
100
275
220
190
Demand
40
50
70
30
60
90
30
35
40
Address the following questions, making sure to describe the modeling approach used:
(i) Develop an allocation plan that maximizes the total revenue obtained from selling airline tickets.
(ii) Currently, the demand for regular fare for the New York-Atlanta itinerary is equal to 50. Analyze the sensitivity of
the allocation plan that maximizes the total revenue to this figure.
(iii) Discuss a real-world example in which decision-making benefits from the combination of Optimization and Risk
Analysis tools.
Part 3 – Big Data: Opportunities and Challenges
For an industry of your choice, describe an example of the use of Big Data. This can be either one already
implemented or one in development. Provide a critical discussion of the opportunities created and the
challenges posed, and make reference to pertinent academic literature, to support your reasoning.