Estimating elasticity and inventory effect for retail pricing and forecasting

A method for estimating an elasticity and inventory effect, the method comprising:

• receiving a sales condition relationship for an item at a store, the relationship comprising an elasticity parameter, an inventory effect parameter and a sales constant;
• receiving a demand model for sales of the item in terms of the elasticity parameter and the inventory effect parameter and a base demand for the item selling at the store;
• estimating the sales constant, the estimating comprising generating a theta parameter by taking logarithms of the sales condition relationship;
• using linear regression to estimate a logarithm of the sales constant and a value of the theta parameter;
• and
• determining a relationship between the elasticity parameter and the inventory effect parameter based on the value of the theta parameter.

A retail pricing optimization system comprising:

• a processor;
• a memory storing instruction modules coupled to the processor;
• the processor receiving a sales condition relationship for an item at a store, the relationship comprising an elasticity parameter, an inventory effect parameter and a sales constant;
• the processor receiving a demand model for sales of the item in terms of the elasticity parameter and the inventory effect parameter and a base demand for the item selling at the store;
• an estimating module for estimating the sales constant, the estimating comprising generating a theta parameter by taking logarithms of the sales condition relationship;
• the estimating module using linear regression to estimate a logarithm of the sales constant and a value of the theta parameter;
• and
• the estimating module determining a relationship between the elasticity parameter and the inventory effect parameter based on the value of the theta parameter;
• and
• a pricing module that determines optimized pricing based on the elasticity parameter and the inventory effect parameter.