METHOD FOR ASSIGNING RETAIL UNITS TO ECONOMIC MARKETS

A method of grouping retail units of a set of units in a chain uses store and market-specific characteristics, including store profitability, to group stores into like economic markets. The relation between profits and prices defines markets; stores facing the same relation, that is the same profit function, are in the same economic market. These stores can follow similar pricing and promotion strategies. Multiple regression analysis is used to identify those characteristics that affect the relation between prices and profits (not simply variables correlated with profits). Upon suitable standardization and weighting, these variables are subsequently used with a statistical cluster analysis to classify units in two markets. Based on the estimated relationship and homegenity valuations from discriminant analysis, new stores can be more accurately added to the appropriate group.