Exploring the Iowa Liquor Sales data set.

## Exploratory data analysis

### Taking a closer look at the data

#### Who drinks the most?

#### Who are the top 10 vendors in Iowa?

ID | Sales (Millions of $) | Vendor |
---|---|---|

260 | 307.54 | Diageo Americas |

370 | 103.29 | Pernod Ricard USA/Austin Nichols |

65 | 100.22 | Jim Beam Brands |

434 | 96.61 | Luxco-St Louis |

115 | 85.89 | “Constellation Wine Company, Inc.” |

85 | 80.92 | Brown-Forman Corporation |

421 | 79.48 | “Sazerac Co., Inc.” |

35 | 67.17 | “Bacardi U.S.A., Inc.” |

395 | 47.44 | Proximo |

55 | 46.03 | Sazerac North America |

#### What are Jim Beam’s top selling liquors?

Item ID | Sales (Millions of $) | Vendor ID | Item | Volume (ml) |
---|---|---|---|---|

19068 | 5.39 | 65 | Jim Beam | 1750 |

19067 | 4.9 | 65 | Jim Beam | 1000 |

34578 | 4.33 | 65 | Pinnacle Vodka | 1750 |

15248 | 3.97 | 65 | Windsor Canadian Pet | 1750 |

19066 | 3.9 | 65 | Jim Beam | 750 |

19476 | 3.88 | 65 | Maker’s Mark | 750 |

19477 | 3.82 | 65 | Maker’s Mark | 1000 |

24458 | 3.26 | 65 | Kessler Blend Whiskey | 1750 |

82847 | 3.09 | 65 | Dekuyper Peachtree | 1000 |

10628 | 2.63 | 65 | Canadian Club Whisky | 1750 |

#### What is the price-response for Jim Beam 1750ml?

#### Log-log price-response?

### Taking a closer look at demand (our response)

#### How has demand for Jim Beam 1750ml varied over time?

#### How has change in demand varied over time?

#### Comparing demand, % change, and log diff distributions.

#### How has demand varied month-to-month?

#### How has change in demand varied month-to-month?

### Taking a closer look at price (our predictor)

#### How has price for Jim Beam 1750ml varied over time?

#### How has change in price varied over time?

#### Comparing price, % change, and log diff distributions.

#### How has price varied month-to-month?

#### How has change in price varied month-to-month?

## Developing a demand model

### Modeling approach

We take month (one hot encoded) and log price as our features or predictors. We take log demand as our response. Then we fit a regression model using linear least squares with L2 regularization (i.e. ridge regression).

### Hyperparameter tuning

### Residual analysis

### Error

RMSE Mean = 779 Bottles

## Inferring seasonality and price elasticity

### Seasonality coefficients

### Price elasticity coefficient

Price Elasticity of Demand (PED) = -0.02

PED = % Change in Quantity Demanded / % Change in Price

Therefore,

% Change in Quantity Demanded = PED x % Change in Price

So a +1% change in price will only result in a (-0.02) x 1% = -0.02% change in demand (very inelastic).

Therefore, it’s no wonder Jim Beam has continued to raise prices and stopped offering promotions all together in 2016.