Multi-class vector autoregressive models for multi-store sales data

Ines Wilms, Luca Barbaglia and Christophe Croux

No 540947, Working Papers of Department of Decision Sciences and Information Management, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Decision Sciences and Information Management, Leuven

Abstract: Retailers use the Vector AutoRegressive (VAR) model as a standard tool to estimate the effects of prices, promotions and sales in one product category on the sales of another product category. Besides, these price, promotion and sales data are available for not just one store, but a whole chain of stores. We propose to study cross-category effects using a multi-class VAR model: we jointly estimate cross-category effects for several distinct but related VAR models, one for each store. Our methodology encourages effects to be similar across stores, while still allowing for small differences between stores to account for store heterogeneity. Moreover, our estimator is sparse: unimportant effects are estimated as exactly zero, which facilitates the interpretation of the results. A simulation study shows that the proposed multi-class estimator improves estimation accuracy by borrowing strength across classes. Finally, we provide three visual tools showing (i) the clustering of stores on identical cross-category effects, (ii) the networks of product categories and (iii) the similarity matrices of shared cross-category effects across stores.

Keywords: Fused Lasso; Multi-class estimation; Multi-store sales application; Sparse estimation; Vector AutoRegressive model (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-com, nep-ecm and nep-ets
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Published in FEB Research Report KBI_1617

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Related works:
Journal Article: Multiclass vector auto‐regressive models for multistore sales data (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ete:kbiper:540947

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