Decide whether to keep a negative-margin promotion
Problem Description
A retail team is currently running a Mulch promotion where the discounted price is below the unit cost, resulting in a negative unit margin. As an analyst, you are tasked with recommending whether to continue, modify, or stop this promotion.
Available Data
- Historical transaction data: Includes basket-level purchases (items, quantities, prices), customer identifiers for a subset of sales (some are anonymous), store/region, and date.
- Promotion metadata: Details such as start/end dates, discount level, and eligible SKUs.
- Cost data: Available at the SKU level, though it may be noisy and/or delayed.
Key Questions
- What analyses would you perform to determine if the promotion is worth continuing?
- Propose a primary metric, diagnostic metrics, and guardrail metrics. Explain the tradeoffs associated with each.
- How would you estimate incrementality (distinguishing it from effects like cannibalization, stockpiling, or seasonality)? Provide at least one experimental and one observational approach.
- If leadership ultimately decides to continue the negative-margin promotion, list plausible strategic reasons that could justify this decision and describe what data would be needed to validate each reason.
Important Considerations
State any assumptions you need to make and explicitly call out major risks, such as confounding variables, limitations due to missing customer IDs, or potential supply constraints.
AI interview prep
Core dilemma
Quantifying the true net financial impact of a loss-leading promotion amidst complex behavioral effects (cannibalization, incrementality, stockpiling) and significant data limitations (noisy costs, partial customer IDs).
3 tradeoffs and 3 stress tests locked
Interview prep
Unlock the interviewer X-Ray rubric, tradeoff matrix, stress tests, clarifying questions, and key concepts.
Decide whether to keep a negative-margin promotion
Problem Description
A retail team is currently running a Mulch promotion where the discounted price is below the unit cost, resulting in a negative unit margin. As an analyst, you are tasked with recommending whether to continue, modify, or stop this promotion.
Available Data
- Historical transaction data: Includes basket-level purchases (items, quantities, prices), customer identifiers for a subset of sales (some are anonymous), store/region, and date.
- Promotion metadata: Details such as start/end dates, discount level, and eligible SKUs.
- Cost data: Available at the SKU level, though it may be noisy and/or delayed.
Key Questions
- What analyses would you perform to determine if the promotion is worth continuing?
- Propose a primary metric, diagnostic metrics, and guardrail metrics. Explain the tradeoffs associated with each.
- How would you estimate incrementality (distinguishing it from effects like cannibalization, stockpiling, or seasonality)? Provide at least one experimental and one observational approach.
- If leadership ultimately decides to continue the negative-margin promotion, list plausible strategic reasons that could justify this decision and describe what data would be needed to validate each reason.
Important Considerations
State any assumptions you need to make and explicitly call out major risks, such as confounding variables, limitations due to missing customer IDs, or potential supply constraints.