Maroon 5 (M5), Inc., based in Santa Monica, CA, is a leading producer and marketer of household cleaning products. About…

Maroon 5 (M5), Inc., based in Santa Monica, CA, is a leading producer and marketer of household cleaning products. About a year ago, M5 rolled out its new “Super Cleaner” in 90 regional markets following some success in few test markets. M5 claims that this isn’t just a “me too” product in a market that is saturated with cleaning products. At the time of the introduction, M5 management wondered whether the company could successfully crack this market dominated by Johnson & Johnson and other big players. The following is the demand /regression estimation results for M5’s new cleaning product, Super Cleaner, in these 90 regional markets where the quantity demanded, QD, is measured in number of cases sold, Px is Super Cleaner price per case in dollars, Py is main competitor’s price per case in dollars, Ad is dollars spent on advertising, and I is household income: Regression Statistics R Square 90.4% Standard Error 34.97 Observations 60 Coefficients Standard Error t Stat P-value Intercept 807.938 137.846 5.86 4.09301E-06 Price, PX -5.034 0.457 -11.02 4.34134E-11 Competitor Price, PY 4.860 1.006 4.83 5.73825E-05 Advertising, Ad 0.328 0.104 3.14 0.004293208 Household Income, I 0.009 0.001 7.99 2.38432E-08 A. Briefly describe the statistical significance of each individual independent variable and characterize the overall explanatory power of this multiple regression model. B. Assume that PX (own price) = $127, PY (competitor’s price) =$87, Advertising, Ad. = $870, and Household Income, I=$46,788. Estimate all point elasticities (i.e., own price, eP, cross-price elasticity, eXY, advertising elasticity, eAd, and income elasticity, eI ). Interpret your results.

 

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