SYSTEM AND METHOD FOR MODELING DEMAND AND OPTIMIZING PRICES WITH IMMUNITY TO OUT-OF-STOCK EVENTS

• US 20130325551A1
• Filed: 06/05/2013
• Published: 12/05/2013
• Est. Priority Date: 06/05/2012
• Status: Abandoned Application

• Current Assignee: Clear Demand, Inc.
• Original Assignee: Clear Demand, Inc.
• Inventors: Rosenberg, Adam N.
• Application Number:
  US13/911,021
• Publication Number:
  US 20130325551A1
• Time in Patent Office: Days
• US Class Current: 705/7.31
• CPC Class Codes: G06Q 30/0202 Market predictions or forecasting for commercial activities
• CPC Class Codes: G06Q 30/0206 Price or cost determination based on market factors

Abstract

The disclosed technology improves the process of generating recommended prices for retail products. First, the present technology makes it possible to model shopper demand when sales data includes time periods with zero unit sales without hypothesizing whether the time periods are out-of-stock events or zero sales. This can be accomplished by applying a truncated Poisson distribution and the Newton-Raphson method to the non-zero unit sales to generate a coefficient vector that maximizes the likelihood of the observations in the sales data. Second, the present technology can be used to generate recommended prices for a group of products that optimize revenue and profit while limiting the number of products that require price changes to a predefined threshold value. This can be accomplished by iteratively replacing a current best value solution with a next best value solution across a collection of product networks until an acceptable number of unchanged prices is achieved.

Claims

1. A computer-implemented method comprising:

receiving sales data for at least one product, in at least one store, across a plurality of time periods, wherein the sales data includes at least one time period with zero unit sales; and

generating, via a processor, a demand model based on the sales data as follows;

applying a truncated Poisson distribution to the sales data to generate a derivative vector D and a Hessian matrix H, the truncated Poisson distribution applied to non-zero unit sales in the sales data; and

applying a Newton-Raphson method using the derivative vector D and the Hessian matrix H to generate a coefficient vector V, wherein the coefficient vector V comprises coefficients for elasticity and quantity factors for product-store combinations.

2. The computer-implemented method of claim 1, wherein multiple iterations of applying the truncated Poisson distribution and the Newton-Raphson occur.

3. The computer-implemented method of claim 1, wherein applying the truncated Poisson distribution to the sales data comprises:

for each product-store combination K and time period T computing a forecast F_KT; and

computing derivatives for elasticity β and

product-store combinations for derivative vector D.

4. The computer-implemented method of claim 1, wherein generating a derivative vector D comprises:

computing a derivative D_β

for elasticity β and

a derivative D_qK for each product-store combination K, wherein

5. The computer-implemented method of claim 1, wherein generating the Hessian matrix H comprises:

computing

6. The computer-implemented method of claim 1, wherein applying a Newton-Raphson method using the derivative vector D and Hessian matrix H comprises:

computing W=V−

H<sup>−

1</sup>D; and

copying W into V when ∥

V−

W∥

>

=ε

.

7. The computer-implemented method of claim 1, further comprising an initial coefficient vector V comprising coefficients for elasticity β

and quantity factors for product-store combinations based on sales history weighted against an assumption that average prices chosen in the sales history are optimal for demand.

8. A manufacture comprising:

a non-transitory computer-readable storage medium; and

a computer executable instruction stored on the non-transitory computer-readable storage medium which, when executed by a computing device, causes the computing device to perform a method comprising;

receiving sales data for at least one product, in at least one store, over a plurality of time periods, wherein the sales data includes at least one time period with zero unit sales; and

generating a demand model based at least on the sales data by iteratively applying;

a truncated Poisson distribution to non-zero unit sales in the sales data to generate a derivative vector D and a Hessian matrix H, and

a Newton-Raphson method using the derivative vector D and the Hessian matrix H to update a coefficient vector V.

9. The manufacture of claim 8, wherein iteratively applying a truncated Poisson distribution and a Newton-Raphson method comprises:

initializing a coefficient vector V;

iteratively updating the coefficient vector V by performing a number of rounds, the number of rounds determined dynamically based on a change in the coefficient vector V, each round comprising;

for each product-store combination K and time period T represented in the sales data with known unit sales, computing a forecast F_KT;

computing for derivative vector D, a derivative D_β

for elasticity β and

a derivative D_qK for each product-store combination K, wherein

10. The manufacture of claim 8, wherein a product-store combination K comprises a collection of products in a price family and a set of stores in a zone.

11. The manufacture of claim 8, wherein the sales data includes inventory data.

12. The manufacture of claim 8, wherein the demand model is used for at least one of price optimization, promotion optimization, markdown optimization, assortment optimization, shelf-space optimization, or retail replenishment.

13. The manufacture of claim 8, wherein the coefficient vector V comprises coefficients for elasticity β

and quantity factors for product-store combinations.

14. The manufacture of claim 9, wherein initializing the coefficient vector V comprises reverse engineering coefficients for elasticity β

and quantity factors for product-store combinations based on sales history weighted against an assumption that average prices chosen in the sales history are optimal for demand.

15. The manufacture of claim 8, wherein the coefficient vector V comprises coefficients for at least one of price, promotional status, seasonality, holidays, trends, or external factors.

16. A system comprising:

a processor;

a computer readable storage medium storing instructions for controlling the processor to perform steps comprising;

receiving sales data for at least one product, in at least one store, across a plurality of time periods, wherein the sales data includes at least one time period with unknown unit sales; and

generating a demand model based at least on the sales data as follows;

iteratively updating a coefficient vector V by performing a number of rounds, the number of rounds determined dynamically based on a change in the coefficient vector V, each round comprising;

for each product-store combination K and time period T represented in the sales data with non-zero unit sales, applying a truncated Poisson distribution to the non-zero unit sales data to generate a derivative vector D and a Hessian matrix H;

applying a Newton-Raphson method step using the derivative vector D, the Hessian matrix H, and a current coefficient vector V to generate a new coefficient vector W; and

computing a difference between W and V, and copying W into V when the difference is greater than a predefined value epsilon.

17. The system of claim 16, wherein applying a Newton-Raphson method step using the derivative vector D, the Hessian matrix H, and the coefficient vector V comprises:

computing W=V−

H<sup>−

1</sup>D.

18. The system of claim 16, wherein the coefficient vector V comprises coefficients for at least one of elasticity, quantity, price, promotional status, seasonality, holidays, trends, or external factors.

19. The system of claim 16, wherein the sales data includes inventory data.

20. The system of claim 16, wherein the demand model is used for at least one of price optimization, promotion optimization, markdown optimization, assortment optimization, shelf-space optimization, or retail replenishment.