Regression Analysis — Dummy Variables
When an independent variable is nonmetric (e.g., seasonality), and has k (two or more) categories, it can be represented by k-1 dummy variables.
For example, the coding of in-store causal influences like display and co-op advertising can be captured with the use 3 dummy variables:
- Display only. (No co-op): D1=1, D2=D3=0.
- Co-op, no display: D2=1, D1=D3=0.
- Display + co-op: D3=1, D1=D2=0.
- The 4th option, no display and no co-op, is represented by D1=D2=D3=0.
The impact of dummy variables is reflected in the change of intercept (b0). For instance, consider the relationship between sales and discount price. The x-coefficient (b1 = discount price elasticity) remains unchanged when there is a display. The impact of an in-store display is reflected in an incremental lift in sales, referred to as uplift.
Previous Next
Use the Search Bar to find content on MarketingMind.
Marketing Analytics Workshop
In an analytics-driven business environment, this analytics-centred consumer marketing workshop is tailored to the needs of consumer analysts, marketing researchers, brand managers, category managers and seasoned marketing and retailing professionals.
Digital Marketing Workshop
Unlock the Power of Digital Marketing: Join us for an immersive online experience designed to empower you with the skills and knowledge needed to excel in the dynamic world of digital marketing. In just three days, you will transform into a proficient digital marketer, equipped to craft and implement successful online strategies.
