Example of a Linear Regression Application, Essay Example

Linear regression is a technique where, “a straight line is fitted to a set of data points to measure the effect of a single independent variable. The slope of the line is the measured impact of that variable.” (WebFinance, Inc. ) In short, it correlates the change of a variable to that of one or more other variables. A linear regression formula looks like this: Y=a+bx+cz. This is the best method for predicting results, however linear regression modeling always assumes some random error as a normal occurrence.

Linear regression can be applied to business in a variety of ways. Models can be applied to assist in identifying the factors that drive business demand and the relative importance of each driving factor. Once driving factors for business demand have been identified, linear regression models can be further applied to estimate future driving demands. Another useful purpose of linear regressions is to simulate how changes to the factors will affect business demand. Some real-world examples include predicting how a drop in the stock market would affect vehicle sales where the main marketing ploy was highlighting the prestige associated with the model, or estimating how unseasonably cool temperatures could affect icecream sales. A specific example of how linear regression applications are used to simulate the effect of changes to factors driving business demands is called Marketing-Mix Modeling. (Joseph) Of interest is a case study I found that details just how Marketing-Mix Modeling and linear regressions can be applied to simulate future impact on a business. The case study can be found at http://metriscient.com/marketing_mix_analysis_case_study.pdf . In this particular case the client wanted to know how their marketing investments would play out concerning the Consumer Purchase Funnel and their total brand sales. The case study goes on to explain the methodology of how linear regression was applied and provides graphs and charts to detail the results.

Bibliography

Joseph, Joy V. MetriScient. 2010. 3 August 2010 <http://metriscient.com/linreg.htm>.

WebFinance, Inc. . InvestorWords.com. 2010. 3 August 2010 <http://www.investorwords.com/2829/linear_regression.html>.