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Lesson

8. Design an experiment around the market

Model demand, separate the causal response, and optimise within supported limits.

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Prices can affect neighbouring products, customer search and a competitor's response. A customer may also wait to buy until the next price change. Choose an assignment unit that contains the important interference: store, market or category clusters may work better than randomising each visit. If time switchbacks fit, randomise the blocks and allow for carryover, washout and replenishment cycles. Bojinov, Simchi-Levi and Zhao study switchback design under carryover assumptions. Simply alternating prices by day is not a valid randomised design.

Write a pre-experiment memo covering the action grid, allocation unit, primary profit metric, minimum detectable effect, number of independent clusters or blocks, duration, return-maturity window, customer-policy constraints and stop rules. Keep the same primary analysis if results disappoint. Analyse cross-item effects at category or market level when that is the business objective. A short-run best response to competitors differs from a lasting market effect, as competitors may react after the first test.

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