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ACCA Strategic Professional · Advanced Performance Management · Technology and information systems

Harbour Foods analyses scanner data and finds that sales of barbecue charcoal and a particular lager are strongly correlated across stores, so it plans to cut lager prices to boost charcoal sales. The finance director warns against this. Which is the best reason for her caution?

Correlation does not prove causation. Hot weather or another hidden factor may be driving sales of both charcoal and lager, so cutting lager prices may not increase charcoal sales. The relationship should be tested further before decisions and budgets are based on it.

  1. ACorrelation does not by itself prove causation, as a third factor such as hot weather may drive both productsCorrect
  2. BBig data analysis cannot identify relationships between products
  3. CCorrelations are only valid when calculated on small samples
  4. DPrice cuts never affect sales of complementary products

Explanation

A strong correlation shows association, not cause. Warm weather could raise both sales, so cutting lager prices may not lift charcoal sales. Large data sets can reveal relationships, large samples do not invalidate correlation, and price effects on related products can exist, so the other options are false.

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