Market Basket Analysis

Market Basket Analysis (MBA): Overview

When a customer visits a retailer, it picks up a few items or product and walks to the till machine for bill payment. The group of items bought together by the customer is called a basket. The same concept can be applied when a customer buys items online (over the website). The term commonly used is cart.

Due to increased competition & customer expectation and reduced level customer loyalty, the retailers (both brick & mortar and ecommerce) are leveraging data analytics & insights for competitive advantages.

Market Basket Analysis (also referred as affinity analysis or association analysis) is one of the commonly used methods to understand customer shopping behaviors and product association, which are the products bought together.

Using Market Basket Analysis (MBA) of the customer purchase data, we could find our group of items typically bought together. MBA gives a list of association rules or product associations, which can help management in assortment planning and promotion decisions.

Next level of sophistication will involve :-

Understanding sequence of items in a basket :

Which item is bought first and is a particular product purchase drive purchase of another product?

Seasonal Sequence and Association :

How product associations and sequence vary across seasons?

Customer Life Stage :

Typically, retailers do not keep customer information except the transaction data. Loyalty card has helped the retailers in consolidating information about the customers and their shopping behaviors across visits. One of the most successful examples is Tesco Club card, which has helped Tesco in leveraging customer shopping pattern for increasing repeat purchases. Customer and purchase data can help in finding out, how product associations and sequence vary by customer life stage?

Insights developed from Market basket Analysis have been used for various key decisions.

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Some of the key advantages of Market Basket Analysis are:-

Product Promotions :

Based on product associations, various product promotions are created to solicit the customers.

Right product bundling :

A retailers gives an offer if certain products bought together, this is called product bundling. The product bundling can be driven based on MBA insights. Right product bundling decisions could drive sales of non-moving items.

Create Cross Sell :

Retailers could come up with creative cross campaigns based and test the ideas on what could work well for some segments.

Driving Customer Loyalty :

Linking market basket and customer life stage could help in driving spend across categories and also level of spend.

Appropriate Store Layout :

Considering insights on products bought together, the store managers could decide on the location of the items bought in a basket.

Smart Assortment Planning :

A new “Know” of product sales correlation or association, the planning manager can incorporate product associations in assortment planning – which product SKUs to be ordered and in what quantity.

Application of Market Basket Analysis in other industries :-

  • Credit Card and Debit Card purchase data can be analyzed using MBA to understanding customer shopping pattern
  • Financial Product Associations and Product Bundling: finding out likelihood of customers taking up two or more product together. Should Personal Loan and Credit Card be promoted together or Credit Card and Saving Account? These type of product bundling decisions can be made based on Market Basket Analysis (MBA) and contribute significantly to banks profitability.
  • Identifying call sequences leading to customer closing the relationship in Financial Services
  • Value added product taken together in Telecom