Advantages of Market Basket Analysis
|S No||Advantages of Market Basket Analysis|
|1.||Helps in Setting Prices|
|2.||Arranging SKU Display|
|4.||Identifying Sales Influencers|
What is Market Basket Analysis
Market basket analysis is a technique primarily used by retailers to understand customer purchasing patterns better in order to increase sales. Market basket analysis involves analyzing large datasets such as purchase history, customer buying behavior, to reveal valuable insights, such as product groupings, that optimize sales for retailers.
The Objective of Market Basket Analysis
The main objective of market basket analysis is to identify products that customers want to purchase. Market basket analysis enables sales and marketing teams to develop more effective product placement, pricing, cross-sell, and up-sell strategies.
Market Basket Analysis in the F&B Industry
Recent advancements in data analytics technology have opened up a world of possibilities for players in the food and beverage sector to increase their operational efficiency and delight their customers. The advancements have increased to such a level that data scientists have been able to create algorithms that accurately predict the next group of items you are about to buy based on a certain group of items that were previously purchased. For instance, people who buy beer and plastic mugs are more likely to buy chips as their next item.
Similarly, retailers can create relationships between specific items and accurately predict which items will be purchased next by assigning a certain level of probability. Market basket analysis can be used effectively to increase the overall spending from the customer by placing complimentary items close together or bundling such items at a discounted price.
Did you know? Market basket analysis empowers retailers to better understand their customers by analyzing and predicting their purchasing behaviors. Request a free proposal to know more about market basket analysis.
Advantages of Market Basket Analysis
1. Helps in Setting Prices
Market basket analysis helps a retailer to identify which SKUs are more preferred amongst certain customers. For instance, milk powder and coffee are frequently bought together, so analysts assign a high probability of association compared to cookies. Without market basket analysis retailers would usually markdown on coffee on certain days, assuming coffee will be sold at certain times. However, market basket analysis can point out that whenever a customer buys milk, they end up purchasing coffee as well. So whenever the sale of milk and coffee is expected to rise, retailers can mark down the price of cookies to increase the sales volume.
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2. Arranging SKU Display
A common display format adopted across the supermarket chains is the department system, where goods are categorized as per department and sorted. For instance, groceries, dairy products, snacks, breakfast items, cosmetics, and body care products are properly classified and displayed in different sections. Market basket analysis helps identify items that have a close affinity to each other even if they fall into different categories. With the help of this knowledge, retailers can place the items with higher affinity close to each other to increase the sale. For instance, if chips are placed relatively close to a beer bottle, customers may almost always end up buying both. In contrast, if they were placed in two extremes, then the customer would just walk in the store buy beer and leave the store causing lost sales of chips.
3. Customizing Promotions
Marketers can study the purchase behavior of individual customers to estimate with relative certainty what items they are more likely to purchase next. Today, many online retailers use market basket analysis to analyze the purchase behavior of each individual. Such retailers can estimate with certainty what items the individual may purchase at a specific time. For instance, a customer fond of barbecues would likely purchase meat and barbecue sauce on some weekends. So retailers can customize offers to create a combo of 2lbs of meat with one pack of barbecue sauce at a discounted price every weekend to increase his purchase frequency.
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4. Identifying Sales Influencers
All items in a retail store have some relationship with each other – be it strong or weak. In most cases, the sale of one item is driven by the increase or decrease in the sale of other items. Market basket analysis can be used to study the purchasing trend of a certain SKU. Two SKUs can exhibit a strong affinity for a period of time and suddenly decrease because of various factors ranging from an increase in the price of one SKU, a new brand introduction, or the unavailability of a certain brand in the SKU. For instance, if Corona is the favorite beer among the consumers, and the brand is suddenly removed from the beer SKU, the sales of chips will go down as well, even though the sales of other beer brands are steady. This way marketers can understand the influence of such activities on the sales figure.
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