What’s in Your Basket? Market Basket Analytics Demystified

Posted: September 2011

By Andy Winans, President, QuantiSense

“Market Basket” is a buzzword that’s been circulating around the retail industry a great deal over the past decade – yet, how many retailers are actually using it today? It’s fewer than you think, especially retailers in the specialty store and department store markets. Let’s back up for a moment and talk about what market basket is and what it does. At the most basic level, market basket is a type of analytics that gives retailers visibility into what items are selling together in their stores. It helps them see how customers are responding to promotions, and what products are commonly linked to other products. The problem is that, when done well, this type of analytics can get extremely complex.

That brings us to why most retailers are not yet doing true market basket analysis (MBA) today. Many retailers run their business using item level summary information at the day or even week level. However, MBA requires transaction level detail and a time period large enough to consider trends. Tracking analytics at this level of detail is impossible to do outside of a transaction level data warehouse. With the lower cost of processing and storage technology, rapid implementation methods, and tools to easily analyze the transactions, virtually all retailers can now afford MBA.

Once you have the tools in place to analyze market basket the right way, the possibilities for its application are vast. One important consideration is the actual positioning of items in the store. For example, if you find that a particular cardigan has been selling well with a certain skirt, you would certainly want to consider positioning them together. Also, do you know which are the top pull items in each department? What are the affinity items that they are pulling? Is there a way to position them together, and promote one of the top pull items to increase sales on the affinity items? By examining these questions with MBA, you move far beyond just analyzing sell-through of individual items, and start to get an idea for why your customer buys what they buy, and a better understanding of your product mix overall.

In addition to increasing sales by understanding what items have the most pull, MBA can also help you get more out of your marketing budget with smarter promotions and markdowns. Take, for example, one of our clients: a $2.5 billion business with over 300 stores worldwide. They wanted to know if their weekly circulars were having the desired effect on sales so they could ensure they were making the best use of their marketing dollars. The marketing department wanted to hold the buying team accountable for what they were putting in the ads, and be sure the company wasn’t wasting money by promoting products that weren’t generating additional revenue in pull dollars. Market basket analytics helped them determine which items were responsible for increasing the basket size with the highest margins. During one holiday weekend, the client used MBA to determine which competing beverage brand was driving the most additional affinity items. While they typically promoted brand A, they realized that people who bought brand A typically bought additional loss leaders. So instead, they promoted brand B in the weekly ad before the big holiday weekend, and the promotion resulted in a 16 percent increase in basket size and 9 percent increase in transaction size.

If your company isn’t currently utilizing market basket analytics, you are missing out on an opportunity to better understand both your customers and your product mix. It’s not just about learning which products are selling or not selling, but what they’re selling with, and how profitable they are when linked to other items or when sold at different price points. Market basket analysis gives you almost instant access to the kind of insight that actually has the power to transform your decision-making and your bottom line – and ultimately to become a better merchant overall.

Andy Winans is President of QuantiSense, where he brings over 25 years of experience in retail technology. QuantiSense provides analytics and business intelligence solutions exclusively to the retail industry. Visit www.quantisense.com for information.