What is Market Basket Analysis?
What is market basket? Market basket analysis, also known as affinity analysis, is a key data mining and statistical technique used by retailers to better understand consumer purchasing patterns. It works by analyzing customer purchases that frequently take place together. This allows for retailers to identify associations between items. When used appropriately, market basket analysis can be an effective tool in gaining an integral advantage in today’s retailer market. It helps retailers gain the necessary information to not only better understand consumer behavior but also influence it.
Market Basket Analysis Example
For example, Amazon, one of the world’s largest and most used e-commerce retailer, uses market basket analysis retail industry techniques to drive part of their recommendation engines, and some closely link their overall rise to being one of the first pioneers to do so.
Read on to see three ways market basket analysis can improve your retail operations.
3 Benefits of Market Basket Analysis for Retail Industry
1. Diversify Product Option Variety:
Market Basket Analysis allows companies to see what products customers like to typically purchase together. Therefore, this gives them an insight into what products customers are most likely going to want to purchase next. This enables retailers to predict with almost complete certainty what kind of products customers want. In return, this diversifies product option variety – increasing sales, but also increasing overall customer satisfaction with the retailer itself.
2. Identify Sales Influencers:
In many cases, the sale of one product is caused by the increase or decrease in the sales of other products. For example, at a supermarket, an increase in recent sales of charcoal bags could be a result of an increase in sales of grills. Market basket analysis helps retailers find these correlations, better understand them and then leverage them financially so that they can replicate such activities overall.
3. Improve Promotions:
Market basket analysis enables retailers to set up effective joint promotions by helping them accurately see customer purchasing patterns. For example, it can point out whenever someone purchases cereal, they also end up buying milk. This allows retailers to set up promotions that feed and drive each other rather than counteract.
With the power of ConverSight customers can achieve a better understanding of consumer purchasing patterns, influence buyer decisions, set up effective joint promotions, and drive sales.
How to Calculate Market Basket
There are many advantages of market basket analysis. Retailers are turning to artificial Intelligence now more than ever to intensify the effectiveness of market basket analysis as the advanced analytics helps retailers simply identify combinations and associations between goods often left unleveraged. AI provides predictive recommendations and other results of market basket analysis, quickly becoming a necessity to keep-up in today’s forever changing market.