Market Basket Analysis

While you may say the top two objectives of a business is to increase awareness and persuade prospective customers to purchase its goods and/or services, a complementary objective is to maximize the value of each transaction. Simply put, the higher the order value the greater the profit. This can be accomplished by cross-selling (selling more) or up-selling (upgrading). A market basket, shopping basket or affinity, analysis is a valuable exercise that can help managers understand how effective they are at cross-selling or up-selling and identify opportunities that are not being promoted.

What Is A Market Basket Analysis And How Can You Use It?

A market basket analysis is a study of customer behavior that identifies relationships of purchase decisions within transactions. It provides value by helping managers understand what goods and/or services are being sold together. This can help managers make important decisions. Suppose you own an office supply store and you find that 50% of transactions with binders also include purchases of dividers.Does this meet your expectations? Perhaps a target has been established that the store should be selling dividers in 60 percent of binder transactions. This analysis now provides information about how effective the store is at achieving this objective and insights that will help identify tactics for improvement. Are employees properly trained to recommend dividers when customers purchase binders? Are dividers stocked in the right location in the store (i.e. adjacent to binders in the same aisle)? Are dividers priced effectively? We cannot answer these questions from this initial analysis, but we now have started developing tactics that we can test and we have an analysis that we can conduct to monitor performance and refine the tactics going-forward.

What Does It All Mean?

Knowing what your customers are buying is obviously vital for your operations. But a deeper understanding of transactional behavior will yield even greater insights that can provide your business a competitive advantage by enhancing the value and profitability of your transactions.