New ReACT EKG report -Market Basket Analysis

Definition: Market Basket Analysis seeks to find relationships between items purchased.  It takes its name from the idea of a person in a supermarket throwing all of their items into a shopping cart (a "market basket").

 The results of Market Basket Analysis can be useful to:

1) identify products that have an affinity to be purchased together, with a view to:

• identify cross-selling opportunities

• ensuring that affinity products are in stock

• determining product placement within stores or on websites

2) evaluate individual product items as overall drivers of store sales

3) evaluate the effectiveness & overall profitability of coupons or specific payment media (ex. gift cards or in-house credit cards) 

ReACT EKG’s Market Basket Analysis

Step 1 – Data Filter

This lets you specify a date range, store range and product range for the system to evaluate.

Your selections are dependant on the goal of your analysis.  Some examples are provided later in this document to demonstrate some possible selections and goals.

Step 2 – Report Selection

Again, the report you select will depend on the goal of your analysis.

There are 3 options:

• SKU summary

• Dept/Cat/Class summary

• Media Summary

Examples:

Example #1 - Identify products that have a propensity to be purchased together

There are 2 ways to look at this:

• a generalized affinity, where a purchase of an item (or items) relates to a purchase in another category,

or

• a specific affinity, where a purchase of an item relates to a purchase of another specific item.

Let’s say that you’re selling an MP3 player that has a number of accessories available.

Report #1 – SKU summary:

You run a Market Basket Analysis for a specific date range, but only enter this item’s SKU # in the product data filter.

Measurement & Analysis:

The system reports that 57 of the MP3 players were sold.

It also shows that 47 carrying cases were sold along with it … 82% of
the time, these items were sold together.  They have a high affinity relationship.

Action:

You should ensure that there are sufficient carrying cases available for this product.

Measurement & Analysis:

Further down on the report is a specific power adapter that only works with this particular MP3 player.  The problem is that it was only sold once along with the original item
… an affinity of under 2%. 

Action:

You may want to evaluate your stock position to ensure that you’re not overstocked, and/or direct your staff to focus on up selling this item along with the original item.

Report #2 – Dept/Cat/Class summary:

In the sample above the system summarizes all purchases with the original item and groups them by Dept/Cat/Class.

Not surprisingly, the highest amounts appear in the electronics/music grouping.

However, there are also paper consumables products sold along with it.  You determine that part of the reason that the paper consumables are being sold is that the MP3 player was placed at the end of the aisle that had the paper consumables displayed.  The question is … did people come in to buy the MP3 player and then bought the paper consumables on impulse, or did they come to buy paper consumables and then bought the MP3 player on impulse?  By making a determination, you may be able to relocate the item and drive impulse sales in another department.

Example #2: Evaluating a specific item’s viability in terms of overall store sales

Let’s say that you sell a $10 pass to an event that’s related to your business.  The cost on the pass is $9.50 … you only make $0.50 on each sale … it’s not worth it given the cost of handling by your staff.  You want to know how its sales affect overall store sales.

You run a Market Basket Analysis for a specific date range, but only enter this item’s SKU # in the product data filter. 

Scenario 1

Measurement & Analysis:

The system reports that 500 of these event passes were sold ($5,000) but that total sales of all bills that had this item on it were $50,000 … and at an overall margin of 40%!  It also shows you that this item appeared on 350 transactions (i.e. some of the transactions had multiples of this item); so the average transaction was $142.86.  You can now compare this to your overall average transaction of $37.22.

Action:

You conclude that carrying this item is indeed good for your business.

Scenario 2

Measurement & Analysis:

The system reports that 500 of these event passes were sold ($5,000) and total sales of all bills that had this item on it were $5,250 … and at an overall margin of 5.3%.  You can compare this margin with your store overall margin of 39.2% and conclude that this is not good for your business.  Another analysis included is the average # of items/bill … on this report you’d see that it was 1.0 … i.e. you’re only selling this one item on most of the bills … there is no affinity with any other product.

Action:

As this item doesn’t advance your business and provides little margin, you may decide to discontinue selling the item.

Example #3 - Evaluate the effectiveness & overall profitability of coupons

You’ve issued a coupon to customers that will give them $5 off their next purchase over $25, within a 2 week time period.

After the coupon period is over, you run two Market Basket Analysis reports, one for the 2 week date range of the coupon, and a second for the 2 week date range prior to the coupon’s effective date.

You would simply compare the 2 reports:

• Sales in the period prior to the promotion were $5200 @ 40% margin.

• Sales in the period during the promotion were $8500 @ 38% margin, and $200 in coupons were used.

• The dollar margin in the period prior was $2080.

• The dollar margin in the promotion period was $3230, less the $200 coupon expense, so the net contribution was $3080 … or a 48% increase over the prior period.

Of course, there are other factors that may have had an effect on the sales comparison between the 2 weeks … other promotions, weather, competitor’s promotions, etc. ... but all things being equal, you would be able to compare the effectiveness of the coupon promotion.

Conclusion

ReACT EKG’s Market Basket Analysis is not intended to be an exhaustive analysis that will provide all permutations of affinity analysis or market basket analysis.  It is simply a tool that will let you analyze a range of sales transactions where some specific criteria are met.

It requires knowledge of your business, knowledge of your products and a defined question to be able to limit the parameters of the report so that it displays the proper results and answers the question.

Support Options

Pulse Retail offers a variety of support options. See Support details or contact us for more information. 

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