What products/services are purchased at the same time? Which are purchased separately? Which are purchased in sequence? Which are no longer purchased?

What are the different profiles of our clients? What is the buying pattern of each one? How does the pattern vary by hour, day, month, season, or purchase occasion? How does the pattern change through time? What are the profiles and purchase patterns which are similar between stores and/or channels?

These are the typical questions that any company must answer for being able to make decisions on purchasing, supply, promotions, etc. Surprisingly, these high monetary value decisions frequently are based on feeling and intuition.

What is Market Basket Analysis?

Each basket or purchase receipt provides information valuable to understanding customer purchase patterns. Market Basket Analysis is the statistical analysis of receipts which looks for associations between products/events and identifies the probability that they occur together. It allows for finding patterns of association and correlations, and identifying their frequency and occurrence.

The most tangible example of this type of analysis is Amazon’s product recommendations, which generate more of a third of its sales (1).

The information that is generated from this type of analysis is very valuable for decision making. If, in addition, it is crossed with information from loyalty programs, it will be it much more so, since it allows for binding purchases of the customer over time.

Some of the applications and results of this analysis are:

• Development of more predictable and profitable promotions, by understanding the response of customers to different types of offers and mass media.
• Attraction of traffic to stores, by identifying the products and offers which make more customers go to the stores.
• Increase in the size and value of purchase receipt, by modifying the layout of the store and the supply and arrangement of the product/services, and by identifying opportunities for cross-sell and up-sell.
• Increase in the certainty of the planning decisions, by providing more information to planners and buyers.

In addition to being useful in the Retail industry, this analysis also is used in Telecommunications and Financial Services to generate:

• Increase in the sale of additional products and value added services, by identifying opportunities for cross-sell and up-sell, as well as products that are bought in sequence.
• Detection of opportunities for additional sale, by analyzing and understanding patterns in telephone calls and purchase patterns using different means of payment (card, check, electronic transfer, etc.).
• Reduction of losses due to potential frauds, by quickly identifying claims that have unusual combinations of events or treatments.

In conclusion, there is great potential in the Market Basket Analysis for understanding the behavior of customers and, as a result, to increase the effectiveness and profitability of the actions to take. The companies that use this type of analysis for decision making, will have an advantage over those that continue to be based on feeling and intuition.

(1) Predictive Analytics: The Power to Predict Who Will Click, Buy, Lie, or Die, 2013