Different people have different choices and different buying habits as well. To fulfill the various demands of different people based on their buying behavior and taste, retailers (and the Government) have to choose some sample goods or services to know the buying behavior and cost of living of an economy. This is when market basket analysis comes into the picture. This is an imaginary basket used by the vendors and Government to fulfill the customer demand and beat the inflation of an economy. Market basket analysis is done by the retailers to check the combination of two or more items that the customers are likely to buy.
So what is a market basket? What is market basket analysis? And the application of market basket analysis.
In simple words, the market basket is a list of some fixed items that are used to track the inflation and overall price movements of a specific market in an economy. In other words, it is a basket that contains a set of standard goods or services that people commonly buys. Market basket tracks the cost of living of various groups.
A market basket contains some sample goods and services to know the inflation. The Government put some goods or services as a sample into an imaginary market basket and calculates the average cost of living. The prices or cost of different periods is compared to know the inflation of an economy. In this technique, the inflation rate is the change in the cost of living of two baskets. Market basket and its contents are supposed to change every time to calculate inflation in an efficient and effective manner.
Market Basket Analysis
Market basket analysis is a method or technique of data analysis for retail and marketing purpose. The idea behind market basket analysis has emerged from customers who are buying and adding different products to their shopping cart or in a market basket. Market basket analysis is done to understand the purchasing behavior of customers. MBA (Market Business Analysis) is used to uncover what items are frequently brought together by the customer. Market basket analysis leads to effective sales and marketing.
Market basket analysis measures the co-occurrence of products and services. Market basket analysis is only considered when there is a transaction between two or more items. It does not entertain a single product. There should be a relation between two products in a market basket. If a customer is buying a particular product he is likely to buy some related goods to compliment the first one. For instance, if a customer is buying bread then he is likely to buy butter, jam or milk to compliment bread. Market basket analysis is used by retailers so that they can make a purchase suggestion to their customers. It is also used to predict future purchase decision of a customer.
Benefits of Market Basket Analysis
Store Layout: you can organize or set up your store according to market basket analysis in order to increase revenue. Once you know the products in the market basket, you can arrange or place the products near each other so that the customer notice and take a decision to buy them. Market business analysis acts as a guide to organize your store to get the best revenues.
Marketing Messages: Market basket analysis increase the efficiency of marketing messages whether it is done by phone, email, social media etc. You can suggest the next best option to the customers by using market business analysis data. With the help of market business analysis data, you can give relevant suggestions to your customer instead of telling them about irritating marketing offers.
Maintain Inventory: If you have done market basket analysis then you may know what are the products that your customers are going to buy in future and you can maintain your inventory accordingly. You can also predict the future purchase of customers over a period of time on the basis of market basket analysis data. You can also use initial sales data to maintain your inventory. You can also predict the shortage of useful items or more demanded items in your store and then arrange your stock or inventory accordingly.
Content Placement: Content placement is very important when you are doing an e-commerce business. Your conversion rates will increase when your products are displayed or arranged in a right order. Marketing basket analysis is used by the online retailers to display the content that is likely to read next by the customers. It will help to engage customers on your website. Market basket analysis helps to increase traffic on your website and to get better conversion rates.
Recommendation Engines: Market basket analysis is the base for creating recommendation engines. A recommendation engine is a software that analyzes identifies and recommends content to users in which they are interested. A recommendation engine is an important part of application and software product. It collects information about people’s habits and then recommends contents to them.
Application of Market Basket Analysis
Market basket analysis is applied to various fields of the retail sector in order to boost sales and generate revenue by identifying the needs of the customers and make purchase suggestions to them.
Cross Selling: Cross-selling is basically a sales technique in which seller suggests some related product to a customer after he buys a product. A seller influences the customer to spend more by purchasing more products related to the product that has already been purchased by him. For instance, if someone buys milk from a store, the seller asks or suggests him to buy coffee or tea as well. So basically the seller suggests the complementary product to the customer with the product that he has already purchased. Market basket analysis helps the retailer to know the consumer behavior and then go for cross-selling.
Product Placement: It refers to placing the complimentary (pen and paper)and substitute goods (tea and coffee) together so that the customer addresses the goods and will buy both the goods together. If a seller places these kinds of goods together there is a probability that a customer will purchase them together. Market basket analysis helps the retailer to identify the goods that a customer can purchase together.
Affinity Promotion: Affinity promotion is a method of promotion that design promotional events based on associated products. Market basket analysis affinity promotion is a useful way to prepare and analyze questionnaire data.
Fraud Detection: Market basket analysis is also applied to fraud detection. It may be possible to identify purchase behavior that can associate with fraud on the basis of market basket analysis data that contain credit card usage. Hence market basket analysis is also useful in fraud detection.
Customer Behavior: Market basket analysis helps to understand customer behavior. It understands the customer behavior under different conditions. It provides an insight into customer behavior. It allows the retailer to identify the relationship between two products that people tend to buy and hence helps to understand the customer behavior towards a product or service.
Hence, market basket analysis helps the retailer to get an insight into customer behavior and to understand the relationship between two or more goods so that they can offer or do purchase suggestions to their customers so that they will buy more from their stores and they can earn great revenue.
Find out how Big Data can help your business by getting various consumer insights and figures.