What Is Market Basket Analysis?

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Market basket analysis gives ideas on what products to stock together.
Market basket analysis gives ideas on what products to stock together. (Image: produce department image by brelsbil from Fotolia.com)

Market basket analysis (MBA), also called product affinities, association analysis and association mining, is a marketing technique that facilitates the study of customer purchase trends together with the promotion and pricing of certain products. It reveals how purchase patterns shift with time and helps retailers understand product-timing dependencies, such as holiday or seasonal purchase trends. The purpose of a market basket analysis is to find dependencies and relationships between various retail products, on the basis of which retailers arrange catalog or shelf items, design promotions and build cross-marketing strategies.

Association

Association is a fundamental component of market basket analysis and is used to discover marketing trends and customer buying patterns. MBA tells the likelihood of customers purchasing different products together, which is then expressed as an association rule. For instance, 97 percent of buyers who buy sugar also buy milk, which is denoted by the association pattern of X → Y.

According to Jack Fox in the book “Building a Profitable Online Accounting Practice,” association patterns are used by retailers to determine how to lay out stores most effectively. For instance, a store may stock sugar and milk close to each other so that consumers do not forget to purchase them.

Promotion

Market basket analysis helps retailers across a broad range of industries design promotional strategies and cross-coupon programs. It provides ideas on what product bundles to promote together (for example, toothpaste and hand lotion, or diapers and baby formula). In addition, market basket analysis can be effectively used to design cross-coupon programs in which customers purchasing item A get a discount coupon for item B.

Cross-Selling

Marketing basket analysis is useful for marketers to identify and promote products for cross-selling. For instance, it may indicate that customers who purchase life insurance are likely to buy property insurance within 12 months. This fact suggests a cross-selling possibility – an insurance salesperson should contact a current life insurance customer within 12 months and try to sell property insurance.

Data Mining Systems

Associations between products are made with specialized data mining software—including IBM Intelligent Miner, Nuggets, Silicon Graphics' MineSet and PolyAnalyst. Marketing salespeople with no prior statistical experience can easily use these software packages by interacting with user-friendly graphical interfaces (GUI), clicking relevant icons and interpreting the results. While most software generates results in tabular form, there are some packages that present results in English.

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