As a retailer, do you know which consumers buy more and why? Which in-store promotions are effective and why? How effective is your merchandising and shelf placement?
The answer to these questions lie in the market baskets of your consumers purchases. Market baskets analysis, the scientific view into consumers’ shopping carts (the transactions), can provide deep insights on your consumers’ buying behavior and if used effectively, leads to increase in same store sales and the number of consumer visits while saving marketing dollars.
Market basket analysis can be used in a variety of ways to increase revenue, decrease costs and improve consumer experience at a retail store.
Here are top 7 uses of market basket analysis
Increase revenue and improve consumer experience through targeted promotions:
The products in a market basket can tell you a lot about your consumers. For example, if a consumer has Energy Bars, Slim Fast and Diet products, then you may be able to confidently place that consumer in the “health- conscious” segment. If you find pet related products, then you can classify them as “pet owners”. Similarly, the consumers that buy diapers, Similac baby formula and baby lotion products are probably new parents.
Use this information to customize promotions that are highly relevant to each consumer segment. You can now send specific one to two pager promotion flyer to each consumer segment instead of a generic 20-pager containing a laundry list of all your promotion
Target look-alikes to capture new consumers: You can combine shopping data with demographic data from 3rd party sources such as Prizm or Experian to profile your consumers. You can then map your segments by zip codes to target “look-alikes” leading to an increase in new consumer acquisition.
Increase store traffic by promoting the right “loss-leader” products
You can identify the product or products that may be low in value but are driving “high-value” baskets. This will let you use this product as a “loss-leader” (you significantly lower the price on these products that you may incur loss while selling this product). But, when consumers come in to buy this product, they tend to buy your high value, high margin products to drive incremental revenues and profits.
Upsell and cross-sell through effective cross-promotions
You already know that shampoo and conditioners are generally bought together. So, you do not need to run promotions on both these products at the same time. However, market basket analysis can reveal less obvious combinations that are specific to your stores, specific to locations or even specific to consumers within a specific store. You can use this information to decide your cross-promotion product portfolio that enables you to maximize revenue, while ensuring that you do not leave money on the table.
Optimize shelf space
You can use market basket analysis to decide where to place the products and which products are to be placed together. For example, you can have a “breakfast” island, where you place, eggs, milk, bacon and butter together or a “health” island where you place fruits, energy bars and slim fast together. This really depends on what the market basket analysis reveals for that specific store. Studies have shown that strategic island placements not only increase revenue, but also significantly improves consumer experience.
Drive revenue through end-cap product placements
End-caps are premium shelf spaces in your retail store and you are looking to maximize its usage, Market basket analysis can help you to decide what product or product sets are to be placed in end-caps – for example, you can place your “designated loss-leaders” in the your end-cap or create a “baby end-cap” where you place “2 to 3 bundled” baby products together.
Smart inventory management
Your understanding of “items that are bought together” can help you plan and manage your inventory better. You can use this information to predict which items are likely to sell-out during promotions. For example, when you run promotions on a specific brand of butter, you also need increased stock of eggs, bacon and yogurt.
You can see that conducting and using market basket analysis on an ongoing basis can lead to significant lift in sales, improved consumer experience and reduction in costs. And it only requires discipline from your team and you to systematically conduct and use the analysis.