The fastest way to grow sales and profitability 5+%
Most of today’s enterprise systems (ERP) were designed for the retail fundamentals of “counting the beans” and replenishing shelves. By only analyzing SKUs at the sales summary level, merchants lack insight into consumer behavior and preferences across all items purchased at the time of checkout. Without market basket analytics, who would ever guess that beer sales increase when merchandised with diapers?
What is Market Basket Analytics?
The term “market basket” is a historical reference to a time when a consumer carried a “basket” through the store to collect items they wished to purchase. Today “market basket” refers to all items collectively purchased at the cash register at checkout.
As big box retailing replaced the corner market, the hand carried basket was replaced with the “shopping cart” that could hold many more items. It is an interesting artifact that the “store shopping cart” is the icon, and still refers to the “checkout” process on most e-commerce web sites.
Market basket analytics systematically analyzes the collection of purchases in the “basket” and the relationship between items to determine consumer purchase patterns such as:
- What were the main, or focus items purchased in the basket?
- What are the additional related items purchased with the focus SKU?
- What is the “mix” of items across different categories?
- What is the mix of “house” brands vs. national brands?
- What drives total revenue and profitability of the “basket?
- What type of consumer made the purchase? (loyalty program data)
- How and where did the customer choose to pay?
Explore more about analyzing the market basket through a previous post on Results Count called Retail Sound Bites.
Leveraging Market Basket to grow sales and profit
Market Basket Analytics first appeared in the CPG (Consumer Package Goods) space, which always seems to have the richest POS data. Grocers know by gut and observation that it makes sense to stock food items consumed in meals together … eggs near bacon, cereal near milk.
Market basket affinity analyses focus on relationships of all items purchased together. The goal is to find new ways to cross merchandise and promote key basket items, thereby increasing sales, improving mix and profitability of the entire basket.
Case Study: How to sell more beer with diapers
An often quoted case for the power and potential of market basket analytics is discovering that beer is frequently purchased with diapers. As a representative male who has purchased diapers for 3 infants, I can testify that men are “target focused” shoppers as opposed to “browsers”. And, there is definitely a need for “liquid refreshments” when faced with the challenges of diaper rash and sleepless nights as a new parent!
The case of more beer sold with diapers is a powerful metaphor to illustrate the potential of market basket analytics. Some market basket connections like eggs and bacon are “logical”. Other market basket connections might never be discovered without predictive analytics.
Why E-commerce kicks butt … market basket analytics!
Bricks and mortar retailing systems have a long legacy of focusing on supply chain metrics, which are SKU based. E-commerce sites are focused on individual consumer transactions. The very basis of the web checkout cart is the foundation of market basket data and analysis.
Indeed, you only need to go to any product page on Amazon’s site to see the power of leveraging market basket analytics. They have made a reputation and highly profitable business of showing what items other consumers purchased with the core item you are considering to purchase. Many affinity suggestions are “logical”, but some are items that you might forget or would not have originally considered.
The power of the web, and now mobile purchasing, is the ability to collect near “real time” market basket data, and change presentations and offers on the fly. Product bundles, offers, page layouts and merchandise similarities can be changed in 24 hours or less. Web test pages can also measure the SKU and basket results quickly.
The best e-commerce sites kick butt because market basket analytics is institutionalized as a way of doing business, not a post hoc exercise done on an exploratory basis.
Market Basket data is available … Go Harvest IT!
If data is collected through POS, transaction data is available. The challenge is not lack of data … there are mountains of it. There are now excellent BI (Business Intelligence) platforms that enable market basket analytics all the way down to the store level.
The key opportunity for bricks and mortar retailers is to balance a SKU centric product focus with a consumer centric market basket analysis.
We have found it possible to grow store sales and profitability 5% to 10% … WITHOUT spending another dime on marketing or price reductions.
The key is “listening” to consumer purchase behavior by applying market basket analytics to transaction data to leverage opportunities.
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