Retail Undercover: The Importance of Basket Analysis

February 27, 2018 In Latest News

As a retailer, looking at depletions reports can only get you so far. This information only shows fragments of consumer behavior, purchasing patterns and basket compositions.

Think of how effectively you could market the products on your shelves with a full picture of which ones led customers to buy more.

Basket analysis looks at exactly this: what items are bought in conjunction with an item of interest. When you analyze basket affinities, you will see specific brands, categories or products that are purchased along with one item you’re studying. This analysis, showing you what items are purchased in one shopping trip by a customer (or particular type of customer), can reveal patterns that help you understand the relationship between brands or products.

The data gathered can also be used to create more strategic future promotions and to judge the efficacy of past ones.

For example, analyzing basket adjacencies could tell you that customers who purchase a specific brand of tequila also most often purchase a category of wine or type of beer in the same trip. From there, you can develop a promotional strategy that discounts the driving product (e.g., the tequila) to increase sales of the adjacent items (e.g., the wine category or beer type).

What data am I looking for? Where can I find it?

Knowing what data to look for and where it lives is incredibly important when analyzing baskets. Start with an item of interest: this can be something that your distributor is offering at a discount or a high-margin product you want to better capitalize on.

With new in-store technologies, you can track this item and identify the key metrics for other items that are being bought with it.

Look at how often another product or category of product is purchased with your item of interest. This reveals valuable consumer insights, and can help you recognize patterns and create purchasing assumptions based on them. These can function like formulas: “If a customer buys {X Brand} {X times} per month, they will also buy {X category}.”

You can also look from the other side at the effect an item of interest has on the purchase of it’s basket adjacent products. If Tito’s vodka, for example, is often purchased with pinot noir wine, then how will selling out of Tito’s effect your sales of pinot noir?

How do I use this data?

Basket analysis can show you which products and customers are most valuable as drivers of incremental sales. When you know how one product or category affects the sale of other products and categories, you’ll gain a deeper understanding of how to retail these items. Then, you can market more effectively and with more influence.

Once you start applying the rules created from basket data, you’ll find actionable ways to increase revenue and lower your margins:

If you see that a high-margin wine is basket-adjacent to a liquor that drives sales, create a promotion for the liquor. Create end-cap displays that pair the discounted product with the higher-margin items that customers often buy together.

Alternatively, analyzing baskets also shows you products that don’t drive incremental sales. These items can withstand small increases in price that add up, and can cover other margins. Plus, because these items are more inelastic, customers will buy them wherever they are in the store. Move the products to a less valuable place in the store to optimize what new customers see and gravitate toward first.

What can basket analysis teach me about my customers?

The intel gained from analyzing baskets is also a valuable barometer of customer behavior. From watching what is purchased and finding patterns, you learn how customers think about, buy and consume alcohol. The potential for customer retention and loyalty is also a factor: when you tailor an in-store shopping experience to your most valuable customers, they will return, and may bring in new business through referrals.

Conclusion

Through basket analysis, you will find a more robust, actionable portrait of your store. Each product becomes measurable not only by its price and sale value, but by its ability to sell adjacent items. With this view, you can optimize your promotions, in-store displays and product positioning to liquidate items of value, ultimately shrinking margins and growing revenue long-term.