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Do you know what your customers want?

I was recently reviewing a paper written by my colleagues (Mitul Kumar and Nishant Awasthi) on Market Basket Analysis where they have explored the possibility of doing Market Basket Analysis using a standard Business Intelligence apps like Oracle BI, Business Objects, Cognos etc. (This paper will be presented in Oracle Applications User Group (OAUG) Conference to be held in Orlando in May this year.) They have taken an easy to implement model of Association Analysis and tried to answer the fundamental question that haunts every marketer: “Do I know what my customers want?”

They have talked about Market Basket Analysis (MBA) which is a technique based on customers’ purchasing habits. It uses the point-of-sale data to provide insights around the following:

  • Types of products that customers usually tend to buy together
  • Time period when sales for the associated products go up
  • Sequence of purchase of associated products
  • Time period between associated products’ purchase

MBA/ Association analysis helps in identifying up-sell and cross-sell opportunities to grow existing customers which is becoming the norm as the organizations struggle to achieve sustainable and profitable growth in a recessionary economy.

There are some pertinent questions that will come to your mind when you look at Market Basket Analysis as an association analysis technique and the utility of its results.

  • I know my customers and already have a lot of attributes in my CRM system on which I segment my customers. Why should I be interested in Market Basket Analysis (Association Analysis)?
  • How is Market Basket Analysis concept relevant to my industry? Isn’t it applicable only for Retail/ FMCG organizations?
  • Isn’t Market Basket Analysis a back-end job done by mathematics and statistics whiz kids using sophisticated data mining tools?

Watch out for answers to the above questions in the my next post. Do let me know your comments on this topic.

Comments

Very interesting topic... MBA will give a marketer an opportunity to go in for cross and up-sell with very low investment. An intelligent rearranging of products in the aisle (for a supermarket) can result in greater sales. e.g. i had gone to buy some diapers for my 3 month old and found baby wipes kept in an adjacent shelf and immediately picked it up though it was not in my list (but it was in my line of sight :)

We're in an environment where we have, at any given time, as many as 100 offers in the market being personalized to individual customer preferences. It is important to be able to quantify engagement for a number of reasons. Most importantly, by understanding where you stand with your customers

Interesting topic! Keen to know how we can use this concept in IT/ITES

Hi Jason,

You have highlighted a very relevant point. In fact, the results that are thrown up by the MBA engine need to be studied in detail to get to the reason for a particular consumer behavior. Until and unless the association identified through Market Basket Analysis is backed up by a logical reasoning for customers behaving in a particular way, marketers can’t determine the way that association is to be used effectively. Decisions such as product placement, up-sell, cross-sell, channel selection, etc. can only be taken once an in-depth understanding of the association is obtained.

The technique is in fact used to identify subtle associations which are not intuitive and are reflective of very peculiar customer habits, behavior and attitude that determine the purchasing and consumption patterns. The insights gained through them can best be used through subtle promotions like product placements, bundling, habit inducing trials, etc. Therefore, avoiding the routine clutter of loud promotions that a normal person comes across.

Apart from behavior, what is very important for the marketing community is to make a business case in terms of how feasible the pursuit for a particular association is in terms of additional volumes and costs associated with the promotion.

Interesting post. While a market basket approach may help you understand what they ultimately purchased, it may not tell you what they really wanted -- as they don't always find it. I believe the best way to know is simply to ask. Here's an interesting article I came across talking more about the subject of customer needs and wants : http://sbimonline.com/content/how-understand-customer-needs-and-customer-wants-the-answer-will-help-you-sell-more

Interesting topic that talks about dwelling into the customer's past behavior.

Having said that, my concern on MBA is will it be able to provide on an individual level or to a customer segment base?

Because looking at the factors mentioned in the post, it seems to be more effective on a customer segment. Looking forward for the next.

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