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April 17, 2009

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.