One of the challenges for companies that have invested heavily in customer data collection is how to extract important information from their vast customer databases and product feature databases, in order to gain competitive advantage. Market basket analysis (also known as association rule mining) is one of the data mining methods (Berry and Linoff, 2004) focusing on discovering purchasing patterns by extracting associations or co-occurrences from a store’s transactional data. Several aspects of market basket analysis have been studied in academic literature, such as using customer interest profile and interests on particular features of the product for the product development and one-to-one marketing (Weng and Liu, 2004), purchasing patterns in a multi-store environment (Chen et al., 2004), or point at certain weaknesses of market basket analysis techniques (e.g. Vindevogel, Van den Poel and Wets, 2005). Market basket analysis has been intensively used in many companies as a means to discover product associations and base a retailer’s promotion strategy on them. For example, in Limitedbrands, a family of different fashion brands, the outcome of an extensive market basket analysis was the following (Limitedbrands, 2004): • • • • 418
When different additional brands are sold together with the basic brands, the revenue from the basic brands is not decreasing, but increasing. “Buy two, get three”sales promotion campaigns are very successful, if market basket analyses are used in order to determine the right products to be promoted. “Buy a product, get a gift” sales promotion campaigns are successful, if a basic product and a gift are related and the basic product has high margin rate. Based on market basket analyses, sets of products are defined and sold together with discount. SYSTEMS INTEGRATION 2005
HOW TO INCREASE SALES IN RETAIL WITH MARKET BASKET ANALYSIS
Limitedbrands organizes internal competition in up-selling.
Our paper – a case study - presents and analyses the application of market basket analysis in a major trade company in Slovenia.
2 The company Merkur, d. d.
Merkur, d. d. is a trading company (Merkur, 2005) that has for years ranked among the top companies in Slovenia dealing in items for home improvement, home services as well as lawn and garden. Merkur, d.d. has recently strengthened its position on the foreign markets through the supplies of goods to industrial enterprises, and by the establishment of its own retail network abroad. Merkur, d.d. is the mother company of Merkur Group. The Group consists of two Slovenian subsidiaries and six subsidiaries abroad (Zagreb, Sarajevo, Skopje, Munich, Milan and Warsaw). Besides...