Friday, December 19, 2014

Basket Analysis III: Promoting Sales Items Associated with Heavy Transactions

This is the third post in a series on Basket Analysis. To read the first post go to Basket Analysis I.

One common retail strategy is to promote a relatively low value item that is associated with "heavy" baskets. That is to identify sales items that tend to be in baskets that have many other profitable items. Sometimes these items are a little quirky and customers go to that particular retailer for the quirky item, and while they are there, they purchase many other items. The rational is that if we can attract more customers to purchase the quirky item, which as little profit contribution, they will purchase many other, profitable, items. So the promotion on the quirky item can be discounted with low, or even negative, gross profit. Basket Analysis technology can help identify these items, and it can also accurately measure the performance of the campaign. 

Here is a graph showing some of the key performance indicators around a promotion of Green Smoothies. This particular promotion increased, by a factor of 5, the sales of Green Smoothies, but these increased sales did not pull through, as hoped, the additional sales. See the green line near the bottom of the chart - it shows the sales value of Green Smoothies, and you can see a clear increase in their sales during the promotion period. Now look at the Average Txn value including Green Smoothies (blue bar) during the promotion period. It drops from about $20/transaction to about $16/transaction. Also, notice the purple line showing the Green Smoothie affected sales. See how it has increased, but only by the value of the increased Green Smoothie sales. This line shows the total value of all transactions that have at least one Green Smoothie. This suggests that promotion shoppers are coming in to purchase the Green Smoothies, but they are only purchasing Green Smoothies. It is valuable to get an early appreciation of the effectiveness of this campaign, so that it can be halted or modified early.

Note, traditional sales reporting tools could easily report on sales values of Green Smoothies, but it is only with Basket Analysis tools that we can get metrics like Green Smoothie affected sales and Average transaction value including Green Smoothies.

For the next Basket Analysis post see Basket Analysis IV.

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