Monday, January 19, 2015

Basket Analysis IV - Menu Trim

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

Retail stores are always trying to balance range of stocked items with inventory efficiency. A common task is to perform a "menu trim" where low profit contribution items are removed from the menu. A simplistic approach would be to remove the items with the lowest associated sales value or gross profit. However, this can result in trimming items that, while not profitable in themselves, are attracting customers and have high "associated" sales and profit contribution.
Consider the menu items above that are ordered by item sales. The Berry Smoothie is the item with the lowest sales value and gross profit. A simplistic view would be to say let's trim Berry Smoothie off the menu as it only represents $795.23 of sales. However, from our basket analysis query, we can see that the Berry Smoothie has a high Associated Net Sales and Associated Gross Profit. If we took Berry Smoothie off the menu, we might be risking $19,400 of associated sales. This is the total value of all transactions that have included Berry Smoothie. It might be that customers are coming into the store primarily for the Berry Smoothie and getting other items with the smoothie. If we remove Berry Smoothie from the menu these customers might not patronize our store.
Basket Analysis does not answer these questions directly, but it does give us information to make a better informed decision. In the case above, we might consider trimming the Vegeburger from the menu, as it has the lowest Associated Net Sales and lowest Associated Gross Profit. It appears that customers who come in to buy vegeburgers, purchase that item alone. So if that item was trimmed from the menu, it would appear to put less sales at risk.

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