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Market Basket Analysis

What is market basket analysis?

Market basket analysis is a data gathering technique that focuses on understanding customer purchasing behavior along with relationships between items that are purchased together. Analysts use what is called the "three association rule" to parse the data:

1) Support: How frequently do a group of items occur together as a percentage of your store's transactions?
2) Confidence: What's the ratio between transactions that include the combination of items versus transactions that only contain a single item from the set?
3) Lift: How well do your predictions match real-world results?

How can I start a market basket analysis?

To get started on your own market basket analysis, you'll need some sort of software that can collect multiple data points about each transaction through your point of sale. After hundreds of individual transactions on your store, you could analyze the accrued data to figure out that customers will purchase two items together a certain percentage of the time. You also might realize that many of these customers are from a specific demographic. With that knowledge, you could create a bundle of those items and specifically advertise it to that demographic.