Market Basket Analysis

Market Basket Analysis (MBA) is a data mining technique used by retailers to understand customer
purchasing patterns. By analyzing large datasets, such as purchase history, MBA identifies product
groupings and items that are frequently bought together. This information helps retailers optimize
inventory management, devise effective marketing strategies, and improve store layouts

Purpose of Market Basket Analysis

Finding items that buyers desire to buy is the major goal of market basket analysis. Market basket
analysis may help sales and marketing teams develop more effective product placement, pricing,
cross-sell, and up-sell tactics.

Types Of Market Basket Analysis

Predictive Market Basket Analysis

This kind employs supervised learning methods like regression and classification. In essence, it seeks
to imitate the market to examine what factors influence events. In essence, it determines cross-selling
by taking into account things bought in a particular order.

Differential Market Basket Analysis

For competition analysis, this kind of analysis is useful. To identify intriguing patterns in consumer
behaviour, it compares purchase histories across brands, periods, seasons, days of the week, etc.

Benefits Of Market Basket Analysis

• Gaining market share: Once a business reaches its peak growth, finding new ways to do so might
be difficult. Market basket analysis may be used to integrate gentrification and demographic data
to locate the sites of new businesses or geo-targeted marketing.

• Campaigns and promotions: MBA is used to identify the goods that work well together as well as
the products that serve as the cornerstones of their product range.

• Behaviour analysis: A fundamental tenet of marketing is comprehending consumer behavior

patterns. MBA may be used for anything, including UI/UX and basic catalog designs.

• Optimization of in-store activities: MBA is useful in deciding what goes on the shelves as well as at
the back of the shop. Because geographic patterns are a major factor in determining the strength
or popularity of particular products, MBA is increasingly used to manage inventory for each store
or warehouse.

Examples Of Market Basket Analysis

i. Retail

The most well-known case study using market basket analysis is probably Amazon.com. As
soon as you visit Amazon to look at a product, the product description will suggest "Items
purchased together frequently." It is the clearest and most straightforward example of Market
Basket Analysis cross-selling tactics.
 Along with e-commerce methods, consumer in-store retailers also greatly benefit from BA. For
grocery stores, visual merchandising and shelf optimization is crucial. For instance, shower gel
is almost usually kept close to one another at the grocery store.

ii. IBFS

Examining credit or debit card history is a highly advantageous MBA opportunity for IBFS
companies. For instance, Citibank frequently sends sales representatives to large malls to
tempt potential customers with enticing on-the-go discounts.

Additionally, they collaborate with services like Swiggy and Zomato to provide customers with
a selection of offers that they may use their credit cards to redeem.

iii. Telecom

Due to the intense competition in the telecom sector, businesses are paying close attention to
the advantages that customers frequently utilize. For instance, telecom has started to combine
TV and Internet bundles with other affordable internet platforms to reduce migration.

1. What is market basket analysis in data mining?

Answer: Market Basket Analysis is a type of data mining that identifies patterns of consumer
behaviour in any retail environment. Simply said, market basket analysis in data mining
examines the assortment of items that have been purchased together.

2. What is market basket analysis used for?

Answer: Retailers use analytics methods like market basket analysis (MBA) to comprehend the
purchasing patterns of their customers. It is used to find out which products customers usually
buy together or put in the same basket. This purchasing data is used to increase the efficiency
of sales and marketing.

3. What are the benefits of using market basket analysis?

Answer: Data from point of sale (PoS) systems that pertain to customers can be used in market basket
analysis (MBA). Retailers benefit from its:

• Increasing sales and return on investment

• Boosts consumer engagement

• Increasing client satisfaction

• Aid in improving customer comprehension

• Identifies patterns and behavior of customers

• Improves marketing initiatives and strategies

4. What Is Recency, Frequency, Monetary Value (RFM) in Marketing?

Recency, frequency, monetary value (RFM) is a model used in marketing analysis that
segments a company’s consumer base by their purchasing patterns or habits. In particular, it
evaluates customers’ recency (how long ago they made a purchase), frequency (how often
they make purchases), and monetary value (how much money they spend).

RFM is then used to identify a company’s or an organization’s best customers by measuring

and analyzing spending habits to improve low-scoring customers and maintain high-scoring
ones.

Key points

• Recency, frequency, monetary value (RFM) is a marketing analysis tool used to identify a firm’s
best clients based on the nature of their spending habits.

• An RFM analysis evaluates clients and customers by scoring them in three categories: how
recently they’ve made a purchase, how often they buy, and the size of their purchases.

• The RFM model assigns a score of 1 to 5 (from worst to best) for customers in each of the three
categories.

• RFM analysis helps firms reasonably predict which customers are likely to purchase their
products again, how much revenue comes from new (vs. repeat) clients, and how to turn
occasional buyers into habitual ones.

Understanding Recency, Frequency, Monetary Value

The RFM model is based on three quantitative factors:

a. Recency: How recently a customer has made a purchase

b. Frequency: How often a customer makes a purchase

c. Monetary value: How much money a customer spends on purchases

RFM analysis numerically ranks a customer in each of these three categories, generally on a scale
of 1 to 5 (the higher the number, the better the result). The “best” customer would receive a top
score in every category.

These three RFM factors can be used to reasonably predict how likely (or unlikely) it is that a
customer will do business again with a firm or, in the case of a charitable organization, make
another donation.

a. Recency
The more recently a customer has made a purchase with a company, the more likely they
will continue to keep the business and brand in mind for subsequent purchases. Compared
with customers who have not bought from the business in months or even longer periods, the
likelihood of engaging in future transactions with recent customers is arguably higher.

Such information can be used to get recent customers to revisit the business and spend more.
In an effort not to overlook lapsed customers, marketing efforts might be made to remind
 them that it’s been a while since their last transaction, while offering them an incentive to
resume buying.

b. Frequency

The frequency of a customer’s transactions may be affected by factors such as the type of
product, the price point for the purchase, and the need for replenishment or replacement. If
the purchase cycle can be predicted—for example, when a customer needs to buy more
groceries—marketing efforts may be directed toward reminding them to visit the business
when staple items run low.

c. Monetary Value

Monetary value stems from how much the customer spends. A natural inclination is to put
more emphasis on encouraging customers who spend the most money to continue to do so.
While this can produce a better return on investment (ROI) in marketing and customer service,
it also runs the risk of alienating customers who have been consistent but may not spend as
much with each transaction.

5. What is customer lifetime value (CLV)?

Customer lifetime value (CLV) is the total revenue or profit generated by a customer over the
entire course of their relationship with your business. Simply speaking, it's a metric to measure
the total amount of money a software buyer has spent (or is expected to spend) on your
products and services throughout their lifetime as a customer.

The higher the CLV, the more valuable a buyer is to your business, as they would generate
more revenue and are more likely to be loyal. Here’s a quick preview of how to calculate CLV
for an individual customer.
6. What is Sentiment Analysis?

Sentiment analysis is the process of classifying whether a block of text is positive, negative, or
neutral. The goal that Sentiment mining tries to gain is to be analysed people’s opinions in a way
that can help businesses expand. It focuses not only on polarity (positive, negative & neutral) but
also on emotions (happy, sad, angry, etc.). It uses various Natural Language Processing algorithms
such as Rule-based, Automatic, and Hybrid.

Let’s consider a scenario, if we want to analyze whether a product is satisfying customer

requirements, or is there a need for this product in the market. We can use sentiment analysis to
monitor that product’s reviews. Sentiment analysis is also efficient to use when there is a large set
of unstructured data, and we want to classify that data by automatically tagging it. Net Promoter
Score (NPS) surveys are used extensively to gain knowledge of how a customer perceives a product
or service. Sentiment analysis also gained popularity due to its feature to process large volumes of
NPS responses and obtain consistent results quickly.

7. Why is Sentiment Analysis Important?

Sentiment analysis is the contextual meaning of words that indicates the social sentiment of a
brand and also helps the business to determine whether the product they are manufacturing is
going to make a demand in the market or not.

According to the survey,80% of the world’s data is unstructured. The data needs to be analyzed
and be in a structured manner whether it is in the form of emails, texts, documents, articles, and
many more.

1. Sentiment Analysis is required as it stores data in an efficient, cost friendly.

2. Sentiment analysis solves real-time issues and can help you solve all real-time scenarios.

Here are some key reasons why sentiment analysis is important for business:

• Customer Feedback Analysis: Businesses can analyze customer reviews, comments, and
feedback to understand the sentiment behind them helping in identifying areas for
improvement and addressing customer concerns, ultimately enhancing customer satisfaction.

• Brand Reputation Management: Sentiment analysis allows businesses to monitor their brand
reputation in real-time. By tracking mentions and sentiments on social media, review
platforms, and other online channels, companies can respond promptly to both positive and
negative sentiments, mitigating potential damage to their brand.
 • Product Development and Innovation: Understanding customer sentiment helps identify
features and aspects of their products or services that are well-received or need improvement.
This information is invaluable for product development and innovation, enabling companies
to align their offerings with customer preferences.

• Competitor Analysis: Sentiment Analysis can be used to compare the sentiment around a
company’s products or services with those of competitors.
Businesses identify their strengths and weaknesses relative to competitors, allowing for
strategic decision-making.

• Marketing Campaign Effectiveness : Businesses can evaluate the success of their marketing
campaigns by analyzing the sentiment of online discussions and social media mentions.
Positive sentiment indicates that the campaign is resonating with the target audience, while
negative sentiment may signal the need for adjustments.

8. What is Product Innovation?

Product innovation is defined as the creation and development of new or improved products,
services, or processes by a company or organization. It involves introducing novel ideas,
technologies, features, or designs that provide added value to customers and differentiate the
product from existing offerings in the market.

Successful product innovation requires a combination of creativity, market research, customer

insights, technological expertise, and effective project management. It is driven by a desire to
meet evolving customer needs, stay ahead of competitors, and create sustainable business
growth.

Product Innovation Forms

Successful product innovation requires a combination of creativity, market research,

customer insights, technological expertise, and effective project management. Here are the
product innovation forms that create sustainable business growth.

• New product development: This involves creating entirely new products that fulfill
unmet needs or offer unique benefits. It may involve researching customer preferences,
conducting market analysis, and using technological innovation to design and
manufacture innovative products.

• Product improvement: This type of innovation focuses on enhancing existing products

by introducing new features, improving performance, increasing efficiency, or
addressing customer feedback. It aims to make incremental innovations to the product
to maintain competitiveness and meet evolving customer expectations.

• Line extensions: Line extensions involve expanding an existing product line by

introducing variations or extensions of the original product. This could include different
flavors, sizes, colors, or versions that cater to specific customer segments or market
niches.

• Process innovation: Process innovation refers to improving the methods, techniques, or

systems used in the production or delivery of products. It aims to streamline operations,
increase productivity, reduce waste, and enhance overall efficiency. Process innovation
can have a significant impact on product quality, speed to market, and cost-
effectiveness.
 • Cost innovation: Cost innovation focuses on reducing production costs while
maintaining or improving the quality and functionality of the product. It involves finding
more efficient manufacturing processes, sourcing cheaper materials, or optimizing
supply chain operations to achieve cost savings.

• Business model innovation: Business model innovation involves reimagining the way
products are created, distributed, marketed, or sold. It may involve adopting new
revenue models, exploring new distribution channels, or leveraging emerging
technologies to transform the way customers interact with the product.

9. What are the types of Product Innovation

The types of product innovation are not mutually exclusive, and they can often overlap or
be combined to varying degrees. The specific type of innovation pursued by a company
depends on its strategic goals, market dynamics, available resources, and the nature of the
industry in which it operates.

• Incremental Innovation

This type of innovation involves making small improvements or additions to an existing

product. It focuses on enhancing specific features, functionalities, or design elements to
provide incremental benefits to customers. Incremental innovation aims to optimize
existing products rather than create entirely new ones.

• Radical Innovation

Radical innovation refers to the development of entirely new products or technologies

that disrupt existing markets or create new ones. It involves significant departures from
existing products and can result in transformative changes in industries. Radical
innovation often requires high levels of risk-taking, technological advancements, and
long-term investments.

• Disruptive Innovation

Disruptive innovation is similar to radical innovation in that it introduces new products

or technologies that fundamentally change an industry. However, disruptive innovation
 typically starts by targeting an underserved or overlooked market segment with a
simpler, more affordable, or more convenient product. Over time, disruptive innovations
may challenge and eventually replace established market leaders.

• Process Innovation

While not directly related to the product itself, process innovation focuses on improving
the methods, systems, or techniques used in the production, delivery, or support of
products. It aims to enhance efficiency, reduce costs, streamline operations, and
improve quality. Process innovation can have a significant impact on the overall
competitiveness and performance of a product.

• Business Model Innovation

Business model innovation involves rethinking the way products are created, delivered,
marketed, or monetized. It often entails finding new ways to create and capture value
from customers. Business model innovation can involve changes to revenue models,
distribution channels, customer engagement strategies, partnerships, or the
introduction of new value-added services.

• Architectural Innovation

Architectural innovation involves reconfiguring or combining existing components,

technologies, or systems in a new way to create improved products or services. It focuses
on changing the underlying structure or design of a product to achieve superior
performance, efficiency, or functionality. Architectural innovation often requires cross-
disciplinary knowledge and the integration of different technologies or components.

10. What is Social Network Analysis (SNA) and its types.

Social Network Analysis (SNA) is a powerful method used to examine the relationships and
interactions among individuals, groups, organizations, or entities within a network. By
studying the structure, patterns, and dynamics of social networks, researchers can gain
insights into how information flows, influence spreads, and relationships evolve. This article
explores the concept of social network analysis, its types, tools used, and examples across
various domains.
Types of Social Network Analysis

i. Ego Network Analysis

This focuses on a single node (ego) and its immediate connections (alters). It examines
the direct relationships of an individual within a network.

➢ Example: Analyzing an employee’s professional network to understand their

influence in an organization.

ii. Whole Network Analysis

Whole network analysis studies the entire network’s structure and patterns. It explores
global properties like density, centrality, and clustering.

➢ Example: Mapping interactions among departments in a company to assess

collaboration.

iii. Two-Mode Network Analysis

Two-mode (or bipartite) networks involve two types of nodes, such as individuals and
events, with edges representing connections between them.

➢ Example: Analyzing participation of students (nodes) in extracurricular activities

(nodes).

iv. Dynamic Network Analysis

This type examines how networks change over time, tracking evolving relationships and
structures.

➢ Example: Monitoring how communication patterns shift in an organization during

a crisis.

v. Multiplex Network Analysis

Multiplex analysis investigates networks with multiple types of relationships between
nodes.

➢ Example: Studying how individuals in a community are connected through family

ties, friendships, and business partnerships.

vi. Weighted Network Analysis

This type assigns weights to edges based on the strength or frequency of interactions.

➢ Example: Evaluating email exchanges in a workplace, where edge weight

represents the number of messages exchanged.