Basket analysis is a critical tool in B2B and B2C for optimising pricing strategies. It helps enhance market share by analysing the product combinations that your customers purchased together. It also identifies Key Value Items (KVI) and customer preferences to combat problems like irrelevant discounts and maintenance of customer-specific price lists.
The benefits include:
- Optimised pricing: enables the identification of Key Value Items (KVIs), allowing businesses to price these items competitively to attract and retain customers.
- Effective promotional strategies: The analysis insights help create targeted promotions. It influences customers to buy complementary products together, increasing average order value.
- Tailored product assortments, leading to increased profits and customer satisfaction. Cracking customer purchasing patterns helps you tailor your product offerings to match customer preferences, enhancing the shopping experience.
Implementing basket analysis with SYMSON involves leveraging insights for strategic pricing and promotional activities, ensuring products are competitively priced and promotions resonate with target audiences, ultimately improving profitability and market competitiveness.
Introduction to Order and Basket Analysis
Understanding customer behaviour in both B2B and B2C can help optimise pricing strategies and eventually increase profits and your market share. Basket analysis, also known as market basket analysis, is a powerful tool in this journey.
It examines the combinations of products that customers frequently purchase together, offering insights into their shopping habits. This analysis is pivotal for businesses aiming to tailor their promotions, pricing strategies, and product assortments to meet customer needs effectively.
Identifying Your Current Challenges or Situation
Many businesses face challenges in identifying which promotions contribute to new market share and determining their Key Value Items (KVI). Without specific customer price lists, companies might offer discounts on irrelevant products, missing out on potential margins.
On the contrary, managing too many customer-specific price lists can lead to maintenance issues and hinder active price management. You can create strategic segmentation and positioning using the STP pricing model.
Market basket analysis helps overcome these hurdles by providing a structured approach to understanding customer preferences and optimising pricing strategies accordingly.
Benefits of Market Basket Analysis
Basket analysis, especially when integrated with Key Value Item (KVI) identification, stands as a robust tool for unlocking strategic, data-driven approaches to enhance an organization's share of wallet. This methodology goes beyond mere transaction analysis, offering a comprehensive view of customer purchasing behaviours and preferences.
The main advantage of conducting a basket or invoice analysis lies in its ability to reveal patterns in customer purchasing behaviour. This insight allows companies to:
- Optimize pricing and create KVI pricing strategies or discount rules.
- Identify the most successful promotions to increase market share.
- Gain insights into main products per customer group, enabling the creation of customer-specific assortments and pricing.
- Create KVI pricing strategies and Discount Rules
Basket analysis facilitates the optimization of pricing by identifying KVIs—products that significantly influence customers' purchasing decisions.
By understanding the items that customers value the most, organisations can tailor their pricing strategies more effectively, ensuring that KVIs are priced competitively. Take a look at the three factors of competitive pricing.
This not only helps in retaining existing customers but also attracts new ones by offering better value on crucial products.
- Identify and implement profitable promotional strategies
With insights from market basket analysis, companies can craft promotions that resonate with their target audience. Identifying which products are often purchased together allows for the creation of bundled offers or discounts that are more likely to be availed by customers. These targeted promotions can significantly increase market share by encouraging larger purchases and attracting customers from competitors.
- A deeper understanding of customer preferences
Basket analysis provides a window into the main products preferred by different customer groups. This insight is invaluable for creating customer-specific assortments and pricing strategies. Tailoring product offerings and pricing to meet the specific needs and preferences of different segments can lead to increased customer satisfaction and loyalty, further expanding the company's share of wallet.
Also Read: 4 Pricing Questions for a CFO and How Pricing Software Could Help
- Creation of Customer-Specific Assortments
Armed with knowledge about the purchasing habits of different customer groups, organisations can design assortments that cater specifically to the preferences of each segment. Such customisation and segment-based pricing ensure that customers find exactly what they're looking for, enhancing the shopping experience and encouraging repeat business.
Watch Full Webinar: The Underestimated Role of Product Segmentation for Price Optimisation
- Increase your Share of Wallet
Ultimately, the insights gained from basket analysis enable organizations to increase their share of wallets. By strategically adjusting pricing, customizing assortments, and targeting promotions based on real customer behaviour, companies can capture a larger portion of their customers' spending. This not only boosts revenue but also strengthens the organization's market position.
By analysing order baskets and identifying KVIs, businesses can formulate data-driven strategies to increase their share of wallets and ensure pricing decisions are aligned with customer expectations and market dynamics.
A Comprehensive Market Basket Analysis Example for Better Understanding
Let’s take a look at an example of basket analysis and how price intelligence works in retail:
Background: A supermarket chain wants to understand the purchasing patterns of its customers to optimise product placements, promotions, and pricing strategies.
Data Collection: The supermarket collects data from customer transactions over a period. This data includes items purchased, quantities, prices, and timestamps of purchases.
Analysis: Using basket analysis, the supermarket analyses transactions to find associations between different products. For instance, it discovers that customers who buy whole wheat bread are also likely to purchase organic peanut butter.
Findings:
- Complementary Products: Whole wheat bread and organic peanut butter.
- Time-based Patterns: Increased sales of barbecue sauce and charcoal on weekends.
- Customer Segmentation: Families with children tend to buy more milk and cereal together compared to other customer groups.
Strategies Implemented:
- Cross-Promotions: The supermarket starts cross-promoting whole wheat bread with organic peanut butter, offering discounts when purchased together.
- Strategic Product Placement: Place related items like barbecue sauce and charcoal close to each other before weekends to increase sales through convenience.
- Targeted Marketing: Creating bundles of milk and cereal at a discount targeted towards families with children.
Outcomes:
- Increased sales of products identified as frequently bought together.
- Improved customer satisfaction through convenient shopping experiences.
- Enhanced inventory management with promotions leading to higher turnover of targeted products.
Basket analysis provides actionable insights that enable the supermarket to make data-driven decisions. By understanding and leveraging the purchasing patterns of their customers, they can optimise pricing, promotions, and product placements to increase sales and profits.
How to Implement Basket Analysis with SYMSON
The SYMSON platform leverages basket analysis to help businesses make informed decisions about their pricing strategies. By analyzing common basket/order combinations, SYMSON enables companies to optimize their KVI prices and adjust their pricing strategies for non-KVI products. This approach can significantly impact profitability and market competitiveness.
Options for Insights and Reports
SYMSON offers two main options for deriving insights from order and basket analysis:
1. KVI Pricing Strategy Impact: This analysis evaluates the financial impact of repricing KVI products to be more attractive while slightly increasing the prices of non-KVI products. Reports include insights on top KVI products and the top 100 most-sold products from baskets, providing a detailed view of which products draw customers to your business.
2. Customer-Specific Products for Pricelists or Promotions: This option focuses on creating customer-specific assortments and pricing. It includes reports on the main products for a specific customer group and personalized promotions based on the 80/20 rule of Pareto, highlighting the KVI products most likely to increase market share.
How SYMSON Supports Basket Analysis
The SYMSON engine gathers comprehensive reports and insights to support basket analysis. It activates and automates separate price rules for KVI products per category, ensuring these products are priced more attractively. Additionally, SYMSON can specify pricing for customer-specific products within a group, automating the price logic and streamlining the pricing process. Let’s take a closer look at how SYMSON can help you with this:
1. Report Generation: The SYMSON engine is adept at collecting detailed reports that reveal insights into Key Value Items (KVI) and customer purchasing patterns.
2. Automated Price Rules for KVI Products: SYMSON enables the activation and automation of distinct pricing rules for KVI products across different categories. This ensures these critical products are priced in a manner that enhances their market success.
3. Custom Pricing for Specific Customer Groups: The platform leverages data on 'customer-specific products' to implement targeted pricing strategies. This means prices can be tailored to the needs and preferences of specific customer groups.
4. Automated Pricing Logic: With SYMSON, the complexity of pricing logic is simplified through automation, making it easier for businesses to implement effective pricing strategies without manual intervention.
Basket analysis is a cornerstone in the quest for optimal pricing and profit maximization. By understanding the intricacies of customer purchase patterns and leveraging tools like SYMSON, businesses can enhance their pricing strategies, tailor their product offerings, and ultimately, secure a stronger position in the market. Whether through strategic KVI pricing or customer-specific promotions, the insights gained from basket analysis empower companies to make data-driven decisions that resonate with their customers and drive profitability.
Do you want a free demo to try how SYMSON can help your business with margin improvement or pricing management? Do you want to learn more? Schedule a call with a consultant and book a 20 minute brainstorm session!
