1.1 Concept of Market Basket Analysis

1.
Introduction
1.1 Concept of Market Basket Analysis
Market basket analysis is the study of items that are purchased independently or together in a single or
multiple, transactions. This study of behaviour of customers helps to understand the relationships of the
products. Thus the strength of those relationships is valuable information and can be used to cross-sell,
up-sell, offer coupons, and make other recommendations. Market Basket Analysis is a modelling
technique based on the theory that if a customer buys a certain products or contents, there are probable
chances that he or she might buy other set of products or contents. For example if a customer buys tea
and bag it is most likely that he buys Memento. The set of items a customer buys is referred as an
itemset and market basket analysis becomes handy to find relationships between item sets. Market
basket analysis helps a retailer with clues as to what a customer might think of buying to constitute his
basket.
1.2 Literature Review
Data mining has taken an important part of marketing literature for the last several decades. Market
basket analysis is one of the oldest areas in the field of data mining and is the best example for mining
association rules. Various algorithms for Association Rule Mining (ARM) and Clustering have been
developed by researchers to help users achieve their objectives. Rakesh Agrawal and Usama Fayyad
are one of the pioneers in data mining. They account for a number of developed algorithms and
procedures .According to Shapiro, rule generating procedures can be divided into procedures that find
quantitative rules and procedures that find qualitative rules. As proposed by Gregory Piatetsky-Shapiro,
William Frawley, 1991 tested the effectiveness of the algorithm by applying it to data obtained from a
large retailing company. They used attributes for mining qualitative rules for categorical data using
association rules. Association rules found application in many research areas such as: market basket
analysis, recommendation systems to Advertising and Strategy formulation. In marketing literature
market basket analysis has been classified into two models: explanatory and exploratory. The main
idea behind exploratory models is the discovering of purchase patterns from POS (point-of-sale) data.
Exploratory approaches do not include information on consumer demographics or marketing mix
variables summarise a vast amount of data into a fewer meaningful rules or measures. Such methods
are quite useful for discovering unknown relationships between the items in the data. Moreover, these
methods are computationally simple and can be used for undirected data mining. However, exploratory
approaches are not appropriate for forecasting and finding the cause-roots of complex problems. They
are just used to uncover distinguished cross-category interdependencies based on some frequency
patterns for items or product categories purchased together. A typical application of these exploratory
approaches is identifying product category relationships by simple association measures. Pairwise
associations are used to compare entities in pairs and judge which entity is preferred or has greater
amount of some quantitative property. Julander, 1992 compared the percentage of shoppers buying a
certain product and the percentage of all total sales generated by this product. By making such
comparisons, one can easily find out the leading products and what is their share of sales. Examining
which the leading products are for consumers is extremely important since a large number of shoppers
come into contact with these specific product types every day. As the departments with leading products
generate much in-store traffic, it is crucial to use this information for placing other specific products
nearby. Another significant stream of research in the field of exploratory analysis is the process of
generating association rules. According to M.J.Zaki, M.Ogihara, S. Parthasarathy, 1996 there are few
algorithms developed that are not based on the Apriori, i. Robert J. Hilderman, Colin L. Carter, Howard
J. Hamilton, and Nick Cercone developed a framework for knowledge discovery from market basket
data. Combining Apriori and Attribute Oriented Generalization (AOG) D.W. Cheung, A.W. Fu, and J.
Han., 1994) developed the methodology, using the algorithm not only to explain how to discover
customer purchase patterns, but to find out customer profiles by dividing customers into distinct classes.
According to Qiankun Zhao, Sourav S. Bhowmick, 2003, there are two basic parameters of Association
Rule Mining (ARM): support and confidence. They both measure the strength of an association rule
.Many Data Scientists have developed their own methodology using the associative algorithm for
example to segregate the customers into heavy users , moderate users and lighter users. Heavy user
households are found to be less price sensitive, visiting the store less often, in most cases high income
customers. While, on the other hand, lighter users are mainly students or people that visit the store very
often and are very price sensitive. The results all showed that households that have identical behaviour
across product categories tend to be lighter users than households that behave independently. Also
households with identical behaviours are said to be more price sensitive, less sensitive to store
advertising, also showing weaker loyalty in terms of brand names. Gary J. Russel, Wagner A.
Kamakura, 1997 using long-run market basket data, showed how brand preference segmentation can
be discovered without the availability of marketing mix data. A number of simplifying assumptions
need to be made in order to permit these cross-category preferences to be estimated. Exploratory models
are very useful for uncovering cross category relations, but not for finding their causes. While the main
task of exploratory market basket analysis is to reveal and present hidden relationships between product
categories, explanatory models aim at explaining effects. Datasets for such models consist of market
basket data, customer attributes and marketing mix variables. Andreas Mild, Thomas Reutterer, 2003
identified the purpose of explanatory models is to identify and quantify cross category choice effects of
marketing variables, such as price, promotion and other marketing features. Andreas Mild, Thomas
Reutterer, 2003 mentioned that the explanatory models rely greatly on regression analysis, logit profit
and multivariate logistic model mainly on quantitative data. Mining transactional data along with
household data gives retailers and managers space for customised target marketing actions. Analysing
past purchases makes it possible for supermarkets to price goods intelligently while still serving
heterogeneous consumers. Using the shopping basket as a unit of analysis instead of single articles can
provide retailers with consumer-oriented information. Rakesh Agrawal, Ramakrishnan Srikant
elaborated on the concept of mining quantitative rules in large relational tables. Quantitative rules are
defined in terms of the type of attributes contained in these relational tables. Attributes can be either
quantitative like customer’s age, customers’ income, etc. or categorical type of a product, make of a
car. Boolean attributes are such attributes that can take on one of two options (True or False, 1 or 0).
They are considered a special case of categorical attributes. The authors call this mining problem the
Quantitative Association Rules problem. S. Prakash, R.M.S. Parvathi, 2011 proposed a qualitative
approach for mining quantitative association rules. The nature of the proposed approach is qualitative
because the method converts numerical attributes to binary attributes. However, finding qualitative rules
is of main interest in their analysis. These rules are most commonly represented as decision trees,
patterns or dependency tables.

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1.1 Concept of Market Basket Analysis

1.2 Literature Review

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