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Data-Analytics Program and Basket Composition June 12, 2007

Posted by jyu in Uncategorized.
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Basket Composition: Using Basket Composition Data for Intelligent Supermarket Pricing (Kumar & Rao MS 2006)

Dilemma:

–Stores without information on shopping basket composition end up leaving money on the table when competing for more large-basket shoppers by simultaneously providing a “subsidy” to small basket shoppers.  The dilemma is how to offer higher value to large-basket shoppers but not to the small-basket shoppers.

The authors suggested implementing a data-analytics program so that retailers can acquire information that enables them to price intellegently in the presence of basket heterogeneity.  The results show that the use of DA program enables:

  1. intellegent pricing
  2. better segmentation
  3. higher profits

Through:

  1. identifying a good that large-basket shoppers buy but not small-basket shoppers, and lower the price of that good
  2. sending store coupons to their “preferred” customers that offer higher discounts to consumers buying larget baskets

As a result, a DA program allows retailers to compete for large-basket shoppers without subsidizing the small-shoppers too much.

From a practical point of view, supermarkets that have a reward card program are in a good position to implement a DA program. 

  • able to target individual shoppers with rewards
  • more special offers that exploit data-analytics by taking into account the preferences and buying patterns of individual households
  • help in implementing segmentation strategies based not on who has the card, but on purchase patterns
  • better data to improve the pricing through data-analytics
  • provides a true reward to the large-basket shoppers
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