Market Basket Analysis in Data Mining

geeksforgeeks.org/market-basket-analysis-in-data-mining

March 13, 2022

A data mining technique that is used to uncover purchase patterns in any retail setting is
known as Market Basket Analysis. In simple terms Basically, Market basket analysis in
data mining is to analyze the combination of products which been bought together.

This is a technique that gives the careful study of purchases done by a customer in a
supermarket. This concept identifies the pattern of frequent purchase items by customers.
This analysis can help to promote deals, offers, sale by the companies, and data mining
techniques helps to achieve this analysis task. Example:

Data mining concepts are in use for Sales and marketing to provide better customer
service, to improve cross-selling opportunities, to increase direct mail response
rates.
Customer Retention in the form of pattern identification and prediction of likely
defections is possible by Data mining.
Risk Assessment and Fraud area also use the data-mining concept for identifying
inappropriate or unusual behavior etc.

Market basket analysis mainly works with the ASSOCIATION RULE {IF} -> {THEN}.

IF means Antecedent: An antecedent is an item found within the data

THEN means Consequent: A consequent is an item found in combination with the
antecedent.

Let’s see ASSOCIATION RULE {IF} -> {THEN} rules used in Market Basket Analysis in
Data Mining. For example, customers buying a domain means they definitely need extra
plugins/extensions to make it easier for the users.

Like we said above Antecedent is the item sets that are available in data. By formulating
from the rules means {if} component and from the example is the domain.

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Same as Consequent is the item that is found with the combination of Antecedents. By
formulating from the rules means {THEN} component and from the example is extra
plugins/extensions.

With the help of these, we are able to predict customer behavioral patterns. From this, we
are able to make certain combinations with offers that customers will probably buy those
products. That will automatically increase the sales and revenue of the company.

With the help of the Apriori Algorithm, we can further classify and simplify the item sets
which are frequently bought by the consumer.

There are three components in APRIORI ALGORITHM:

SUPPORT
CONFIDENCE
LIFT

Now take an example, suppose 5000 transactions have been made through a popular
eCommerce website. Now they want to calculate the support, confidence, and lift for the
two products, let’s say pen and notebook for example out of 5000 transactions, 500
transactions for pen, 700 transactions for notebook, and 1000 transactions for both.

SUPPORT: It is been calculated with the number of transactions divided by the total
number of transactions made,

support(pen) = transactions related to pen/total transactions

i.e support -> 500/5000=10 percent

CONFIDENCE: It is been calculated for whether the product sales are popular on
individual sales or through combined sales. That is calculated with combined
transactions/individual transactions.

Confidence = combine transactions/individual transactions

i.e confidence-> 1000/500=20 percent

LIFT: Lift is calculated for knowing the ratio for the sales.

Lift-> 20/10=2

When the Lift value is below 1 means the combination is not so frequently bought by
consumers. But in this case, it shows that the probability of buying both the things
together is high when compared to the transaction for the individual items sold.

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With this, we come to an overall view of the Market Basket Analysis in Data Mining and
how to calculate the sales for combination products.

Types of Market Basket Analysis

There are three types of Market Basket Analysis. They are as follow:

1. Descriptive market basket analysis: This sort of analysis looks for patterns and
connections in the data that exist between the components of a market basket. This
kind of study is mostly used to understand consumer behavior, including what
products are purchased in combination and what the most typical item
combinations. Retailers can place products in their stores more profitably by
understanding which products are frequently bought together with the aid of
descriptive market basket analysis.
2. Predictive Market Basket Analysis: Market basket analysis that predicts future
purchases based on past purchasing patterns is known as predictive market basket
analysis. Large volumes of data are analyzed using machine learning algorithms in
this sort of analysis in order to create predictions about which products are most
likely to be bought together in the future. Retailers may make data-driven decisions
about which products to carry, how to price them, and how to optimize shop layouts
with the use of predictive market basket research.
3. Differential Market Basket Analysis: Differential market basket analysis analyses
two sets of market basket data to identify variations between them. Comparing the
behavior of various client segments or the behavior of customers over time is a
common usage for this kind of study. Retailers can respond to shifting consumer
behavior by modifying their marketing and sales tactics with the help of differential
market basket analysis.

Benefits of Market Basket Analysis

1. Enhanced Customer Understanding: Market basket research offers insights into
customer behavior, including what products they buy together and which products
they buy the most frequently. Retailers can use this information to better understand
their customers and make informed decisions.
2. Improved Inventory Management: By examining market basket data, retailers can
determine which products are sluggish sellers and which ones are commonly
bought together. Retailers can use this information to make well-informed choices
about what products to stock and how to manage their inventory most effectively.
3. Better Pricing Strategies: A better understanding of the connection between
product prices and consumer behavior might help merchants develop better pricing
strategies. Using this knowledge, pricing plans that boost sales and profitability can
be created.
4. Sales Growth: Market basket analysis can assist businesses in determining which
products are most frequently bought together and where they should be positioned
in the store to grow sales. Retailers may boost revenue and enhance customer
shopping experiences by improving store layouts and product positioning.

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 Applications of Market Basket Analysis
1. Retail: Market basket research is frequently used in the retail sector to examine
consumer buying patterns and inform decisions about product placement, inventory
management, and pricing tactics. Retailers can utilize market basket research to
identify which items are sluggish sellers and which ones are commonly bought
together, and then modify their inventory management strategy accordingly.
2. E-commerce: Market basket analysis can help online merchants better understand
the customer buying habits and make data-driven decisions about product
recommendations and targeted advertising campaigns. The behaviour of visitors to
a website can be examined using market basket analysis to pinpoint problem
areas.
3. Finance: Market basket analysis can be used to evaluate investor behaviour and
forecast the types of investment items that investors will likely buy in the future. The
performance of investment portfolios can be enhanced by using this information to
create tailored investment strategies.
4. Telecommunications: To evaluate consumer behaviour and make data-driven
decisions about which goods and services to provide, the telecommunications
business might employ market basket analysis. The usage of this data can enhance
client happiness and the shopping experience.
5. Manufacturing: To evaluate consumer behaviour and make data-driven decisions
about which products to produce and which materials to employ in the production
process, the manufacturing sector might use market basket analysis. Utilizing this
knowledge will increase effectiveness and cut costs.

Differential Market Basket Analysis is like comparing two shopping lists. Imagine you have two lists: one
from last week and one from this week. You want to see what’s different between them. Maybe this week
you bought more fruits and less junk food. This change tells you something about your shopping habits.
Similarly, businesses use this method to understand changes in what their customers are buying.
Association rule mining finds interesting associations and relationships among large sets of data items. This rule shows
how frequently a itemset occurs in a transaction. A typical example is a Market Based Analysis.
If an itemset set has value less than minimum support then all of its supersets will also fall below min support, and thus
can be ignored. This property is called the Antimonotone property.
Negative border : An itemset is in the negative border if it is not frequent in the sample, but all its immediate subsets
are frequent in the sample.

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