Family Dollar Tests Basket Analysis

Mar 11, 2010
Tom Ryan

Tom Ryan

a project last year, Family Dollar worked with Applied Predictive Technologies
(APT), a leading provider of test and learn management systems to retailers
and consumer products companies, to understand what’s happening at the
basket level and found implications for in-store promotions, merchandising,
and even operations.

one test, circulars were mailed to customers of roughly one-half of Family
Dollar’s over 6,600 stores with roughly the other half only including in-store
circulars. A small subset of the network did not receive a circular at all.
The circular test ran for about 10 days beginning at month end.

at a session at the 2010 NRF’s convention in January, Brian Strickland,
divisional vice president of market strategy and business development research
at Family Dollar, said the off-pricer suspected that circulars lifted overall
basket size and the test confirmed it. The bigger benefit was learning
what items particularly drove basket size. Using laundry and underwear
as generic examples, it found that both generated
similar sales when those items were featured in circulars but laundry had
a significantly higher lift on overall basket size than underwear.

our fictional example, featuring laundry turned out to be twice as important
as featuring underwear," said Mr. Strickland.

this has been able to allow us to do is really take a hard look at those
baskets and understand what’s happening in these situations," said Mr.
Strickland. "We have customers coming in response to promotions and we’re
better understanding the impact on margins and obviously what is the impact
on margin on that promotion. What that’s allowing us to do is make more
informed circular distribution decisions."

the merchandising side, basket analysis has proven to be particularly helpful
in new product introductions, particularly in understanding which products
drive incremental lift across categories. Overall, it’s helping Family
Dollar merchants better understand which items are good sellers on their
own but provide limited basket-size impact; versus good sellers that also
tend to lead to larger baskets. Said Mr. Strickland, "The key is trying
to get more analytics into the hands of the merchants to make better decisions."

analysis also aided in optimizing productivity during extended store hours.
Basket-store analysis gave Family Dollar the ability to look at what products
are being sold at what time, be it day-of-the-week or time-of-day. 

helped merchants better tailor promotions but it also aided its operations
team. "We were able to tell our operations team, ‘Hey guys, during the
weekend we need to make sure we cover these areas of the store better than
we have in the past’ because we know what those transactions look like
on weekends versus weekdays. With the extended store hours program, one
of the things that we were also able to answer was what were we selling
at those early morning hours and at those evening hours and what were the
margin rates on those baskets to help us make overall better decisions."

a better understanding of baskets helped Family Dollar with affinity analysis,
or being able to go in and identify items that sell well together. For
instance, the test found that buyers of laundry were 14 times more likely to
buy fabric softener. "That’s an item that wasn’t featured in the promotion
but it’s obviously had a huge impact."

Questions: How do you think better access to basket analysis insights
can help retailers and vendors?

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15 Comments on "Family Dollar Tests Basket Analysis"

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Dick Seesel
11 years 1 month ago

There are at least a few key benefits of market basket analysis, for any retailer not just Family Dollar:

1. Understanding the “market basket” of your best customers in particular is a key component of good Customer Relationship Management;
2. Market Basket analysis gives merchants a greater idea about the efficacy of cross-promoted categories;
3. Most important, this kind of tool can help management do a better job aligning store adjacencies, layouts and endcaps to actual shopping habits.

Family Dollar should benefit greatly from this study, and almost every other kind of retailer ought to go through the same exercise.

Anne Howe
11 years 1 month ago

This analysis is what’s needed to help vendors better serve Family Dollar with cross promotion strategies and programs to help build business for both. It also helps to verify shopper mindset and how important “solution planning” can be for merchandising.

Gene Detroyer
11 years 1 month ago
Are shoppers likely to respond more to a high consumable product on promotion than a very low consumable? Are shoppers more likely to respond to a pantry-stored item on promotion than a replacement item? Of course! When shoppers are engaged in a category (laundry) are they more likely to purchase other category items (fabric softener)? Yes! When shoppers shop a promotional price retailer, are they more likely to respond to promotional advertising? Yes, again! One hopes that the examples given were simplistic and obvious and used because they didn’t give away any unique findings. Because if this is the type of conclusions they discovered, they wasted their money. Family Dollar is a smart retailer and all should assume there is more to the research than they disclosed. The reality is that basket analysis is invaluable and should be executed on a regular basis. There are so many variables to observe (an infinite number) that every iteration should provide insight. Of particular value is what the retailer can do in the store to flex the ultimate… Read more »
Steve Montgomery
11 years 1 month ago

With scanning we learned what was being sold. With market basket analysis we know what was sold with what, when, etc. As with any tool, the value is not in collecting the information but use of the insights gained from the analysis. The Family Dollar article illustrates that what was thought of as marketing tool can have operational impact as well.

The balance of art and science for marketing is continuing its metamorphosis towards the scientific side. Link it to loyalty data and you have a very complete picture of what is happening.

Bill Emerson
Bill Emerson
11 years 1 month ago
Retailers have always faced two big problems. The first is the sheer number of transactions. Walmart, as an extreme example, records around 30 BILLION transactions a year. This makes retailing equivalent to managing the flow of water with an unusual twist. You try to manage the river by managing the individual drops. The second problem is that retailers tend to organize their merchandising organizations, sales floors, and marketing by category. Customers, unfortunately, do not shop this way. They shop for solutions, which may cross over many categories. The classic example is a customer at a food store who wants a hamburger for dinner. He has to go to the butcher, the bakery, the green grocer, and the condiments aisle. Each of these categories has separate buyers and floor managers who are largely unaware of the related purchases. Years ago there was a study that credited the growth of the fast food industry to this approach. Anything that can help merchants understand the whole purchase, as opposed to individual looks at the individual pieces is a… Read more »
Anne Bieler
Anne Bieler
11 years 1 month ago

Good example of the right information for retailer to understand the value proposition of their core shoppers. Market basket analytics are a good way to validate market efforts, as discussed in the example. Learning shopper buying preferences is the first step, then developing the data into a shared resource provides collaborative opportunities for both retailer and vendor.

Jonathan Marek
11 years 1 month ago

Family Dollar’s examples demonstrate how market basket analysis can be taken from interesting to valuable. The specific ideas Brian Strickland discussed about would work well at any major retailer.

As retailers think about better using market basket analysis, here are some additional ways APT has seen clients generate value:
– assessing product loyalty within a category by tying basket and customer data;
– estimating the “hidden cost” of any promotion (BOGO, x% off, $10 off $50, etc.) by analyzing past baskets;
– understanding how store-level and market-level actions such as new displays, media, remodels, or even labor changes impact different types of baskets.

This is a analytical capability every retailer ought to have in house. Our clients are just getting started in finding innovative and valuable uses of this type of analysis.

James Tenser
11 years 1 month ago

Market basket analysis is a key component of in-store sensing that focuses on what may be inferred from a close and detailed look at the transaction log. It is absolutely necessary for refining one’s understanding of promotion effectiveness, but we shouldn’t stop there.

One very promising aspect is derived from understanding product interaction effects. Putting laundry detergent on a sharp deal may favorably influence the purchase of companion items–like the fabric softener bump mentioned in this case. However, it may also influence the purchase of apparently non-related items, if the advertised deal affects trip mission or timing.

Tests that reveal which promotions trigger trips (not just item lift) will help retailers refine choices about what to feature on circulars. To fully grab hold of those insights may require a bit more than basket analysis, but this is a an excellent start.

Doron Levy
Doron Levy
11 years 1 month ago

Basket analysis is critical to any retailers that has high volumes of transactions. Think of the optimization that could be done. A few minor tweaks could generate hundreds of thousands of dollars in revenue for the bottom line. A basket strategy is important, especially for a format like Family Dollar.

Liz Crawford
11 years 1 month ago

Basket analysis is terrific–helping to understand what is driving trip missions as well as adjacent brand affinities.

Featuring certain items in the circular may be associated with higher basket rings, however, I think that it also points to trip missions. This information is useful because Family Dollar can provoke certain trip missions according to its strategic goals, and drive further sales in store.

Paula Rosenblum
11 years 1 month ago

I was just talking with a reporter yesterday about the Walmart SKU rationalization uproar. My contention is that sound market basket analysis would have revealed a lot about who was buying what brands, and might have led to better decision-making.

Market basket analysis is one of the most important technologies retailers have in their arsenal. Of course, we also now have the instant massive focus group called “Social Networking” to help in our analysis as well.

Michael Justice
Michael Justice
11 years 1 month ago

One of the best discussions in terms of application to our retail business I have seen here in a long time! My mind is racing with possible applications. Keep up this kind of good work.

W. Frank Dell II
11 years 1 month ago

Basket analysis is simply re-naming something grocers have done for years. And vendors use it to sell promotions every day. Every item has a multiple when put on promotion. This multiple varies by the level of support. But an item multiple does not always translate into a basket increase. In fact it can result in a basket or transaction decrease.

We use multiple regression analysis to identify the items that increased the transaction size. Put hot dogs on sale and buns increase, plus the total transaction increases when they add mustard to the cart. Every good buyer or category manger knows the items that will kick up sales. This may be new for alternative channels, but should not new to grocers.

Brent Buttolph
Brent Buttolph
11 years 1 month ago

It’s always great to hear when retailers are realizing benefits from leveraging their transaction (basket) data to gain deeper insights on consumer behavior, and even better when hearing that they are taking action on those insights!

Moving from occasional research to ‘operationalized’ BI delivery in ‘business time’ is really the next step to making this real and actionable, which is assumed this particular retailer is now working towards.

Taking it to the ‘next’ level of segmenting customers/baskets (purchase behavior profiles) is where the opportunities to strategically differentiate in the marketplace really begin to take shape…

…and the retailers who have been doing this over time are the ones who are leaders in their respective sub-verticals!

Cathy Hotka
11 years 1 month ago

The very smart people at Family Dollar have been examining what their customers buy for years, and their growth has been spectacular as a result. They’re making product and placement decisions on the results. Expect others to follow….


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