What is Market Basket Analysis (MBA)?

Market Basket Analysis (MBA), also known as affinity analysis, is a data mining technique. You can use MBA to uncover meaningful correlations across products and customer purchase patterns.

Market Basket Analysis is the process of analyzing which items are most often purchased together, even if they are unusual combinations. For example, MBA might show that your customers buy quinoa bowls and sweet potato fries together. This information helps you understand the profitability of the combination, how frequently the items are purchased together, and the revenue the combination brings to your business vs. other menu items and combinations.

You can use what you learn from MBA to offer a product mix that aligns with your restaurant's audience, be more strategic with your menu design, product mix and restaurant marketing strategy. 

At GoGoGuest, Market Basket Analysis is a data analytics module that provides restaurateurs with fast, actionable insights that help you increase your sales performance and profitability. Read Sweet Wheat Bakery's success story: Science of Product Mix Optimization & Market Basket Analysis.

Let's dive in and explore more!

Overview

Market Basket Analysis helps businesses understand product correlations by predicting consumer purchasing behaviors. It is especially useful for identifying unique buying trends that would otherwise be impossible to recognize.

For restaurant businesses, Market Basket Analysis will take you from reactive to proactive. With GoGoGuest Market Basket Analysis, you'll have the tools to:

• Enhance restaurant menu programs with items and combinations that are naturally frequently bought together.
• Improve menu design with dynamic personalization. Restaurants who use personalization in menu displays and marketing campaigns are able to offer combinations that is unique to the purchasing pattern of each customer. Explore the possibilities of dynamic personalization.
• Upskill the front of the house team to upsell and cross-sell menu item recommendations.
• Restaurant marketers can integrate actionable insights to personalize customer journeys by product combinations.
• Implement better food inventory across all ordering channels. Know what menu items are popular that naturally increase the total spend per visit.

Market Basket Analysis as a data analytics practice helps businesses understand product correlations by predicting consumer purchasing behaviors. It is especially useful for identifying unique buying trends that would otherwise be impossible to recognize. Here's a comprehensive guide to understanding MBA.

"When a restaurant business is able to transform large volumes of data into practical insights, it can have a significant impact."

The customer insights derived from Market Basket Analysis can be utilized by teams from operations, marketing and the front of the house. When team members are aligned about the business strategy and the customer experience framework of your business it is easier to get everyone on the same page with enhancements, changes and recognizing what success looks like.

How does market basket analysis work in a restaurant business?

Market Basket Analysis works by analyzing the purchase patterns of each menu item that are consistently purchased together by customers with similar profiles. At GoGoGuest, we are using established machine learning libraries combined with our our proprietary algorithm that is focused on restaurant businesses to determine connections between two or more different behavior variables (in this case, products purchased).

This is how it functions to some extent.

37% of your customers who purchases a large latte will also buy a strawberry donut, they might also want to buy a second chocolate covered donut, increasing the average order per visit (AOV) to $12.50.

When the chocolate covered donut is not available, 5% of the large latte and strawberry donut consumers do not buy a second donut, adjusting your AOV to $8.75.

Meanwhile, 10% of the large and strawberry donut consumers downgrade to a large latte and a plain donut when the strawberry donut is not available, adjusting your AOV to $7.75.

The complex math calculations and formulas behind Market Basket Analysis are analyzing large data sets (thanks for doing the hard work for us, AI!). The value of GoGoGuest Market Basket Analysis tool means that new product correlations and shifts are easily visible to a restaurant team, so they can take action.

"Our daily specials are a big draw for local and first time customers." Ronnie Evans, Blue Oak BBQ

More examples

Let's say you run a coffee shop, and you have an item on the menu that isn't selling as much as it did when you launched it: a triple chocolate chip cookie, for example.

Your data (i.e. triple chocolate chip cookie sales) shows that you're only making $1,000 a month from this type of cookie, which you're selling for $3 each. All your other types of cookies, sold at the same price, are making $5,000 a month.

Initially you might think of taking the triple chocolate chip cookie off the menu as it looks much less profitable than your other cookies and it's selling much less. But using Market Basket Analysis, you see that 60% of your triple chocolate chip cookie customers are also buying a large latte and a soda, bringing your business an additional $12 in revenue each time they buy, totalling an additional $4,550 in revenue every month.

On the other hand, the analysis shows that customers buying other cookies aren't making any additional purchases: they're just buying a cookie.

Your business could use this information to:

• Get the FOH team to ask if customers would like a soda and/or a latte every time a customer orders a triple chocolate chip cookie to encourage cross-sell.
• Creating a new menu combo centered around triple chocolate chip cookies.
• Understand what part triple chocolate chip cookies play in your revenue, sales, inventory needs, and customer happiness.
• Market triple chocolate chip cookies differently or put them on the menu more prominently given their importance.
• Gain more insight into the true profitability of all cookies as a menu item.

There are two types

Market Basket Analysis is a method used to analyze large sets of data and apply rule sets. There are two types of MBA.

• Predictive
• Differential

What is predictive market basket analysis?

Predictive Market Basket Analysis forecasts which items are frequently bought together. It is mainly used to help a business pull the lever on cross-selling opportunities. For example, if lots of customers with a certain demographic profile or purchase buying habits buy specific products together, you can offer them selections or choices that they are likely to find highly appealing, thereby increasing the total average purchase.

What is differential market basket analysis?

Differential Market Basket Analysis is broader in scope. It can include what your customers buy, when, if a specific category of customer buys certain products and if there are monthly or seasonal differences in what they purchase. Comparing the results, differential market basket analysis lets you identify exactly which variables contribute to these buying patterns.

Understanding the purchase patterns of your customers ultimately helps you design a restaurant program that is attuned to audience preferences. This level of insights gives you the leg up to plan, train and execute on unique dining and customer experience.

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How can restaurants use market basket analysis?

Most restaurant-type businesses use Market Basket Analysis to increase profitability, make smarter decisions about the product mix and focus on the audience you'd like to attract, engage and grow into a loyal customer.

You can turn data into useful insights that drive your business forward. Change won't be trial and error and you can make decisions confidently, knowing they are based on solid customer data. Here are a few more practical applications of actionable customer insights:

• Make strategic menu choices and take smart decisions about what to offer, which products to group, and the menu items that drive profitability and customer satisfaction.
• Understand the products that are draining revenue and resources and decide if they should be dropped from the menu.
• Plan more effective marketing and promotions centered around the products and offers that will motivate customers to get in-store or make online purchases.
• Identify what your audience and core customer group want, market more effectively and increase cross-selling and upselling opportunities.

A restaurant business have vast amounts of data, but you possibly don't know how to use it to improve business efficiencies and boost profitability. You may also have to spend hours manually downloading pages of CSV files or spreadsheets, sorting and analyzing data from multiple sources, only to come up with a few ideas that you're unsure of. Meanwhile, hiring a Market Basket Analysis consultant or statistician can be a costly exercise. Besides, restaurant businesses are so dynamic that the analysis last week may no longer apply to the present day.

GoGoGuest offers a Market Basket Analysis tool that consistently analyzes your data to help you use it to meet your business goals. Market Basket Analysis will give you fast, actionable insights that help you increase your profitability.

Conclusion

Here are the benefits of adding market basket analysis in your restaurant management software quiver.

Using data effectively

If you're like most restaurant businesses, you probably have a lot of data about your customers, sales performance, and food inventory. You're also probably struggling to understand how to use your data and how it translates to actionable customer insights. The information from Market Basket Analysis will help you take the actions that move the needle on your business. From understanding what's driving profitability to identifying easy cross-selling wins, Market Basket Analysis is a great data analytics module that will help unlock this information for you.

Personalizing offers and promotions

When you understand your customers and their purchase patterns better, you can create more appealing and personalized promotions. This can be at the customer level, offering a deal or product pairing you know customers will like. Or you can offer more standardized promotions that offer frequently bought products together.

Identify product influencers

Identify the specific products and product categories that impact sales. Understand their role in profitability, how to leverage them for cross-selling or upselling, how to effectively manage inventory, and how to utilize them strategically in areas such as menu design.

Personalized product mix by sales channel

Whether you have a digital store or a brick-and-mortar location, you will be able to improve the placement of your products. You can use Market Basket Analysis to place keystone products front and center, provide recommendations, put products that are commonly bought together next to each other, and so on.

Identify and understand unusual product associations

Some menu combinations are obvious. Others aren't. Market Basket Analysis gives you the whole picture. You'll uncover more pairings or product associations and understand more about what customers want, why they are buying from you, and how these associations drive revenue.

Next Steps

Are you ready to stay ahead of the curve and your competition? GoGoGuest simplifies the process of running and growing a high-performing restaurant business with the right data and actionable customer insights. Book a demo.