Affinity analysis
Encyclopedia
Affinity analysis is a data analysis
and data mining
technique that discovers co-occurrence relationships among activities performed by (or recorded about) specific individuals or groups. In general, this can be applied to any process where agents can be uniquely identified
and information about their activities can be recorded. In retail, affinity analysis is used to perform market basket analysis, in which retailers seek to understand the purchase behavior of customers. This information can then be used for purposes of cross-selling
and up-selling
, in addition to influencing sales promotion
s, loyalty programs, store design, and discount plans
.
. Amazon
uses affinity analysis for cross-selling when it recommends products to people based on their purchase history and the purchase history of other people who bought the same item. Family Dollar
plans to use market basket analysis to help maintain sales growth while moving towards stocking more low-margin
consumable goods
. A common urban legend
highlighting the unexpected insights that can be found involves a chain (often incorrectly given as Wal-Mart
) discovering that beer
and diaper
s were often purchased together, and responding to that by moving the beer closer to the diapers to drive sales; however, while the relationship seems to have been noted, it is unclear whether any action was taken to promote selling them together.
Data analysis
Analysis of data is a process of inspecting, cleaning, transforming, and modeling data with the goal of highlighting useful information, suggesting conclusions, and supporting decision making...
and data mining
Data mining
Data mining , a relatively young and interdisciplinary field of computer science is the process of discovering new patterns from large data sets involving methods at the intersection of artificial intelligence, machine learning, statistics and database systems...
technique that discovers co-occurrence relationships among activities performed by (or recorded about) specific individuals or groups. In general, this can be applied to any process where agents can be uniquely identified
Unique identifier
With reference to a given set of objects, a unique identifier is any identifier which is guaranteed to be unique among all identifiers used for those objects and for a specific purpose...
and information about their activities can be recorded. In retail, affinity analysis is used to perform market basket analysis, in which retailers seek to understand the purchase behavior of customers. This information can then be used for purposes of cross-selling
Cross-selling
Cross-selling is the action or practice of selling among or between established clients, markets, traders, etc. or the action or practice of selling an additional product or service to an existing customer. This article deals exclusively with the latter meaning. In practice, businesses define...
and up-selling
Up-selling
Upselling is a sales technique whereby a seller induces the customer to purchase more expensive items, upgrades, or other add-ons in an attempt to make a more profitable sale. Upselling usually involves marketing more profitable services or products but can also be simply exposing the customer to...
, in addition to influencing sales promotion
Sales promotion
Sales promotion is one of the four aspects of promotional mix. Media and non-media marketing communication are employed for a pre-determined, limited time to increase consumer demand, stimulate market demand or improve product availability...
s, loyalty programs, store design, and discount plans
Discounts and allowances
Discounts and allowances are reductions to a basic price of goods or services.They can occur anywhere in the distribution channel, modifying either the manufacturer's list price , the retail price , or the list price Discounts and allowances are reductions to a basic price of goods or services.They...
.
Examples
- Market basket analysis might tell a retailer that customers often purchase shampoo and conditioner togetherCorrelationIn statistics, dependence refers to any statistical relationship between two random variables or two sets of data. Correlation refers to any of a broad class of statistical relationships involving dependence....
, so putting both items on promotion at the same time would not create a significant increase in profit, while a promotion involving just one of the items would likely drive sales of the other. - Market basket analysis can be used to divide customers into groups. A company could look at what other items people purchase along with eggs, and classify them as baking a cake (if they're buying eggs along with flour and sugar) or making omelets (if they're buying eggs along with bacon and cheese). This identification could then be used to drive other programs.
Business Use
Business use of market basket analysis has significantly increased since the introduction of electronic point of salePoint of sale
Point of sale or checkout is the location where a transaction occurs...
. Amazon
Amazon.com
Amazon.com, Inc. is a multinational electronic commerce company headquartered in Seattle, Washington, United States. It is the world's largest online retailer. Amazon has separate websites for the following countries: United States, Canada, United Kingdom, Germany, France, Italy, Spain, Japan, and...
uses affinity analysis for cross-selling when it recommends products to people based on their purchase history and the purchase history of other people who bought the same item. Family Dollar
Family Dollar
Family Dollar is a regional chain of variety stores in the United States. It opened in 1959 and operates approximately 6,617 stores in 44 states and the District of Columbia. It is headquartered in Matthews, North Carolina....
plans to use market basket analysis to help maintain sales growth while moving towards stocking more low-margin
Gross margin
Gross margin is the difference between revenue and cost before accounting for certain other costs...
consumable goods
Fast Moving Consumer Goods
Fast moving consumer goods or Consumer Packaged Goods are products that are sold quickly and at relatively low cost. Examples include non-durable goods such as soft drinks, toiletries, and grocery items...
. A common urban legend
Urban legend
An urban legend, urban myth, urban tale, or contemporary legend, is a form of modern folklore consisting of stories that may or may not have been believed by their tellers to be true...
highlighting the unexpected insights that can be found involves a chain (often incorrectly given as Wal-Mart
Wal-Mart
Wal-Mart Stores, Inc. , branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000...
) discovering that beer
Beer
Beer is the world's most widely consumed andprobably oldest alcoholic beverage; it is the third most popular drink overall, after water and tea. It is produced by the brewing and fermentation of sugars, mainly derived from malted cereal grains, most commonly malted barley and malted wheat...
and diaper
Diaper
A nappy or a diaper is a kind of pant that allows one to defecate or urinate on oneself discreetly. When diapers become soiled, they require changing; this process is often performed by a second person such as a parent or caregiver...
s were often purchased together, and responding to that by moving the beer closer to the diapers to drive sales; however, while the relationship seems to have been noted, it is unclear whether any action was taken to promote selling them together.
Further reading
- J. Han et al., 2006, Data Mining: Concepts and Techniques ISBN 978-1-55860-901-3
- V. Kumar et al. 2005 Introduction to Data Mining ISBN 978-0-321-32136-7
- U. Fayyad et al. 1996 Advances in Knowledge Discovery and Data Mining ISBN 978-0-262-56097-9