Given that most retail businesses rely on market baskets, it is essential to understand how to calculate market basket prices. Do you want to know more? The concept is not too difficult. So, if you are interested in learning how market basket price works, read along.
The Consumer Price Index or CPI market basket represents all the goods and services that people purchase for their consumption.
How do you calculate the market basket price?
To calculate the market basket, multiply basket prices for each category (housing, transportation, recreation, apparel, education, etc.) by the predetermined weight and sum the results.
Market Basket Analysis (MB) is an analytical method for identifying the items a customer buys together. It can be used to determine the items purchased and decide on product placement, promotions, or cross-selling.To conduct MB analyses, you need to create a transaction database where each row represents a transaction, and each column represents an item.
The values of this matrix are 1s and 0s, reflecting whether an item was purchased with another item in the same transaction or not. A shopping basket is a set of products that allows you to calculate the probability that any other in-store products will be bought. Let’s start with the definition of the shopping basket. A shopping basket is a set of products that allows you to calculate the probability that any other in-store products will be bought.
Calculate Market Basket Price Example
Let us give one practical example:
| Rank | Country | Average work week hours in 2022 |
|---|---|---|
| 1 | Cambodia | 47.6 |
| 2 | Myanmar | 47.1 |
| 3 | Bangladesh | 46.5 |
| 4 | Singapore | 44.8 |
| 5 | Malaysia | 42.3 |
| 6 | South Africa | 42.1 |
| 7 | Colombia | 41.8 |
| 8 | Philippines | 41.7 |
| 9 | China | 41.7 |
| 10 | Hong Kong | 41.3 |
| 11 | Dominican Republic | 41.2 |
| 12 | Peru | 41.1 |
| 13 | Vietnam | 41 |
| 14 | Mexico | 40.9 |
| 15 | India | 40.8 |
| 16 | Thailand | 40.2 |
| 17 | Taiwan | 40.1 |
| 18 | Indonesia | 38.8 |
| 19 | Pakistan | 37.8 |
| 20 | Sri Lanka | 37 |
| 21 | Costa Rica | 36.8 |
| 22 | South Korea | 36.7 |
| 23 | Russia | 36 |
| 24 | Croatia | 35.3 |
| 25 | Malta | 35.1 |
| 26 | Chile | 35.1 |
| 27 | Romania | 34.5 |
| 28 | Israel | 34.3 |
| 29 | Poland | 34 |
| 30 | United States | 34 |
| 31 | Ireland | 33.6 |
| 32 | New Zealand | 33.4 |
| 33 | Turkey | 33.3 |
| 34 | Greece | 33.2 |
| 35 | Czech Republic | 32.8 |
| 36 | Brazil | 32.8 |
| 37 | Cyprus | 32.7 |
| 38 | Australia | 32.4 |
| 39 | Hungary | 31.9 |
| 40 | Estonia | 31.8 |
| 41 | Canada | 31.6 |
| 42 | Portugal | 31 |
| 43 | Bulgaria | 30.9 |
| 44 | Argentina | 30.9 |
| 45 | Lithuania | 30.7 |
| 46 | Japan | 30.7 |
| 47 | Latvia | 30.3 |
| 48 | Spain | 30.3 |
| 49 | Slovakia | 30.2 |
| 50 | Italy | 30 |
| 51 | Ecuador | 29.8 |
| 52 | Uruguay | 29.5 |
| 53 | Finland | 29.4 |
| 54 | Slovenia | 29.1 |
| 55 | Switzerland | 28.8 |
| 56 | Belgium | 28.5 |
| 57 | Iceland | 27.6 |
| 58 | Sweden | 27.4 |
| 59 | Luxembourg | 27.4 |
| 60 | France | 27 |
| 61 | Austria | 26.9 |
| 62 | Netherlands | 26.9 |
| 63 | United Kingdom | 26.3 |
| 64 | Norway | 26.3 |
| 65 | Denmark | 25.9 |
| 66 | Germany | 25.6 |
From the Bureau of Labor Statistics, we can take relative importance:
Food 35%
Fuel 15%
Cloth 25%
Education 25%
Now we can do the calculation:
Download market basket price calculation in Excel.
Below, you can download the market basket calculator template in Excel:
Download the market basket calculator in Excel
You can use market basket analysis to see which items are purchased and offer those products at a discount.
Market basket analysis is one way to determine which items are often conjointly purchased by your customers. Once you know what things are generally purchased together, you can use this information to offer a discount on all three items or devise a coupon to buy these products together. This analysis is beneficial if you want to increase sales for complementary items that don’t usually sell well alone. It allows you to appeal directly to customers already interested in particular products.
As marketers, we like tools that show us correlations between product sales, but it’s important not to get too carried away by these statistics. Sometimes, the correlation between two products is just an accident and doesn’t mean anything about their relationship. For example, let’s say your swimwear store sells sunglasses at the register as impulse buys when people check out from buying bathing suits. It would be easy to conclude that swimsuits and sunglasses are often purchased together. Still, in reality, this isn’t true—it’s more convenient for customers (and more accessible on your bottom line) if they buy both at once rather than making two separate transactions.
You can increase your revenue by increasing the number of customers in-store.
The number of customers in your store is the most important factor when calculating market basket value. Increasing the number of customers by 10% can increase revenue by approximately 20%. Therefore, it is essential to look for ways to improve your customer flow.
- Offering discounts is one way to encourage more people to enter your store and purchase.
- Advertising nearby can also result in more people coming into your store.
- Offering loyalty rewards programs is another way to draw more traffic from existing and new customers. Loyalty rewards programs are particularly effective at getting impulse buyers already in your store to buy additional items they usually wouldn’t have purchased due to the discount they receive on their total sale amount with the program.
- Another tactic has successfully brought in lower-priced items that attract a wider audience than traditional grocery shoppers or Amazon Prime members (who typically have higher incomes). For example, selling bulk packages of toilet paper or offering free samples of chocolate chip cookies will likely increase the number of people walking through your doors while minimizing potential loss if they don’t buy anything else during their visit.
You can increase your revenue by increasing each customer’s total amount in-store.
One way to do this is to optimize your product categorization so items from the same category are always nearby and easy to find together. Another way is to offer discounts on products that are commonly bought together. For example, you could offer a discount for people who buy one of each type of shoe.
It would be best to try running market basket analyses on your data to generate more revenue from your brick-and-mortar shop.
You know you want to calculate the market basket price but might not know why. If you own a brick-and-mortar retail shop and have an existing loyalty club or card program, you can apply market basket analysis to the data collected by that program. The analysis results will help identify which items are most commonly purchased together, making it easier for your customers to find everything they need in one trip to your shop. This is an opportunity for you to increase sales in two ways:
- Promote products that are frequently purchased together to increase sales of both items.
- Increase customer satisfaction by making it easier to find everything they want and complete their purchases with minimal hassle.
Conclusion
A market basket price is calculated by dividing the total cost of the products in a market basket by the number of those in the basket. Retailers use market basket analysis (marketing mix modeling) to help them decide on promotional prices.
After leaving Wells Fargo Bank in 2014, Daniel began a career as a finance consultant, advising companies and individuals on economic policy, labor relations, and financial management.
At Promtfinance.com, Daniel writes about personal finance topics, value estimation, budgeting strategies, retirement planning, and portfolio diversification.
Read more on Daniel Smith's biography page.
Contact Daniel: daniel@promtfinance.com