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 the people purchases for their consumption.
How to calculate the market basket price?
To calculate the market basket, you must multiply basket prices for each category (housing, transportation, recreation, apparel, education, etc.) by the predetermined weight and sum the results.
Market Basket Analysis is an analytical method that identifies the items a customer buys together. You can use MB analysis to determine the items purchased and decide on product placement and 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 together 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 do 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 come up with 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 who have already demonstrated an interest 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. In some cases, the correlation between two products is just an accident and doesn’t mean anything about the relationship between them. For example: let’s say that 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 just more convenient for customers (and easier 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’s essential to look for ways to improve your customer flow.
- Offering discounts is one way to encourage more people to enter your store and make a purchase.
- Advertising nearby can also result in more people coming into your store.
- Offering loyalty rewards programs is yet another way to draw more traffic from existing customers and new customers. Loyalty rewards programs are particularly effective at getting impulse buyers who are 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 proven successful in bringing 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 the total amount each customer in-store spends.
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.
If you want to generate more revenue from your brick-and-mortar shop, you should try running market basket analyses on your data.
You know you want to calculate market basket price, but you 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 so that it’s 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 overall customer satisfaction by making it easier for customers 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 products in the basket. Retailers use market basket analysis (also known as 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