Retail Accounting

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Basket analysis for the smaller retailer

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We all know that the large supermarket chains analyse the basket of goods purchased by each customer and use this information to optimise their sales offering. We also know that this requires complicated analysis software to mine the data from many stores looking for trends which are not always easy to spot.

An example might be finding that a low selling stock item frequently appears in the basket of high spending customers. Simple analysis using a standard Back Office System might suggest that this item is not worth holding in stock if it is in the bottom 50 sellers however if you do stop selling it you might lose some of the high spending customers as they will go elsewhere. With a sophisticated analysis system you could test this by removing the item at some stores and see if the customers fail to return. For a retailer with one, or a small number of stores, this type of analysis is not possible. So what are the alternatives? Below we suggest a number of simple (and cheap!) ways to perform your own review of customer behaviour. They are not all strictly forms of basket analysis but they will help you achieve the right product mix in your store.

1.     What am I not stocking that people need?

You are running a convenience store and you see a customer enter the store. They look around the shelves and go out again. What were they looking for? The easiest way to find out is to ask them, “Can I help you, is there something you’re looking for?” If you’re lucky you may make a sale as you have the item in stock but the customer can’t find it, in this case you may want to review the planogram you are using as it didn’t work for this customer. If they are looking for something you don’t stock you can either offer to order it for them or make a note to add it to your next order if it is a new product. This can be particularly effective with products sold on a sale or return basis as you only risk having capital invested while the item is in stock.

2.     Look in their basket

This should be obvious but the main problem here lies in staff training. If you are running a small family business most retailers will instinctively have a look at what a customer is buying and perhaps suggest a new or alternative product they think the customer would like. The problem is training and motivating your staff to do this “manual” basket analysis for you. The big supermarket chains overcome this by analysing the data coming from the POS/BOS and not relying on training staff to look for trends. You have an advantage over the supermarkets in that if you can train and motivate your staff to interact with the customers and monitor their purchases you will have information directly relevant to your store and not based on the average performance of many stores in different locations. Consider motivating your staff by having an employee of the month award for increased sales on their shift, this could be with or without a financial incentive. For an article on suggestive selling at the till see http://www.csnews.com/article-the_power_of_suggestion-1453.html .

3.     We get requests

This is related to point one. Although many potential customers will enter and leave a shop without asking for information about a product they are looking for, others will ask if an item is in stock, more so if they are an existing customer and already have a relationship with the staff. Ask your staff to make a note of any requests and review them regularly to add new stock items to your orders.

4.     How many sales am I losing?

Try to measure the number of customers you fail to make a sale to and use this as a performance indicator to see if new strategies are improving sales. In a small retail outlet there are two ways of doing this using a simple tally counter which can be bought for a few Pounds/Dollars/Euros (see http://www.tallycounterstore.com for examples).
Either:

  • Click the tally counter every time a customer enters the shop and then deduct the number of sales made during the day as recorded in the POS. This is easy to do and requires little concentration but can result in unquantified errors as it is difficult to account for a group of people entering the shop together to make a single purchase.
  • Click the tally counter only for potential customers who enter and leave without buying. This requires more concentration and can become difficult to monitor if several customers are waiting to be served. (This in itself may deter customers who do not like waiting in line).

Analyse the figures per day of the week over a period of time to gain an understanding of how the ratio of sales per potential customer varies.

5.     Use your BOS

Even low price POS/BOS systems now have powerful analytical tools available to monitor sales trends by sales item and product category. If you have a promotion running monitor the sales of the promotional items and other alternative products. Don’t just sit and hope that the promotion recommended by a supplier is increasing your profit. It might be increasing overall sales of their product but not increasing your profit.

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Author: retailaccounting

CounterBooks is an online retail accounting management suite which is used by retailers across the world.

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