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 promotions, loyalty programs, store design, and discount plans.
Market basket analysis might tell a retailer that customers often purchase shampoo and conditioner together, so putting both items on promotion at the same time would not create a significant increase in revenue, while a promotion involving just one of the items would likely drive sales of the other.
Market basket analysis may provide the retailer with information to understand the purchase behavior of a buyer. This information will enable the retailer to understand the buyer’s needs and rewrite the store’s layout accordingly, develop cross-promotional programs, or even capture new buyers (much like the cross-selling concept). An apocryphal early illustrative example for this was when one super market chain discovered in its analysis that male customers that bought diapers often bought beer as well, have put the diapers close to beer coolers, and their sales increased dramatically. Although this urban legend is only an example that professors use to illustrate the concept to students, the explanation of this imaginary phenomenon might be that fathers that are sent out to buy diapers often buy a beer as well, as a reward. This kind of analysis is supposedly an example of the use of data mining. A widely used example of cross selling on the web with market basket analysis is Amazon.com’s use of “customers who bought book A also bought book B”, e.g. “People who read History of Portugal were also interested in Naval History“.
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 are buying eggs along with flour and sugar) or making omelets (if they are buying eggs along with bacon and cheese). This identification could then be used to drive other programs. Similarly, it can be used to divide products into natural groups. A company could look at what products are most frequently sold together and align their category management around these cliques.