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Research on Application of Market Basket Analysis in Online Retail Industry

In recent years, with the development of information technology and the transformation of our life styles, online retail industry becomes a new force suddenly rises and a potent competitor with traditional retail industry. Because of the di
Submitted On: 04-01-2010 | Views:	Article Tools:

In recent years, with the development of information technology and the transformation of our life styles, online retail industry becomes a new force suddenly rises and a potent competitor with traditional retail industry. Because of the difference of operation mode between them, the management methods in traditional retail industry cannot be directly applied to online retail industry. Therefore managers in this emerging industry have to face new problems such as how to make decisions in website construction, product arrangement and promotion.By the application of market basket analysis method to online retail industry, more information hidden behind transaction data could be find out and provided to decision makers for their reference. This paper introduces some operation theories of online retail industry, the concept of market basket analysis and association rules mining methods, and advances a novel application of multivariate time-series technique to the analysis of cross-price elasticity between products so as to find out how the prices and sales between association products could affect each other.Above research results are applied to an empirical research of an online store for baby and mother, and following are some conclusions drown from the study:1. Support and Interest are two proper criterions for market basket analysis.2. the association rules between products could be used for product arrangement and recommendation in the retail website.3. impulse-response functions derived from vector autoregressive model could clearly show the directions of cross-price elasticity between products.4. by the analysis of cross-price elasticity between products, the relationship between association products could be divided into compensation, substitute and independence, which provides useful information for managers to make price promotion decisions.At the end of this paper, the research results are extended to online retail industry to provide useful suggestions about the construction of the website and operation strategies for managers in this rising industry.

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