Relationship between product based loyalty and clustering based on supermarket visit and spending patterns

Abstract

Loyalty of customers to a supermarket can be measured in a variety of ways. If a customer tends to buy from certain categories of products, it is likely that the customer is loyal to the supermarket. Another indication of loyalty is based on the tendency of customers to visit the supermarket over a number of weeks. Regular visitors and spenders are more likely to be loyal to the supermarket. Neither one of these two criteria can provide a complete picture of customers’ l The decision regarding the loyalty of a customer will have to take into account the visiting pattern as well as the categories of products purchased. This paper describes results of experiments that attempted to identify customer loyalty using thes e two sets of criteria separately. The experiments were based on transactional data obtained from a supermarket data collection program. Comparisons of results from these parallel sets of experiments were useful in fine tuning both the schemes of estimating the degree of loyalty of a customer. The project also provides useful insights for the development of more sophisticated measures for studying customer loyalty. It is hoped that the understanding of loyal customers will be helpful in identifying better marketing strategies. 1. Introductionloyalty is an important component of marketing analysis in a supermarket. The loyalty of a customer may be apparent through the products bought by the customer. Certain product categories such as bread and eggs may have a higher ability to distinguish between loyal and disloyal customers. Other product categories such as coffee/tea and ketchup may not be deterministic of a customer’s loyalty but may simply enhance their degree of loyalty. Establishing a scoring system based on such key product categories is one possible way of determining customer loyalty. However, the dietary habits of some loyal customers may lead to lower loyalty scores if they are based solely on product categories. Studying patterns in tra nsactional records can also provide important clues about the loyal patrons of the supermarket. It is important to conduct parallel analyses of products purchased and transaction patterns for identifying loyal customers. The two separate analyses can also be used for fine-tuning each other. This paper reports the results of experiments that studied various characteristics of loyal customers based on the products purchased and visiting patterns. The experiments were based on the data obtained from a large national supermarket chain, which was gathered over a thirteen-week period in 2000. The project was divided into two parallel streams: product based and transaction pattern based analyses. The product based analysis started with a preliminary definition of loyal customers, based on spending levels. 1 The authors would like to thank NSERC Canada, the Nova Scotia Cooperative Employment Program, and the Senate Research Grant Committee of Saint Mary’s University for the financial support. The authors are also grateful to the supermarket chain and it’s management for allowing us the use of the data.