The topic for my class today was technology in the business world, and one of the items we discussed was data mining.
Data mining involves using technology and algorithms to discover previously unknown relationships between two or more items.
There is a story related to data mining that I have told for years; the truth of the story has always been a matter of debate.
“One Midwest grocery chain used the data mining capacity of Oracle software to analyze local buying patterns. They discovered that when men bought diapers on Thursdays and Saturdays, they also tended to buy beer. Further analysis showed that these shoppers typically did their weekly grocery shopping on Saturdays. On Thursdays, however, they only bought a few items. The retailer concluded that they purchased the beer to have it available for the upcoming weekend. The grocery chain could use this newly discovered information in various ways to increase revenue. For example, they could move the beer display closer to the diaper display. And, they could make sure beer and diapers were sold at full price on Thursdays.”
Walmart has often been substituted for the “grocery chain”, but in most versions of the story, the store is unidentified, adding to the questionable nature of the story.
I tell my students that you can probably imagine such a (stereotyped) scenario taking place; a young dad is at work while his wife stays at home with a newborn. The dad is finishing up a long week at work and wants nothing more than a few beers for the weekend, so he stops at “Walmart” on the way home. Knowing this is his habit, his wife calls him to ask him to also pick up diapers (and perhaps a few beers for her as well).
Once the store sees some type of correlation between these two products, it can take advantage of it by moving the products closer together. This has the added benefit of either
- a) reminding the dad to pick up some diapers, as his mind is likely just focused on the beer, even though his wife just reminded him to do so five minutes ago, or
- b) giving the opportunity for the dad to look like a hero for picking up a box of diapers without a reminder from his wife
And pricing the products at full price on the days of the week when such sales are most likely to happen is another genius move by the business since at that point, the dad will likely pay whatever price the products are listed for.
The story was first reported back in the mid 90s, and spread quickly around the world as an example of the power of data mining. Many people questioned the veracity of the story, but it wasn’t until 2002 that someone decided to do some digging to see if he could get to the bottom of the story.
In 1992, Thomas Blischok, manager of a retail consulting group at Teradata, and his staff prepared an analysis of 1.2million market baskets from about 25 Osco Drug stores. Database queries were developed to identify affinities. The analysis “did discover that between 5:00 and 7:00 p.m. that consumers bought beer and diapers”. Osco managers did NOT exploit the beer and diapers relationship by moving the products closer together on the shelves. This decision support study was conducted using query tools to find an association. The true story is very bland compared to the legend. So if someone asks you about the story of “data mining, beer and diapers” you now know the facts. The story most people (like me) tell is fiction and legend.
(it should also be noted that some people question even this version of the story, so perhaps we will never know).
But even if it is not true, it’s an easy to understand example of the POTENTIAL benefit of data mining.
Final thoughts: If data mining was just coming into existence now, a story to explain it might involve Whole Foods noticing that the sales of organic coconut water and cloth diapers are correlated and that such a combo is usually ordered using home delivery. Whole Foods responds by marking up their prices on the two products to a level that is nearly triple the competition.
Somehow that doesn’t seem like the sort of story that would go viral…
*image from Beau-coup