Jurnal Isti Afrizal Bahasa Inggris

1
Analysis of Customer Characteristic towards Private Label

in Retail Industry using Data Mining
Isti Surjandari
1
, Afrizal Juansyah
2

Industrial Engineering Department, University of Indonesia, Depok 16424
Tel: (021) 78888805. Fax: (021) 78885656
Email:
1
isti@ie.ui.ac.id,
2
afrizal_tiui09@yahoo.com

Abstract
Private label demand will be likely to get higher as the consumers become more and more selective in
buying the products of high quality with an optimal price. However, in Indonesia, for some people, the
traditional perceptions of private label were once of low quality and just attracting the most cost-
conscious consumers. Considering this, retailers need to pay more attention to private label products in
facing the competition. The current study discusses consumers attitude and satisfaction with respect to
each category of private label products. Frequencies of purchase and consumer characteristics are also
discussed. Using Data Mining with C5.0 algorithm, the research resulting decision tree model that
contains a classification of PL customers based on their frequency of purchase.

Key words: Customer Characteristic; Data Mining; Decision Tree; Private Label; Retail Industry.

1. INTRODUCTION
The development of more advanced retail
industry lately has caused type, quality, and cost
of goods sold to be more varied. Often the
consumers find it difficult to distinguish goods
of medium quality and high quality only from
his physical appearance only, especially if the
product is packaged in an attractive packaging.
To avoid disappointment due to
misinterpretation in choosing items, many
consumers prefer goods produced by the
producer who has been known and has brand
popularity, which often appear in the
advertisement to assure the quality of the
product. Viewing such phenomena, some
retailers in Indonesia try to pack their product in
their own brand packaging which is commonly
referred as PL (Private Label). This is certainly
done with the considerations based on the good
company image that has been sustainable enough
and known by the customers. The majority of
consumers stated that the decision made on
buying products relies on cheap prices, good
quality, display position, the retailer brand, and
the packaging at last.
In addition, the prospect of the retail
industry is looking good in the future ahead. The
estimation until the end of the year reaches
approximately 16-17%. Modern retail is now
becoming the driver of the economic growth. It
has been constantly developed in improving the
quality based on the consumers appreciation.
One big obstacle that the private label in
Indonesia has been facing is the misinformation
of secondary quality of the product they produce,
which refers to second class consumers who
want to save money in buying goods. This leads
to the customers unwilling to buy and use the
private label products. In addition, the
phenomena could be related to the lack of
education and understanding in the market
society about the private label in developing
country. As for instance, Malaysia and Taiwan
have half of their respondents agreed that they
know only a few about retail brands to try the
products.
To face the challenge, the retail company
requires a precise and strong marketing strategy
while still paying attention to the characteristics
and behaviors of the developing market of
private label segmentation.
Based on the previous discussion, this
research is purposed to understand the
characteristic and behavior of private label
customer and the level of satisfaction in each
category that influence the frequency of PL
purchasing using data mining method. The data
2

used in this research is the primary data collected
from direct and online questionnaire.
The steps done in the research are divided
into three basic stages; initial identification, data
collecting and processing, analysis and
conclusion. At the first stage, the initial
identification is to sort out the basics of the
research which involve the topic, purpose, and
the research theory. The collecting and
processing data is the second stage begins with
determining the data needed up to processing it
to its final data form. The last stage will require
analysis to the processed data and to give the
final conclusion, with the suggestion added at
the end of the research.
2. THEORY

2.1 Definition of Data Mining
Data mining is the method used in
analyzing excessive number of data to
understand the hidden connections inside and
summarize them into a new understandable and
useful data for the reader [2].
Basic data applications had been used in
several fields including management, trade
industry data management, education,
government administration and others. The
problem is often found in processing the data is
the difficulty in finding the useful information
within the huge number. Therefore, this method
has become the answer to the problem.
2.2 Classification
Classification is a data mining function
that assigns items in a collection to target
categories or classes. The goal of classification is
to accurately predict the target class for each
case in the data. A classification task begins with
a data set in which the class assignments are
known.
Predictor variable is a variable on which
to base consideration in classifying the data into
classes. To achieve its objectives, the
classification has algorithms. The algorithm
itself is a set of commands or instructions to
solve a problem.
2.3 Decision Tree
Decision tree model is a method of
classification in data mining that uses a tree
structure representation where each node
represents an attribute, branches represent the
value of the attribute, and the leaves represent
the class.
Decision tree is the most popular method
of classification used. In addition to the
relatively rapid formation, the result of the
model that was built was easy to understand [3].
In the decision tree, there are three types
of nodes that have their respective functions. The
following is an explanation of the three nodes:
a. Root Node

As the topmost node in decision tree, this
node has no input and zero or more output.

b. Internal Node

A branching node, this node has only one
input and has an output of at least two attributes.

c. Leaf Node

An end node, at this node, there is only one
input and has no output. This node represents
class of classification.

The advantage of decision tree model is its
capability to break down process of complex
decision-making becomes much simpler so that
decision-makers will be easier to interpret the
solution of the problem.

2.4 C5.0 Algorithm

Algorithm is a set of commands or
instructions to solve a problem. C5.0 algorithm
is one of the decision tree algorithms. Decision
tree formed by this algorithm has non-binary
branches. This algorithm was developed by Ross
Quinlan.
C5.0 algorithms compute information gain
of each predictor variable. Predictor variables
that have the greatest information gain were
3

chosen to be the first branch level. At the first
level of branches, predictor variables that have
biggest information gain are chosen to split into
two branches at the level below the first level
branches. The step is repeated continuously until
all predictor variables split into branches.
C5.0 uses classification model in the form
of if-then to classify the data items that have
numeric and categorical attributes.
In general, the stages in the building
process of the algorithm C5.0 decision tree is as
follows:
1) At the initial stage, the decision tree is
described as a single node representing the
training set.
2) If the sample contains all of the same class,
then the node is a leaf and is labeled with the
name of the class.
3) If not, the algorithm using information gain-
based measure will choose predictor variables
that will separate the records into individual
classes. Variable will be the test or decision
variable at the node.
4) Branch developed for each known value of
the test variable, and the samples were separated
based on the branch.
5) The algorithm uses the same process
recursively to form a decision tree

3. Data Processing
3.1 Data Collecting
This section will explain the stages in the
process of data collection that consists of the
variable data determination, the preparation of
the contents, and method of distributing
questionnaires.
3.1.1 Research Variable Determinating
Below are the 28 data variable used in the
research:
Table 3.1 Research Variable
Category Item Choices
Basic
Information
Gender Male; Female
Age <=25; 26-35; 36-45; 46-55; >55
Occupation
Students; Housewives; Entrepreneurs;
Public sector employees; Private sector
employees; Other
Education level SMA; D3; S1; S2; S3; Other
Marriage status Single; Married
Monthly Income
<= Rp 2.000.000; Rp 2.000.001 - Rp
5.000.000; Rp 5.000.001 - Rp 10.000.000;
Rp 10.000.001 - Rp 15.000.000; Rp
15.000.001-Rp 25.000.000; > Rp
25.000.000
PL
Purchasing
Behavior
Frequency of PL purchasing
Never buy PL; Ever only once bought PL;
Sometimes buy specific PL products,
Always buy specific PL products
Most frequently bought PL
brand
Carrefour; Hypermart; Giant; Alfamart;
Indomaret; Never; Other
Reason of not buying PL
Not interested in PL, Less attractive
packaging, Lack of trust in quality of PL,
Not aware of PL
Reason of buying PL
Low and competitive price, Good quality,
Promotion, catalog, etc, Good packaging,
Other product planned to purchase is not
in stock
Satisfaction
rate
towards
each
category of
PL
Grocery products
Dont know; Very unsatisfied;
Unsatisfied; Satisfied; Very satisfied
Snack
Toiletries and household
products
Houseware products
Cottons and wipes
Clothes and Footwares
Home appliances and
electronic products
Stationery
Satisfaction
rate
towards PL
Price
Quality
Purchasing
Behavior
I think that buying the product
with the lowest price is
important
Extremely disagree; Disagree; Neutral;
Agree; Extremely agree
I am willingly spending more
time to find the cheapest
price
I always look and compare the
price of the products first
before buying
I chose price as the primary
consideration in choosing
products
I think that getting the best
quality products is essential
I don't want to sacrifice
expected quality just to get
cheap prices
I think that the quality of PL
and NB is not significantly
different
I chose quality as the primary
consideration in choosing
products

4

3.1.2 Drafting the Questionairre Content
The content of the questionnaire contains 5
different subdivision based on the customer
characteristics such as; personal information,
behavior in purchasing private label, satisfaction
level towards specific private label brand,
satisfaction level on price and quality of private
label product, and the customer behavior in
shopping.
The data was collected by distributing
questionnaires either in person or online to
respondents. Direct data collection is done in a
minimarket outlets and hypermarkets around
Jakarta and Depok on May 20
th
to June 17
th
2013.
After the questionnaires have been filled out
completely and correctly, they will then be used
in the data processing stage. There are 518
questionnaires that have been collected at the
time of this data collection process is completed.
After going through a stage of elimination in
missing datas, there were 508 questionnaires that
were subsequently entered into the data
processing stage. The data is converted into a
format Ms. Excel, and then imported into the
program RapidMiner 5.0.
3.2 Data Processing
3.2.1 Customer classification with
Algorithm C5.0 in Data Mining
Before the customer classification is done
by forming a decision tree, it is first required to
define variables and objective predictor variables
adapted to the purpose of this study. The purpose
of this study was to determine the classification
of the characteristics and behavior of customers
shopping the retail market and the level of
satisfaction in each product category based on
PL intensity of product purchase. So in this
study, the target variable is the intensity of PL
purchases. Meanwhile, the predictor variables
are variables which serve as a reference to
classify the data into classes. It can be seen in
Table 3.1, the predictor variables in this study
where 27 variables were classified into five
major groups of customer characteristics.
After determining the target variable and
the predictor variables in this study, the decision
tree model can be formed using the software
RapidMiner 5.0. RapidMiner is open source
software for knowledge discovery and data
mining. RapidMiner has approximately 400
procedures (operator) data mining, including the
operator to input-output, and visualization of
data preprocessing. Thousands of data mining
applications that have been developed using
RapidMiner is widely used in business and
research.
In RapidMiner, there are elements of a
collection called operator command to create a
model that consists of Process Control, Utility,
Repository Access, Import, Export, Data
Transformation, Modeling, and Evaluation. To
make a decision tree model, the operator used is
Retrieve, Validation, Decision Tree, Apply
Model, and Performance.
In the Main Process column, there are
operators Retrieve and Validation. Retrieve
operator is an operator that is used to read the
data by a collection of objects from the
document storage. This operator is a collection
of data obtained from the questionnaire which
further serve as input. While the operator
separates Validation randomly input the data
which come out as the training data and the
testing data, and then eventually these operators
evaluate the model.
In the training field, there is also the
operator Decision Tree is used to make the
classification decision tree model of nominal
data. While on testing field, there is an Apply
Model operator used to apply the input data set
into the model and the Performance operator
displays a list of performance values of a
collection of attributes. On the following page
there is a display of the data processing
classification of Private Label consumer in the
form of a decision tree model.

5

4. ANALYSIS AND DISCUSSION OF
FINDINGS
Analysis of the retail customer
characteristics classification also refers to the
results of the decision trees using RapidMiner
5.0. Based on leaf/terminal node previously
mentioned, there are 15 nodes that are
characteristic of customers who ever only once
buy PL, 23 nodes for customers who sometimes
buy specific PL, 23 nodes for customers who
always buy specific PL, and the last 4 nodes for
customers who never buy PL. These nodes were
chosen not only because it serves as a
leaf/terminal node but also because it has a high
market share.
Out of the total 518 questionnaires
distributed 508 were usable. 60% of the
respondents were women due to the fact that
mostly women buy groceries at the minimarket
or hypermarket. In terms of the age and marriage
status, the majority of the respondents (77.5%)
was under 35 years old and was single (60.2%).
It is caused by culture or habit (collectivist
Culture) of Indonesian young/productive people
who do activities in groups, as well as shopping.
In terms of education level, the majority
of respondents have S1 (Strata Satu) level (52%)
which mostly they works as private sector
employees (34.6%) with monthly income
between Rp 2.000.000 and Rp 5.000.000
(41.5%).
Education level indicates amount of
knowledge owned by the respondents that could
affect buying decision. In the other hand, the
proportion of housewives in the sample was
relatively low (8.5%) which the majority of them
stated that they sometimes buy specific PL
(53.5%) and always buy specific PL (25.6%).
Based on decision tree analysis (Figure
4.1), majority of consumers who always buy
specific PL stated that good quality of PL is the
reason of purchasing those products. As the
highest market share of this class (0.98%), they
stated that they are fully satisfied toward grocery
product and home appliances category of PL.
Therefore, to maintain this class of consumers to
be loyal, the retailer have to do a strategy that
focuses on that both category, by adding variant
of products and doing product innovation as well
as guarantee the best quality.
Consumer class "sometimes buy a specific
PL" is the class with the most respondents
(66.7%). With the highest market share, the
majority of this class (42.72%) chose low and
competitive price of PL as a key element that
encourage them to buy PL. The magnitude of
this class segment indicates the amount of
opportunities for the retail market to make the
private label consumers into loyal customers by
assuring the quality as the key value of PL.
Consists of 23 nodes, this class has quite
complex characteristics. There is a 3.74% market
share with the characteristics of customers who
are single and stated that they are satisfied
toward grocery product of PL because of its
good quality.
In consumer class of ever only once buy
PL, majority of them (29.5%) chose Indomaret
as most frequently bought PL brand. Most of
them (48.4%) stated that they bought PL because
other brand product planned to purchase was not
in stock. Highest market share of this class is
worth 4.13% of the total respondents is
consumer who is single and no stock of other
product planned to purchase as the main reason
that encourage them to buy PL. They stated that
they are not willingly to spend more time just to
find the cheapest products. To anticipate that,
retailers ought to ensure that display of their
product could attract customer spontantly.
Efforts that can be implemented is designing the
packaging as attractive as possible and put the
PL display in golden eye level area which is an
area of 40-60 degrees from the human vision
(assuming height of Indonesian adult consumers
are between 150-170 cm) so it tends to first
awared by consumers when standing in front of
the rack.
Consumer class of never buy PL that
has proportion of 15.5% of total respondents has
highest market share worth of 5.71% that stated
that the reason of not buying PL was lack of trust
in quality of that product.
6

A
B
C
A
B
C
Figure 4.1 Decision Tree of Retail Consumer Classification

7

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lf
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r
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in

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lit
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o
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L
5
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t

in
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in

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L
3
,
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N
o
t

a
w
a
r
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f

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L
0
,
9
8
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L
e
s
s

a
t
t
r
a
c
t
iv
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p
a
c
k
a
g
in
g
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m
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t
im
e
s

b
u
y

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p
e
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if
ic

P
L

p
r
o
d
u
c
t
s
A
lw
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b
u
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p
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ic

P
L

p
r
o
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t
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y

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L
E
v
e
r

o
n
ly

o
n
c
e

b
o
u
g
h
t

P
L
8

With the same number of market share,
cutomers also stated that they are not interested
in private label. It is because for most consumers,
brand is a guarantee of good quality, which
makes hard for them to trust other products not
familiar with like this PL. And also the
perception stated that the PL is only for
consumers who are budget-conscious and can
not afford to buy a similar product that is much
more expensive (National Brand). Economic
conditions of someone really affect the
consideration in product selection and
purchasing decision on a particular product [3].
After analyzing the relationship between
consumer demographics and the level of
satisfaction towards each category of PL,
obtained an indication that there is a pattern of
inconsistent levels of satisfaction in each of
several categories of PL consumer groups. For
example, PL category of home appliances and
electronic product has a tendency to depend on
age. Consumers over the age of 35 years old tend
to be satisfied towards that category, while
consumers aged less than 35 years old tend to be
unsatisfied. Another example, the PL category
products of hoousewares seems to depend on the
marriage status and monthly income. Consumers
who are married are less likely to be satisfied in
the category of PL products, while consumers
single fully satisfied. Likewise, the quality of the
housewares category tend to meet the
expectations of consumers who have an income
less than or equal to Rp 2,000,000, but
consumers who have more than Rp 2,000,000
was unsatisfied on this category.
5. CONCLUSION
At the end of the study, it is obtained a
decision tree model which represents the
classification based on the frequency of PL
purchasing, ranging from never to always buy
certain PL products.
Additionally, there is a pattern of inconsistent
level of satisfaction in each of several categories
of PL consumer groups. For example, PL
product category of home appliances and
electronic products tends to depend on age,
while housewares category depends on marital
status and the monthly income.
Results of the questionnaire showed that the
category with the highest level of satisfaction
and awareness is grocery products and cottons &
wipes products. This is useful if retailers plan to
launch the new PL products then, they should
prioritize that both categories.
REFERENCES
[1] Boutsouki, Christina. (2008). Consumer
Behaviour towards Own Label: Monitoring
the Greek Experience. Agricultural
Economics Review Vol. 9 No. 1.
[2] Hand, D., Mannila, H., & Smyth, P. (2001).
Principles of data mining. Cambridge, MA:
MIT Press.
[3] Kotler, Philip. (2005). Marketing
Management The Millenium Edition. New
Jersey: Prentice Hall Internation, Inc.
[4] Lacrose, Daniel T. (2005). Discovering
knowledge in data : an introduction to data
mining. New Jersey : Jhon Wiley & Sons,
Inc.

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Analysis of Customer Characteristic towards Private Label

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