Enhancing Customer Segmentation Using

Machine Learning
Hariprasath S R1
¹ Department of CSE, Saveetha Engineering College, India
1
[email protected]

Abstract--- In today's highly competitive business

environment, the rise of new competitors and
entrepreneurial ventures has intensified the race I. INTRODUCTION
to attract new customers and retain existing ones.
Customer segmentation is the process of dividing a
Regardless of a company's size, the demand for
customer base into different groups based on
exceptional customer service has never been
various relevant marketing factors such as gender,
greater. To meet customer expectations,
age, interests and buying habits. Companies that
companies need to understand the needs of each
use customer segmentation recognize that each
individual customer. Tailoring customer service
customer has unique needs and requires tailored
and developing personalized service plans are
marketing efforts to address them effectively. The
essential to this goal. A systematic approach to
goal of companies is to gain a deeper understanding
customer service can facilitate this
of their target customers, which requires specific,
understanding.
personalized approaches to meet individual
Customer segmentation is a key strategy in this customer needs. By collecting data, companies can
context. By dividing customers into different gain insight into their customers' preferences and
groups based on common market characteristics, identify the segments that generate the most profit,
companies can develop specific marketing and allowing for more efficient marketing strategies
service strategies for each segment. However, as and risk mitigation.
traditional market analysis is often insufficient
Customer segmentation relies on key differentiators
for a large customer base, big data concepts and
such as demographics, geography, economic status
machine learning techniques have become
and behavioral patterns to divide customers into
increasingly important. These technologies enable
target groups. Integrated databases are essential to
the automation of customer segmentation and
uncover subtle patterns and correlations. These
make it more efficient and accurate. The K-
learning techniques are classified as supervised
Means clustering algorithm, a popular method of
learning and use algorithms such as K-Means, K-
unsupervised machine learning, is used for this
closest, self-organizing maps (SOM) and others to
purpose.
identify clusters in data without prior knowledge,
The implementation of the K-Means algorithm is as long as consistent patterns are detected in
facilitated by the library Scikit-learn (Sklearn). training models based on context or behavior.
Sklearn is a versatile Python library commonly
Each cluster includes data points that have
used for machine learning and data analysis
similarities but are distinctly different from data
tasks. The program uses a retail data set that
points in other clusters. Integration is widely used
likely contains customer behavior data, such as
in pattern recognition, image analysis,
average number of purchases and monthly
bioinformatics and other fields. In this work, the K-
customer count.
Means clustering algorithm is used for customer
segmentation. A scalar library of the K-Means
algorithm was developed and trained using a
Keywords— data mining; machine learning; big dataset with two attributes and 100 training
data; customer segment; k-Mean algorithm; samples from the retail industry. After the analysis,
sklearn; four different and stable customer segments are
identified.
 8] "Data Integration: A Review" by A.K. Jain,
II. RELATED WORKS M.N. Murty, and P.J. Flynn (1999): This
review discusses the challenges and techniques
1] "Marketing Analytics Scientific Data" by related to data integration, a crucial aspect of
Blanchard, Bhatnagar, and Behera (2019): This managing and analyzing large datasets.
book explores the application of Python's data
analytics capabilities to achieve marketing 9] "By Jerry W Thomas" (2007): This source,
objectives, making use of scientific data authored by Jerry W Thomas, discusses a topic
analysis techniques. related to decision analysis. Unfortunately, the
specific content or focus of the work is not
2] "Sales Business Analysis" by Griva, Bardaki, provided in the reference. It was accessed at
Pramatari, and Papakiriakopoulos (2018): This www.decisionanalyst.com on July 12, 2015.
study focuses on customer categorization using
market basket data, aiming to enhance sales 10] "Manufactured Cluster Analysis Using a New
and business analysis through data-driven Algorithm from Structured and Unstructured
approaches. Data" by T. Nelson Gnanaraj, Dr. K. Ramesh
Kumar, and N. Monica (2007): This
publication, found in the "International Journal
3] "It Separates Consumers from Online Stores" of Advances in Computer Science and
by Hong and Kim (2011): This research delves Technology," details the application of a new
into the factors influencing customer intentions algorithm for cluster analysis using structured
to purchase from online stores, emphasizing and unstructured data. The algorithm's usage
the significance of understanding and and findings are likely explored in this work.
segmenting online consumers.

4] "Hands-on Advertising Science Data" by

Hwang (2019): This resource provides III. METHOLOGY
practical insights into developing machine
learning marketing strategies using Python and In this paper several steps were taken to obtain
R, aligning with data science for advertising. an accurate result. It includes a feature with
. Centro's first stage, allocation phase and
update phase, which are the most common
5] "Market Classification and Its Impact on phase k-means algorithms.
Customer Satisfaction" by Puwanenthiren
A. Collect data
Premkanth: This work investigates the impact
of market classification on customer Information collection is known as the
satisfaction with a specific reference to the methodical approach to collecting customer
Commercial Bank of Ceylon PLC. data. In each information index, individual
details such as name, address, telephone
6] "The Basis of Market Segmentation: A Critical number, etc. are recorded. An information
Review of the Literature" by Sulekha Goyat collection is the basis for every AI project.
(2011): This review critically examines the Generally, Informational indexes are available
literature on market segmentation, shedding as CSV ( Comma Seperated Values).
light on the fundamental principles and .
research in this area.
B. Preprocessing data
7] "Big Data: The Next Frontier" by McKinsey
Global Institute (2011): This report highlights This is a significant stage prior to going to the
the significance of big data in fostering following phase. In this stage we eliminate all
creativity, competition, and productivity across the invalid values, invalid objects, symbols,
various domains. strings, etc.
 Data preprocessing is a critical step to ensure C. Normalize the data:
that the data used for analysis and modeling is
of high quality and appropriate for the intended Normalizing the data is essential to improving
analytical or machine learning tasks. It aims to the K-means clustering algorithm's
prepare the data in a way that minimizes the performance and reducing its sensitivity to
risk of introducing biases, errors, or different feature scales. Standardization,
inaccuracies into the results. sometimes referred to as Z-score
normalization, is a suggested method that
aligns the scale with the unit variance and
C. Group analysis centers the data around the mean. The scikit-
learn library's StandardScaler can be used to
Group analysis is an integration or unification, accomplish this. The features are standardized
approach to consumers based on their by first initializing the scaler ({scaler =
similarity. StandardScaler()}), then fitting and
There are 2 main types of categorical group transforming the data ({normalized_data =
analysis in market policy: hierarchical group scaler.fit_transform(data)}). An alternative
analysis, and classification (Miller, 2015). In method for normalizing data inside a given
the meantime, we will discuss how to classify range—typically between 0 and 1—is to use
Min-Max Scaling. The normalization
groups, called k-methods.
procedure is carried out in two parts in this
D. K Means encounter technique, which uses the MinMaxScaler from
scikit-learn: initializing the scaler (`scaler =
The K-means clustering algorithm is an MinMaxScaler()) and normalizing the data
algorithm often used to draw insights into (`normalized_data =
formats and differences within a database .In scaler.fit_transform(data)`). The choice
marketing, it is often used to build customer between these normalization techniques
depends on the specific characteristics of the
segments and understand the behavior of
dataset and the analytical requirements at hand.
these unique segments. Let's try to build an
assembly model in Python's environment.
D. Select the optimal number of groups:

IV. PROPOSED WORK Determining the ideal number of groups is

essential before beginning any cluster analysis.
A. Import data and packages: The elbow method and the silhouette
First, we import the xlsx (Excel spreadsheet) coefficient are two methods that are frequently
data file, followed by the packages we need to applied to this task. The silhouette coefficient
perform our analysis.You must download the evaluates how well each item is arranged
data from UCI if you wish to use it for follow- within clusters by evaluating the consistency
up. I put the xlsx file in the folder (directory) across data structures. Creating a diagram to
where I show Jupiter's notebook in this show the quality of the clustering is part of this
example. process. Conversely, the elbow technique
. computes the within-cluster sum of squares
over a range of cluster sizes. Plotting this data
B. Data Cleaning: allows for the identification of a "elbow" point,
Upon importing the package and date, we will or the ideal number of clusters at which the
observe that cluster 4 exhibited the most pace of improvement starts to decline. The
comprehensive silhouette fit, suggesting that 4 elbow method and the silhouette coefficient are
would be the optimal cluster count.Since the both useful instruments for assisting in the
data isn't as useful as that, we must clean and process of choosing the ideal number of
arrange it so that we can draw conclusions that groups.
are more practically useful.
V. EXPERIMENT AND RESULT

The process of customer segmentation is In data preprocessing, missing values are

grouping consumers according to demands, handled, unnecessary columns are
behaviors, and shared traits. This tactical removed, and the date column is divided
strategy provides numerous advantages, into distinct columns for the day, month,
allowing businesses to customize goods, and year. After that, visualization and
enhance features, and focus on certain clientele. analysis are conducted using bar plots
The company's market value increases overall and count plots to obtain understanding
as a result of this precision. of categorical distribution of data. For
the purpose of model understanding,
In this paper, we investigate the use of Python's label encoding is used to translate
Unsupervised Machine Learning algorithms for categorical variables into numerical
Customer Segmentation. Importing the required ones.
libraries, including Seaborn, NumPy,
Matplotlib, Pandas, and Scikit-learn, is a step in
the process. The dataset is then imported and
preprocessed, incorporating client
characteristics like income, marital status, and
past purchases.

Fig. 2. Visualization and analysis are conducted using

graph

Standardizing data improves machine

learning models, and a heatmap
visualizes feature correlations. Optimal
cluster number is determined with the
elbow technique, guiding KMeans
Clustering for cluster identification.

Fig. 1. Customer dataset

Fig. 3. AvgOrderValue vs ToatalSales Clusters

 metrics, to capture temporal variations in customer
behavior. Additionally, we plan to explore
advanced clustering algorithms like hierarchical or
density-based methods to discern more intricate
patterns within the dataset. Extending beyond static
segmentation, we intend to implement predictive
modeling, enabling the anticipation of future
customer behavior within identified segments.
Furthermore, a real-time segmentation mechanism
will be developed to ensure the model's adaptability
to changing customer dynamics, providing more
timely insights. Lastly, we will focus on creating an
intuitive user interface to empower stakeholders in
visualizing and interpreting segmentation results,
fostering more effective decision-making.

Fig. 3. Final Clusters

Scatterplots are used to illustrate the generated VIII. REFERENCES

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