Mall Customer Segmentation Using Clustering Algorithm

Abstract

We live in a world where large and vast amount of data is collected daily. Analysing such data is an important need. In the modern era of innovation, where there is a large competition to be better then everyone, the business strategy needs to be according to the modern conditions. The business done today runs on the basis of innovative ideas as there are large number of potential customers who are confounded to what to buy and what not to buy. The companies doing the business are also not able to diagnose the target potential customers. This is where the machine learning comes into picture, the various algorithms are applied to identify the hidden patterns in the data for better decision making. The concept of which customer segment to target is done using the customer segmentation process using the clustering technique. In this paper, the clustering algorithm used is K- means algorithm which is the partitioning algorithm, to segment the customers according to the similar characteristics. To determine the optimal clusters, elbow method is used.

Introduction

I. INTRODUCTION

A. Introduction

Over the years, the competition amongst businesses is increased and the large historical data that is available has resulted in the widespread use of data mining techniques in extracting the meaningful and strategic information from the database of the organisation. Data mining is the process where methods are applied to extract data patterns in order to present it in the human readable format which can be used for the purpose of decision support. According to,[4] Clustering techniques consider data tuples as objects. They partition the data objects into groups or clusters, 2 so that objects within a cluster are similar to one another and dissimilar to objects in other clusters. Customer Segmentation is the process of division of customer base into several groups called as customer segments such that each customer segment consists of customers who have similar characteristics. The segmentation is based on the similarity in different ways that are relevant to marketing such as gender, age, interests, and miscellaneous spending habits. The customer segmentation has the importance as it includes, the ability to modify the programs of market so that it is suitable to each of the customer segment, support in business decision; identification of products associated with each customer segment and to mange the demand and supply of that product; identifying and targeting the potential customer base, and predicting customer defection, providing directions in finding the solutions. The thrust of this paper is to identify customer segments using the data mining approach, using the partitioning algorithm called as K-means clustering algorithm. The elbow method determines the optimal clusters.

B. Problem Statement

Customer Segmentation is the best application of unsupervised learning. Using clustering, identify segments of customers in the dataset to target the potential user base. They divide customers into various groups according to common characteristics like gender, age, interest, and spending habits so they can market to each group effectively. Use K-Means Clustering and also visualize the gender and age distributions. Then analyze their annual income and spending scores. As it describes about how we can divide the customers based on their similar characteristics according to their needs by using k-means clustering which is a classification of unsupervised machine learning.

II. EXISTING SYSTEM

The existing method is storing customer data through paperwork and computer software (digital data) is increasing day by day. At end of the day they will analyse their data as how many things are sold or actual customer count etc. By analysing the collected data they got to know who is beneficial to their business and increase their sales. It requires more time and more paperwork. Also, it is not much effective solution to find the desired customers data.

III. PROPOSED SYSTEM

A. Proposed Method

To overcome the traditional method i.e paper work and computerized digital data this new method will play vital role. As we collect a vast data day by day which requires more paperwork and time to do. As new technologies were emerging in today’s world. Machine Learning which is powerful innovation which is used to predict the final outcome which has many algorithms. So for our problem statement we will use K-Means Clustering which groups the data into different clusters based on their similar characteristics. And then we will visualize the data.

B. System Architecture

Initially we will see the dataset and then we will perform exploratory data analysis which deals with the missing data, duplicates values and null values. And then we will deploy our algorithm k-means clustering which is unsupervised learning in machine learning.

As in order to find the no of clusters we use elbow method where distance will be calculate through randomly chosen centres and repeat it until there is no change in cluster centres. Thereafter we will analyse the data through data visualization. Finally we will get the outcome.

C. Algorithm

1. K-Means Clustering

a. KMeans algorithm in an iterative algorithm that tries to partition the dataset into K predefined distinct non overlapping sub groups which are called as cluster.

b. Here K is the total no of  clusters.

c. Every point belongs to only one cluster.

d. Clusters cannot overlap.

2. Steps of Algorithm

a. Arbitrarily choose k objects from D as the initial cluster centers.

b. Repeat.

c. Assign each object to the cluster to which the object is the most similar, based on the mean value of the objects in the cluster.

d. Update the cluster means, i.e. calculate the mean value of the objects for each cluster.

e. Until no change.

IV. METHODOLOGY

1. First of all we will import all the necessary libraries or modules (pandas, numpy, seaborn).
2. Then we will read dataset and anyalse whether it contains any null values, missing values and duplicate values. So we will fix them by dropping or fixing the value with their means, medians etc which is technically named as Data Preprocessing.
3. We will deploy our model algorithm K-Means Clustering, which divides the data into group of clusters based on similar characteristics. To find no.of clusters we will use elbow method.
4. Finally, we will visualize our data using matplot, which concludes the customers divided into groups who are similar to each other on their group.

V. IMPLEMENTATION AND ANALYSIS

A. Overview Of A Dataset

This is a mall customer segmentation data which contains 5 columns and 1500 rows.

C. Seaborn Pairplot

sns.pairplot(df, vars = ['Spending Score (1-100)', 'Annual Income (k$)', 'Age'], hue = "Gender")

E. Elbow Method

The elbow method is based on the observation that increasing the number of   clusters   can   help   to    reduce the sum of within-cluster variance of each cluster. This is because having more clusters allows one to capture finer groups of data objects that are more    similar to each other. To define the optimal clusters, Firstly, we use the clustering algorithm for various   values   of   k.   This    is done by ranging k from 1 to 10 clusters. Then we calculate the total intra-cluster sum of square. Then, we proceed to plot intra-cluster sum of square based on the number of clusters.

The plot denotes the approximate number of clusters required in our model. The optimum clusters can be found from the graph where there is a bend in the graph.

First we will consider the data X which as only two columns they are annual income and spending score.

X=df[['Annual Income (k$)','Spending Score (1-100)']]

X.head()

trace1 = go.Scatter3d( x= df['Age'],

y= df['Spending Score (1-100)'], z= df['Annual Income (k$)'], mode='markers',

marker=dict(

color = df['cluster'], size= 10,

line=dict(

color= df['cluster'], width= 12

),

opacity=0.8

)

)

So from the figure we observed that each customer is labelled with cluster which is based on their characteristics.

G. Visualization the Clusters

Visualizing the clusters based on Annual Income and Spending Score of the customers. As here we plot a graph named as Clusters of Customers to visualize the data in terms of groups or cluster.

import plotly as py

import plotly.graph_objs as go

data = [trace1] layout = go.Layout(

title= 'Clusters wrt Age, Income and Spending Scores',

scene = dict(

xaxis = dict(title = 'Age'),

yaxis = dict(title         = 'Spending Score'),

zaxis  =  dict(title           = 'Annual Income')

)

)

fig               =               go.Figure(data=data, layout=layout)

py.offline.iplot(fig)

H. Naming the Clusters

df['Customer rating']=np.where(df['cluster']==2, "Lost              Customers"          ,(np.where( df['cluster'] ==3, "top value Customer", (np.where( df['cluster'] == 0, "Medium Value Customer",np.where(df['cluster']== 1,'Low Value Customers', 'High Value Customers'))))))

df.head(5)

I. Clustering Segmentation Model

• Cluster 0: Medium value customers

This group is having the high balance and medium purchase frequency.

• Cluster 1: Low value customers

This group is having the high balance and low purchase frequency.

• Cluster 2: Lost customers

This group is having the medium and low balance and low purchase frequency.

• Cluster 3: Top value customers

This group is having the highest balance and high purchase frequency.

• Cluster 4: High value customers

This group is having the low balance and high purchase frequency

Conclusion

So we concluded that the , 1) The Highest income , high spending can be target these type of customers as they earn more money and spend as much as they want. 2) Highest income, low spending can be target these type of customers by asking feedback and advertising the product in a better way. 3) Average income, Average spending may or may not be beneficial to the mall owners of this type of customers. 4) Low income, High spending can be target these type of customers by providing them with low-cost EMI’s etc. 5) Low income, Low spending don’t target these type of customers because they earn a bit and spend some amount of money. So high income, high spending are the most beneficial ones to the mall owners which increases the owner’s business. Using market segmentation, companies are able to identify their target audiences and personalize marketing campaigns more effectively. This is why market segmentation is key to staying competitive. It allows you to understand your customers, anticipate their needs, and seize growth opportunities.

References

[1] Cooil, B., Aksoy, L. & Keiningham, T. L. (2008), ‘Approaches to customer segmentation’, Journal of Relationship Marketing 6(3-4), 9–39. [2] D. Aloise, A. Deshpande, P. Hansen, and P. Popat, “The Basis Of Market Segmentation” Euclidean sum-of-squares clustering,” Machine Learning, vol. 75, pp. 245- 249, 2009. [3] T. Kanungo, D. M. Mount, N. S. Netanyahu, C. D. Piatko, R.Silverman, and A. Y. Wu, “An efficient K-means clustering algorithm,” IEEE Trans. Pattern Analysis and Machine Intelligence, vol. 24, pp. 881-892, 2002. [4] Bhatnagar, Amit,Ghose, S. (2004), ‘A latent class segmentation analysis of e-shoppers’, Journal of Business Research 57, 758–767. [5] Marcus, C. (1998), ‘A practical yet meaningful approach to customer segmentation approach to customer segmentation’, Journal of Consumer Marketing15, 494–504.

Copyright

Copyright © 2023 Mr. M. Sathyanarayana, S. Dhanish, P. Shiva Kumar, A. Niranjan Reddy. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.