Practical 1

Customer Segmentation and Visualisation:-

In today's competitive marketplace, understanding customer behavior and preferences is

crucial for businesses to tailor their products and services effectively. However, many
organizations struggle with a one-size-fits-all approach, leading to inefficient marketing
strategies and missed opportunities for customer engagement.

The challenge lies in identifying distinct customer segments based on varying needs,
preferences, and behaviors. Without proper segmentation, businesses risk allocating
resources ineffectively, failing to target the right audiences, and ultimately losing potential
revenue.

This report addresses the need for a robust customer segmentation strategy, utilizing data
analytics and visualization techniques to identify key customer groups, understand their
unique characteristics, and enhance marketing effectiveness. By leveraging these insights,
businesses can improve customer satisfaction, increase retention rates, and drive growth in
a sustainable manner.

1. Data Science Problem:-

To effectively implement customer segmentation, businesses face several data science

challenges, including:

1. Data Collection and Quality: Gathering comprehensive and accurate customer data
from various sources, such as transaction histories, website interactions, and
demographic information, is essential. Incomplete or biased data can lead to misleading
segmentation results.
2. Feature Selection: Identifying the right features (variables) that influence customer
behavior is critical. This involves determining which aspects of customer data (e.g.,
purchase frequency, average spend, product preferences) provide the most valuable
insights for segmentation.
3. Segmentation Techniques: Choosing the appropriate algorithms for segmentation is a
key decision. Methods like clustering (e.g., K-means, hierarchical clustering) or
advanced techniques such as machine learning models must be evaluated for
effectiveness in distinguishing between customer groups.
4. Scalability and Dynamic Segmentation: As customer behaviors and market
conditions evolve, segmentation strategies must be scalable and adaptable. Businesses
need to implement systems that allow for continuous updates and real-time analysis to
keep customer segments relevant.
5. Interpretability and Actionability: The results of segmentation analyses must be
interpretable by stakeholders. This includes translating complex data insights into
actionable marketing strategies that align with business goals.
6. Integration with Marketing Strategies: Finally, there is the challenge of integrating
segmentation insights into existing marketing workflows. Ensuring that marketing
teams can leverage the segmentation results to create targeted campaigns requires a
collaborative approach.

Addressing these data science problems is essential for developing an effective customer
segmentation strategy that can drive personalized marketing efforts and improve overall
business performance.

2. Data Availability: Yes :-

Data is available for the purpose of customer segmentation and visualization. This
includes:

 Customer Transaction Data: Records of purchases, including frequency, monetary

value, and product categories.
 Demographic Information: Data such as age, gender, location, and income levels
collected through customer registrations or surveys.
 Behavioral Data: Information from website interactions, such as page views, time
spent on site, and click-through rates.
 Customer Feedback: Insights gathered from surveys, reviews, and social media
interactions that can inform customer preferences and satisfaction levels.
 Access to this diverse set of data allows for comprehensive analysis and effective
segmentation, enabling targeted marketing strategies that resonate with different
customer groups.

3. Data Available Form: Both Qualitative and Quantitative Data

The customer segmentation analysis involves a mix of qualitative and quantitative data,
allowing for a holistic understanding of customer behavior.

Quantitative Data

Quantitative data is numerical and can be measured. Examples include:

 Transaction Amount: The total money spent by each customer.

 Purchase Frequency: The number of purchases made within a specific time frame.
 Customer Age: The age of each customer, recorded as a numerical value.

Sample Data:

Customer ID Transaction Amount Purchase Frequency Age

001 $120 5 28

002 $45 2 34

003 $75 3 22

Qualitative Data

Qualitative data is descriptive and provides context to customer behaviors. Examples

include:

 Customer Feedback: Comments from customer surveys about product

satisfaction.
  Product Preferences: Types of products preferred by customers (e.g., electronics,
clothing).

Sample Data:

Customer ID Feedback Product Preference

001 "Loved the quality of the product!" Electronics

002 "Would like more variety." Clothing

003 "Great service, will buy again." Accessories

By combining both qualitative and quantitative data, businesses can derive deeper
insights into customer segments, enhancing their ability to tailor marketing efforts
effectively.

4. Bridging the Qualitative-to-Quantitative Gap in your project:

In customer segmentation and visualization, effectively bridging the gap between

qualitative and quantitative data enhances the depth and accuracy of insights. Here’s
how this can be achieved in the project:

1. Data Integration:
o Merging Datasets: Combine qualitative feedback and demographic data
with quantitative metrics such as purchase frequency and transaction
amounts. This integration allows for a comprehensive view of customer
segments.
o Example: Link customer satisfaction scores (qualitative) with purchase
behaviors (quantitative) to identify high-value segments that are also highly
satisfied.
2. Text Analysis:
o Sentiment Analysis: Apply natural language processing (NLP) techniques
to qualitative feedback to quantify customer sentiments. For instance,
convert feedback into sentiment scores (positive, neutral, negative) that can
be analyzed alongside purchase data.
 o Example: A positive sentiment score may correlate with higher transaction
amounts, indicating that satisfied customers tend to spend more.
3. Categorization:
o Coding Qualitative Data: Convert qualitative insights into categorical
variables. For example, classify product preferences into categories (e.g.,
electronics, clothing) that can be quantified and analyzed statistically.
o Example: If many customers express a preference for electronics, this
category can be assigned a numeric value to facilitate analysis.
4. Visualization Techniques:
o Dashboards: Use data visualization tools to create dashboards that display
both qualitative and quantitative data side by side. This helps stakeholders
understand the correlations and patterns more intuitively.
o Example: A dashboard could show customer segments with bar charts for
average spending and sentiment scores for each segment.
5. Statistical Analysis:
o Correlation Studies: Conduct analyses to determine the relationships
between qualitative insights (like customer feedback) and quantitative
metrics (like average purchase value). This can reveal trends that support
targeted marketing strategies.
o Example: Identify whether customers who leave positive feedback tend to
have higher purchase frequencies.
6. Iterative Feedback Loop:
o Continuous Improvement: Establish a feedback mechanism where
qualitative insights are regularly collected and analyzed to refine
segmentation. This ensures that segmentation evolves based on real
customer experiences and trends.
o Example: Regularly update customer segments based on new feedback and
adjust marketing strategies accordingly.

By employing these strategies, the project can effectively bridge the qualitative-to-
quantitative gap, leading to more nuanced customer segmentation and better-
informed marketing strategies.
6. Is the right data available with the right level of granularity??

Yes, the data available for customer segmentation is appropriate and provides the necessary
level of granularity to derive meaningful insights. Here’s an overview:

1. Granularity of Quantitative Data:

o Customer-Level Data: Each record represents individual customers, allowing
for detailed analysis of their purchasing behavior, preferences, and demographic
information.
o Time Series Data: Transaction records are timestamped, enabling analysis of
trends over specific periods (daily, weekly, monthly), which is essential for
identifying seasonal patterns and customer lifecycle stages.

Example:

o Data includes transaction amounts, dates, and frequencies for each customer,
allowing for analyses such as customer lifetime value (CLV) and repeat
purchase rates.
o

2. Granularity of Qualitative Data:

o Detailed Feedback: Customer comments and feedback provide rich qualitative
insights. This data can be categorized by themes (e.g., service quality, product
variety) and analyzed for sentiment, which is vital for understanding customer
sentiments at a granular level.
o Contextual Information: Qualitative data includes contextual factors such as
customer preferences, pain points, and suggestions, enhancing the
understanding of what drives customer behavior.

Example:

o Feedback collected from customer surveys and social media interactions can be
analyzed to identify specific areas for improvement or popular product features.
7. Repeatability and Reproducibility: Consistency in labelled data for
accurate?

Yes, ensuring consistency in labeled data is crucial for achieving repeatability and
reproducibility in customer segmentation analyses. Here’s how this can be maintained:

1. Standardized Labeling Protocols:

o Defined Criteria: Establish clear criteria for how customer segments and
feedback are labeled. This includes defining categories for qualitative data (e.g.,
sentiment labels: positive, negative, neutral) and consistent numeric ranges for
quantitative measures (e.g., defining high spenders as those who spend above a
certain threshold).
o Example: Create a guideline document that outlines how to categorize customer
feedback, ensuring all team members apply the same standards.
2. Training and Documentation:
o Team Training: Provide training sessions for staff involved in data labeling to
ensure they understand the criteria and processes. This minimizes subjective
interpretations that could lead to inconsistencies.
o Documentation: Maintain comprehensive documentation of labeling processes
and decisions, allowing for reference and review.
3. Automated Labeling Tools:
o NLP and Machine Learning: Utilize natural language processing (NLP) tools
to automate the labeling of qualitative data. Algorithms can consistently apply
sentiment analysis to customer feedback, reducing human error.
o Example: Implement a machine learning model that classifies feedback based
on predefined sentiment categories, ensuring consistent labeling across all
inputs.

By implementing these strategies, the project can achieve a high level of repeatability
and reproducibility in customer segmentation analyses. This consistency in labeled data
enhances the accuracy of insights, leading to more effective marketing strategies and
better customer understanding.
 Practical 2

Agile methodology is a flexible and iterative approach to project management that

emphasizes collaboration, customer feedback, and incremental progress. This chapter
outlines how to apply Agile principles to the customer segmentation project, along with
a work breakdown structure (WBS) to organize tasks effectively.

Agile Principles

1. Iterative Development: Break the project into smaller, manageable increments called
sprints, typically lasting 1-4 weeks. Each sprint results in a deliverable that can be
reviewed and adjusted based on feedback.
2. Collaboration: Foster open communication among team members and stakeholders.
Daily stand-up meetings can help track progress and address any obstacles.
3. Customer Feedback: Regularly engage stakeholders and end-users to gather feedback,
ensuring that the final product aligns with their needs and expectations.
4. Continuous Improvement: After each sprint, conduct retrospectives to identify
successes and areas for improvement, applying lessons learned to future sprints.

Work Breakdown Structure (WBS)

The Work Breakdown Structure is a hierarchical decomposition of the project into

smaller, more manageable components. Below is a sample WBS for the customer
segmentation and visualization project, organized by phases.

Level 1: Project Phase Level 2: Major Tasks Level 3: Sub-Tasks

1. Project Initiation 1.1 Define Project Scope 1.1.1 Identify stakeholders

1.1.2 Document project

objectives

1.1.3 Conduct initial

stakeholder meetings

1.2.1 Define roles and

1.2 Assemble Project Team
responsibilities
 Level 1: Project Phase Level 2: Major Tasks Level 3: Sub-Tasks

1.2.2 Assemble cross-

functional team

2.1.1 Analyze existing data

2. Data Collection 2.1 Identify Data Sources
sources

2.1.2 Collect additional data if

needed

2.2 Data Cleaning and

2.2.1 Standardize data formats
Preparation

2.2.2 Remove duplicates and

irrelevant entries

3.1 Exploratory Data Analysis 3.1.1 Visualize data

3. Data Analysis
(EDA) distributions

3.1.2 Identify trends and

patterns

3.2.1 Select segmentation

3.2 Customer Segmentation
techniques

3.2.2 Implement clustering

algorithms

4.1.1 Choose appropriate

4. Visualization 4.1 Develop Visualization Tools
visualization tools

4.1.2 Create dashboards and

reports

5.1 Validate Segmentation 5.1.1 Conduct internal review

5. Testing and Validation
Results of segments

5.1.2 Gather feedback from

stakeholders

6.1 Integrate Insights into 6.1.1 Develop targeted

6. Implementation
Marketing marketing strategies
 Level 1: Project Phase Level 2: Major Tasks Level 3: Sub-Tasks

6.1.2 Train marketing teams

on new segmentation

7. Review and 7.1 Conduct Project 7.1.1 Gather team feedback

Retrospective Retrospective on the project process

7.1.2 Document lessons

learned

7.2.1 Prepare final report for

7.2 Report Project Outcomes
stakeholders

7.2.2 Present findings to the

team and stakeholders

Conclusion

Applying Agile methodology to the customer segmentation and visualization project

allows for increased flexibility and responsiveness to change. By breaking the project
into manageable tasks and iteratively developing solutions, the project team can ensure
that the final outcomes align closely with stakeholder expectations and market needs.
The Work Breakdown Structure serves as a roadmap to guide the project through its
various phases, ensuring all tasks are accounted for and completed effectively.
 Practical 3
Sample Sprint Backlog

Sprint Duration: 2 weeks

Sprint 1: Project Initiation and Data Collection

 User Stories:
o ID 1: Define project scope
o ID 2: Gather customer data

Tasks

 Complete project charter

 Identify data sources
 Collect data from internal sources

Sprint 2: Data Preparation and Cleaning

 User Stories:
o ID 3: Clean and prepare data

Tasks:

 Clean the dataset (handle missing values, outliers)

 Transform data (normalization, encoding)

Sprint 3: Clustering Model Implementation

 User Stories:
o ID 4: Implement clustering algorithms
Tasks:

 Implement K-means and hierarchical clustering

 Validate clustering results using silhouette score

Sprint 4: Visualization Development

 User Stories:
o ID 5: Visualize clusters
o ID 6: Review visualizations

Tasks:

 Create scatter plots and cluster maps

 Prepare visualizations for stakeholder review
 Practical 4

1. Problem Statement

How can we effectively visualize customer segmentation using clustering techniques, in order
to identify distinct customer groups based on purchasing behaviour and demographic data, and
thereby enable targeted marketing strategies and personalized customer experiences?

2. Data Created or collected for project

Customer Demographic Data:

 Age
 Gender
 Income level
 Location (City, Region, Country)
 Marital status
 Education level
 Occupation

Customer Behavioural Data:

 Purchase history
 Product categories bought
 Average transaction value
 Total spending over time

Online Engagement Data (if applicable):

 Website activity
 Product views and cart additions
 Social media engagement
 Email click-through rates and opens
 Customer Feedback and Surveys:

 Product/service ratings
 Customer satisfaction scores (NPS, CSAT)
 Reviews and testimonials

3. Display sample data:

4. Key Performance Indicators (KPIs) for a customer segmentation project

using clustering:

Customer Lifetime Value (CLV)

 Definition: Total revenue a business can reasonably expect from a customer over their
entire relationship.
 Importance: Helps identify high-value customer segments and tailor strategies to
retain them.

Customer Retention Rate

  Definition: Percentage of customers who remain active over a specified period.
 Importance: Measures loyalty and long-term engagement of different customer
segments

Average Transaction Value

 Definition: The average amount spent by a customer during each purchase.

 Importance: Helps assess purchasing behaviour across different segments and target
high-spending customers.

Purchase Frequency

 Definition: The average number of transactions per customer within a certain period.
 Importance: Helps identify highly engaged customer segments.

Customer Satisfaction Score (CSAT)

 Definition: A measure of how satisfied customers are with a company's products or

services.
 Importance: Assesses the quality of service and customer happiness, particularly
across different segments.

5. Show Visualization or create Dashboard:

Dashboard
 Practical 5

1. Which tool selected for your project:

For this project, the tool selected is K-Means clustering. It is one of the most commonly used
algorithms for customer segmentation due to its ability to group similar customers based on
specific features like age, income, and spending.

Additionally, other tools and libraries used include:

 Python with libraries:

 Pandas: For data manipulation and handling large datasets.
 Scikit-learn: For performing K-Means clustering.
 Matplotlib: For data visualization and dashboard creation.

2. Have you used data modelling with Incremental data in your project?

In the project mentioned, data modelling with incremental data has not been directly used yet.
However, it can be a highly effective approach for customer segmentation, especially in
environments where new data is continuously generated, such as e-commerce or financial
services.

3. Is initially you have noisy data??

Yes, in many real-world projects, noisy data is quite common during the initial stages of data
collection, and customer segmentation is no exception. Noise in data refers to irrelevant,
incorrect, or inconsistent information that can distort the clustering results and affect the quality
of insights derived from the model.

Types of Noisy Data in Customer Segmentation:

 Missing Data:
Some customer attributes, like age, income, or satisfaction scores, might be missing,
either because they weren't collected or due to input errors.
 Outliers:
 Extreme values in variables like spending or income may distort cluster formation. For
example, a customer with extremely high spending compared to the rest could skew the
results.
 Duplicate Records:
Duplicate entries for the same customer due to multiple data sources can mislead the
clustering algorithm.

4. Have you remove noise from your data??

Yes, removing noise from data is a critical step in preparing the dataset for clustering, as noisy
data can distort the results and lead to poor customer segmentation. In this project, noise in the
data was handled through various data cleaning and pre-processing techniques.

Steps Taken to Remove Noise from Data:

Handling Missing Values:

 Imputation: For missing demographic data (like age or income), either the mean or
median of the feature was used to fill in the gaps. This prevents the model from losing
data due to missing values.
 Dropping Records: In cases where a significant portion of data was missing (e.g., 50%
or more), the record was dropped, as it may not contribute meaningfully to the
clustering process.

Removing Duplicates:

 Duplicate records (e.g., a customer recorded multiple times) were identified and
removed. Duplicates can cause over-representation of certain data points and skew the
clusters.
 Outlier Detection and Handling:

 Statistical Techniques: Outliers in variables like income or spending (customers with

extremely high or low values) were detected using Z-scores or other statistical methods.
Outliers can be either:
o Removed: If they are clearly data entry errors or rare cases.
o Transformed: If they provide valuable insights (e.g., high spenders), they were
handled separately to prevent them from affecting the rest of the clusters.

Data Standardization (Scaling):

 All features (age, income, spending, etc.) were standardized using Standard Scalar to
ensure they were on the same scale. This prevents features with large numerical ranges
(like income) from dominating the clustering process. Scaling helps in removing any
noise introduced by varying feature scales.

5. Which are different data formats available??

Currently we have only used:

1. Structured Data Formats

 CSV (Comma-Separated Values): A plain text format that uses commas to separate
values. It’s widely used for tabular data and can be easily read by spreadsheets and
databases.
 Excel (XLSX): A proprietary format used by Microsoft Excel, suitable for complex
spreadsheets with multiple sheets, formulas, and formatting.
 SQL (Structured Query Language): A language used for managing and querying
structured data in relational databases. SQL databases store data in tables.
 JSON (JavaScript Object Notation): A lightweight format used for data interchange,
easily readable by humans and machines. It’s commonly used in web applications for
API responses.
 XML (extensible Mark-up Language): A mark-up language that defines rules for
encoding documents in a format that is both human-readable and machine-readable.
Used for data interchange and web services.
 2. Unstructured Data Formats

 Text Files: Plain text files (.txt) that contain unformatted text data. They can store any
type of textual information.
 Images: Formats like JPEG, PNG, GIF, and TIFF that store visual information. These
are unstructured as they don’t have a predefined data model.

6. In which format your data available??

1. CSV (Comma-Separated Values):

o Often used for tabular data.

o Easy to read and write, and widely supported by data analysis tools and libraries (e.g.,
pandas in Python).

2. Excel (XLSX):

o Commonly used for spreadsheets that may contain multiple sheets, charts, or formatted
data.
o Useful for data entry and quick analyses.