Scribd
Upload
172 views37 pages

Customer Segmentation in Python Chapter4

The document discusses different methods for customer segmentation using k-means clustering in Python. It covers steps like data preprocessing, choosing the number of clusters using the elbow method or silhouette scores, running k-means clustering, and analyzing the results by looking at average values for each cluster. The document also provides examples of profiling the customer segments by creating summaries, snake plots to compare attributes, and calculating relative importance of attributes compared to the overall population.

Uploaded by

Fgpeqw
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
172 views37 pages

Customer Segmentation in Python Chapter4

The document discusses different methods for customer segmentation using k-means clustering in Python. It covers steps like data preprocessing, choosing the number of clusters using the elbow method or silhouette scores, running k-means clustering, and analyzing the results by looking at average values for each cluster. The document also provides examples of profiling the customer segments by creating summaries, snake plots to compare attributes, and calculating relative importance of attributes compared to the overall population.

Uploaded by

Fgpeqw
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 37

DataCamp Customer Segmentation in Python

CUSTOMER SEGMENTATION IN PYTHON

Practical implementation of
k-means clustering

Karolis Urbonas
Head of Data Science, Amazon
DataCamp Customer Segmentation in Python

Key steps
Data pre-processing
Choosing a number of clusters
Running k-means clustering on pre-processed data
Analyzing average RFM values of each cluster
DataCamp Customer Segmentation in Python

Data pre-processing

We've completed the pre-processing steps and have these two objects:

datamart_rfm

datamart_normalized

Code from previous lesson:

import numpy as np
datamart_log = np.log(datamart_rfm)

from sklearn.preprocessing import StandardScaler


scaler = StandardScaler()
scaler.fit(datamart_log)

datamart_normalized = scaler.transform(datamart_log)
DataCamp Customer Segmentation in Python

Methods to define the number of clusters


Visual methods - elbow criterion
Mathematical methods - silhouette coefficient
Experimentation and interpretation
DataCamp Customer Segmentation in Python

Running k-means

Import KMeans from sklearn library and initialize it as kmeans

from sklearn.cluster import KMeans


kmeans = KMeans(n_clusters=2, random_state=1)

Compute k-means clustering on pre-processed data

kmeans.fit(datamart_normalized)

Extract cluster labels from labels_ attribute

cluster_labels = kmeans.labels_
DataCamp Customer Segmentation in Python

Analyzing average RFM values of each cluster

Create a cluster label column in the original DataFrame:

datamart_rfm_k2 = datamart_rfm.assign(Cluster = cluster_labels)

Calculate average RFM values and size for each cluster:

datamart_rfm_k2.groupby(['Cluster']).agg({
'Recency': 'mean',
'Frequency': 'mean',
'MonetaryValue': ['mean', 'count'],
}).round(0)
DataCamp Customer Segmentation in Python

Analyzing average RFM values of each cluster

The result of a simple 2-cluster solution:


DataCamp Customer Segmentation in Python

CUSTOMER SEGMENTATION IN PYTHON

Let's practice running k-


means clustering!
DataCamp Customer Segmentation in Python

CUSTOMER SEGMENTATION IN PYTHON

Choosing number of
clusters

Karolis Urbonas
Head of Data Science, Amazon
DataCamp Customer Segmentation in Python

Methods
Visual methods - elbow criterion
Mathematical methods - silhouette coefficient
Experimentation and interpretation
DataCamp Customer Segmentation in Python

Elbow criterion method


Plot the number of clusters against within-cluster sum-of-squared-errors (SSE) -
sum of squared distances from every data point to their cluster center
Identify an "elbow" in the plot
Elbow - a point representing an "optimal" number of clusters
DataCamp Customer Segmentation in Python

Elbow criterion method


# Import key libraries
from sklearn.cluster import KMeans
import seaborn as sns
from matplotlib import pyplot as plt

# Fit KMeans and calculate SSE for each *k*


sse = {}
for k in range(1, 11):
kmeans = KMeans(n_clusters=k, random_state=1)
kmeans.fit(data_normalized)
sse[k] = kmeans.inertia_ # sum of squared distances to closest cluster cente

# Plot SSE for each *k*


plt.title('The Elbow Method')
plt.xlabel('k'); plt.ylabel('SSE')
sns.pointplot(x=list(sse.keys()), y=list(sse.values()))
plt.show()
DataCamp Customer Segmentation in Python

Elbow criterion method

The elbow criterion chart:


DataCamp Customer Segmentation in Python

Elbow criterion method

The elbow criterion chart:


DataCamp Customer Segmentation in Python

Using elbow criterion method


Best to choose the point on elbow, or the next point
Use as a guide but test multiple solutions
Elbow plot built on datamart_rfm
DataCamp Customer Segmentation in Python

Experimental approach - analyze segments


Build clustering at and around elbow solution
Analyze their properties - average RFM values
Compare against each other and choose one which makes most business sense
DataCamp Customer Segmentation in Python

Experimental approach - analyze segments


Previous 2-cluster solution

3-cluster solution on the same normalized RFM dataset


DataCamp Customer Segmentation in Python

CUSTOMER SEGMENTATION IN PYTHON

Let's practice finding the


optimal number of clusters!
DataCamp Customer Segmentation in Python

CUSTOMER SEGMENTATION IN PYTHON

Profile and interpret


segments

Karolis Urbonas
Head of Data Science, Amazon
DataCamp Customer Segmentation in Python

Approaches to build customer personas


Summary statistics for each cluster e.g. average RFM values
Snake plots (from market research
Relative importance of cluster attributes compared to population
DataCamp Customer Segmentation in Python

Summary statistics of each cluster


Run k-means segmentation for several k values around the recommended value.

Create a cluster label column in the original DataFrame:

datamart_rfm_k2 = datamart_rfm.assign(Cluster = cluster_labels)

Calculate average RFM values and sizes for each cluster:

datamart_rfm_k2.groupby(['Cluster']).agg({
'Recency': 'mean',
'Frequency': 'mean',
'MonetaryValue': ['mean', 'count'],
}).round(0)

Repeat the same for k=3


DataCamp Customer Segmentation in Python

Summary statistics of each cluster


Compare average RFM values of each clustering solution
DataCamp Customer Segmentation in Python

Snake plots to understand and compare segments


Market research technique to compare different segments
Visual representation of each segment's attributes
Need to first normalize data (center & scale)
Plot each cluster's average normalized values of each attribute
DataCamp Customer Segmentation in Python

Prepare data for a snake plot

Transform datamart_normalized as DataFrame and add a Cluster column

datamart_normalized = pd.DataFrame(datamart_normalized,
index=datamart_rfm.index,
columns=datamart_rfm.columns)
datamart_normalized['Cluster'] = datamart_rfm_k3['Cluster']

Melt the data into a long format so RFM values and metric names are stored in 1
column each

datamart_melt = pd.melt(datamart_normalized.reset_index(),
id_vars=['CustomerID', 'Cluster'],
value_vars=['Recency', 'Frequency', 'MonetaryValue'],
var_name='Attribute',
value_name='Value')
DataCamp Customer Segmentation in Python

Visualize a snake plot


plt.title('Snake plot of standardized variables')
sns.lineplot(x="Attribute", y="Value", hue='Cluster', data=datamart_melt)
DataCamp Customer Segmentation in Python

Relative importance of segment attributes


Useful technique to identify relative importance of each segment's attribute
Calculate average values of each cluster
Calculate average values of population
Calculate importance score by dividing them and subtracting 1 (ensures 0 is
returned when cluster average equals population average)
cluster_avg = datamart_rfm_k3.groupby(['Cluster']).mean()

population_avg = datamart_rfm.mean()

relative_imp = cluster_avg / population_avg - 1


DataCamp Customer Segmentation in Python

Analyze and plot relative importance


The further a ratio is from 0, the more important that attribute is for a segment
relative to the total population.
relative_imp.round(2)

Recency Frequency MonetaryValue


Cluster
0 -0.82 1.68 1.83
1 0.84 -0.84 -0.86
2 -0.15 -0.34 -0.42

Plot a heatmap for easier interpretation:

plt.figure(figsize=(8, 2))
plt.title('Relative importance of attributes')
sns.heatmap(data=relative_imp, annot=True, fmt='.2f', cmap='RdYlGn')
plt.show()
DataCamp Customer Segmentation in Python

Relative importance heatmap

Heatmap plot:

vs. printed output:

Recency Frequency MonetaryValue


Cluster
0 -0.82 1.68 1.83
1 0.84 -0.84 -0.86
2 -0.15 -0.34 -0.42
DataCamp Customer Segmentation in Python

CUSTOMER SEGMENTATION IN PYTHON

Your time to experiment


with different customer
profiling techniques!
DataCamp Customer Segmentation in Python

CUSTOMER SEGMENTATION IN PYTHON

Implement end-to-end
segmentation solution

Karolis Urbonas
Head of Data Science, Amazon
DataCamp Customer Segmentation in Python

Key steps of the segmentation project


Gather data - updated data with an additional variable
Pre-process the data
Explore the data and decide on the number of clusters
Run k-means clustering
Analyze and visualize results
DataCamp Customer Segmentation in Python

Updated RFM data


Same RFM values plus additional Tenure variable

Tenure - time since the first transaction


Defines how long the customer has been with the company
DataCamp Customer Segmentation in Python

Goals for this project


Remember key pre-processing rules
Apply data exploration techniques
Practice running several k-means iterations
Analyze results quantitatively and visually
DataCamp Customer Segmentation in Python

CUSTOMER SEGMENTATION IN PYTHON

Let's dig in!


DataCamp Customer Segmentation in Python

CUSTOMER SEGMENTATION IN PYTHON

Final thoughts

Karolis Urbonas
Head of Data Science, Amazon
DataCamp Customer Segmentation in Python

What you have learned


Cohort analysis and visualization
RFM segmentation
Data pre-processing for k-means
Customer segmentation with k-means
Evaluating number of clusters
Reviewing and visualizing segmentation solutions
DataCamp Customer Segmentation in Python

CUSTOMER SEGMENTATION IN PYTHON

Congratulations!

You might also like