Cognitive Customer Insights with Watson AI: Leveraging AI

for Enhanced Customer Engagement

PHASE 2 – DATA PREPROCESSING AND MODEL DESIGN

College Name: Sir M Visvesvaraya Institute Of Technology

Group Members:
• Name : MIDHUN ML
o CAN ID Number : CAN_33845304
• Name : MOHAMMED UWEZ
o CAN ID Number : CAN_33743077
• Name : BINDHUSRI DASARI
o CAN ID Number : CAN_33741069
• Name : BRUNDA TA
o CAN ID Number : CAN_33740159

ABSTRACT
This paper explores the application of Watson AI in deriving cognitive customer insights,
aimed at enhancing customer engagement through advanced data analytics. The project
follows a two-phase approach, with Phase 2 focusing on Data Preprocessing and Model
Design. In this phase, the first critical step is the collection and integration of diverse
customer data from multiple sources, followed by data cleaning to address missing values,
outliers, and inconsistencies. The data is then transformed using techniques such as feature
engineering and encoding to ensure compatibility with machine learning models. A key
aspect of the preprocessing stage is the splitting of the dataset into training, validation, and
test sets, ensuring robust model development.

The design phase emphasizes the selection of the most impactful features using advanced
techniques like Principal Component Analysis (PCA) and feature importance analysis.
Additionally, sentiment analysis and text processing are employed to extract insights from
unstructured data such as customer feedback and social media interactions.
The goal is to build predictive models that can offer actionable insights into customer
behavior, preferences, and needs, thereby enabling organizations to foster more personalized
and effective customer engagement strategies. This approach leverages Watson AI’s machine
learning capabilities to provide deeper cognitive insights into customer data, ultimately
enhancing decision-making and business outcomes.
Phase 2: Data Preprocessing and Model Design

2.1 Overview of Data Preprocessing

Data preprocessing is a crucial step in preparing customer data for machine learning models.
It involves cleaning and transforming raw data into a usable format, ensuring models perform
accurately. The process begins with collecting and integrating data from various sources like
CRM systems and social media, followed by addressing missing values and outliers through
imputation or removal. Categorical variables are converted into numerical formats using
techniques like one-hot encoding, while numerical features are normalized or standardized to
ensure consistency. Feature engineering is applied to create new, informative features, and
dimensionality reduction is performed to select the most relevant ones. Finally, the data is
split into training, validation, and test sets to ensure proper model evaluation and prevent
overfitting. These preprocessing steps lay the foundation for developing accurate and reliable
predictive models.

2.2 Data Cleaning: Handling Missing Values, Outliers, and

Inconsistencies

Data cleaning is an essential step in ensuring the quality and accuracy of a dataset. It focuses
on handling common issues such as missing values, outliers, and inconsistencies, which can
negatively impact model performance and analysis.

1. Handling Missing Values:

o Imputation: Missing data can be replaced with mean, median, mode, or using
more advanced methods like regression imputation or k-nearest neighbors
(KNN) imputation.
o Deletion: In some cases, rows with missing values may be removed if they
represent a small portion of the dataset, though this is only advisable when
data loss won't significantly impact the model.
o Forward/Backward Filling: In time-series data, missing values can be filled
using previous or subsequent values, depending on the nature of the data.
2. Outlier Detection and Treatment:
o Statistical Methods: Outliers can be detected using methods like the Z-score
or Interquartile Range (IQR), which identify values that fall outside a defined
threshold.
o Transformation: If outliers are valid but extreme values, techniques like log
transformation or winsorization (capping values) can reduce their impact on
the model.
o Removal: Outliers that are clearly errors (e.g., impossible values) can be
removed or replaced with more reasonable estimates.
3. Handling Inconsistencies:
o Standardization: Inconsistent formats (e.g., date formats or text case) can be
standardized to a uniform structure to ensure uniformity across the dataset.
o Data Validation: Ensure that all values are within acceptable ranges or
categories (e.g., no negative ages or invalid country names) and correct any
discrepancies.
o Duplication: Duplicate records, especially in large datasets, need to be
identified and removed to avoid bias in the model.
2.3 Feature Engineering and Transformation

In the context of leveraging Watson AI for enhanced customer engagement, feature

engineering and transformation play a pivotal role in optimizing the data for machine
learning models. These processes are crucial for extracting actionable insights from complex
customer data, enabling the AI system to make accurate predictions and support personalized
engagement strategies.

1. Feature Engineering:
o Customer Behavior Metrics: By transforming raw data into meaningful
customer behavior features, such as total spending, frequency of visits, or
recency of interaction, Watson AI can provide deeper insights into customer
loyalty, purchase patterns, and engagement levels. For instance, aggregating
transaction data into metrics like Customer Lifetime Value (CLV) or churn
risk can enhance the AI's ability to predict future behavior.
o Temporal Features: Time-based features are particularly useful in customer
engagement. For example, creating features like time since last purchase or
seasonal trends helps Watson AI better understand cyclical buying patterns or
customer preferences over time.
o Interaction Aggregation: For businesses with multi-channel touchpoints,
aggregating data from different channels (e.g., website visits, social media
interactions, or email responses) can provide a holistic view of customer
engagement. Combining this data helps Watson AI recognize the most
influential factors driving customer decisions.
2. Feature Transformation:
o Normalization and Standardization: In customer data, features such as
spending amount or session duration may have vastly different scales,
potentially leading to biased model outcomes. Normalizing or standardizing
numerical features ensures that each feature contributes equally to the model's
predictions. For instance, this is important when analyzing both high-value
customers (who may make large purchases) and frequent but low-value
buyers.
o Encoding Categorical Data: Watson AI handles categorical customer data
(e.g., geographic location, product categories, or customer segments) by
transforming them into numerical representations. One-hot encoding or label
encoding is used to ensure that AI models can interpret these variables
correctly, supporting tasks such as segmenting customers into personalized
groups.
o Dimensionality Reduction: With large datasets containing numerous features,
techniques like Principal Component Analysis (PCA) or feature selection help
reduce complexity and highlight the most impactful customer characteristics.
This can improve the efficiency and accuracy of Watson AI models,
particularly in real-time customer interaction analysis.
2.4 Feature Scaling and Encoding
Feature scaling and encoding are essential for preparing data for machine learning models.
Feature scaling adjusts numerical features:

 Normalization rescales values between 0 and 1.

 Standardization transforms data to have a mean of 0 and a standard deviation of 1.
 Min-Max Scaling scales features based on their minimum and maximum values.

Feature encoding converts categorical data into numerical formats:

 One-Hot Encoding creates binary columns for each category.

 Label Encoding assigns a unique integer to each category.
 Target Encoding replaces categories with the mean of the target variable.

2.5 Base Model Selection and Design

1. Base Model Selection:

o Supervised Models: Used for prediction tasks (e.g., churn, purchase
likelihood) with models like logistic regression, decision trees, or random
forests.
o Unsupervised Models: Applied for tasks like customer segmentation or
anomaly detection, using models like K-means or DBSCAN.
o Deep Learning Models: Utilized for complex tasks (e.g., sentiment analysis,
recommendation systems), with models like neural networks.
2. Model Design:
o Feature Engineering: Tailor the model to the type of data (raw categorical vs.
standardized).
o Regularization: Use techniques like Lasso (L1) or Ridge (L2) to avoid
overfitting.
o Hyperparameter Tuning: Adjust model parameters (e.g., learning rate, tree
depth) to improve performance.

2.6 Ensemble Model Architecture

1. Bagging Models:
o Random Forest: Combines multiple decision trees, averaging or voting on
predictions to improve accuracy and reduce overfitting.
o Bagged Decision Trees: Multiple trees trained on different data subsets, with
aggregated predictions for better performance.
2. Boosting Models:
o Gradient Boosting (GBM): Builds models sequentially, correcting previous
errors for improved accuracy.
o AdaBoost: Focuses on misclassified instances by adjusting their weights.
o XGBoost: Optimized gradient boosting, known for its speed and efficiency.
o LightGBM: A faster, more efficient version of gradient boosting for large
datasets.
3. Stacking Models:
o Stacked Generalization: Combines multiple base models, with a meta-model
combining their predictions for better accuracy.
 4. Voting Models:
o Hard Voting: Majority voting among models to select the final prediction.
o Soft Voting: Averages model probabilities, choosing the class with the highest
probability.

2.7 Model Training and Validation

1. Model Training:
o Training Data: The model learns patterns from labeled data using algorithms
(e.g., gradient descent).
o Epochs and Batches: Training occurs over multiple iterations, with subsets of
data (batches) processed in each iteration.
2. Model Validation:
o Validation Set: The model is tested on a separate set of data to evaluate
performance and adjust hyperparameters.
o Cross-Validation: The dataset is split into multiple folds to ensure stable
performance across different subsets.
o Hyperparameter Tuning: Optimizing settings (e.g., learning rate) to improve
model accuracy using grid or random search.
3. Performance Metrics:
o Accuracy: Percentage of correct predictions.
o Precision, Recall, F1-Score: Used for classification tasks.
o RMSE: Measures error in regression tasks.

2.8 Conclusion of Phase 2

Phase 2, focusing on data preprocessing and model design, is crucial for building a robust AI-
driven system for customer insights. Key steps like data cleaning, feature engineering,
scaling, and encoding ensure the data is well-prepared for modeling. Base model selection
and ensemble model architecture improve prediction accuracy by leveraging multiple
models to reduce bias and variance. Model training and validation ensure the model
generalizes well and provides accurate insights. Through these processes, businesses can
develop more effective AI models that enhance customer engagement and drive data-driven
decision-making.