Case: Technology Client – Sells laptops desktops tablets servers etc.

Objective: selecting 1000 out of 10000 customers for targeting

This case study is of Unsupervised learning, segmentation techniques can be used to solve this case

1. Kmeans cluster technique

2. Hierarchical cluster technique

Since Hierarchical clustering is used best when the volume is less and Kmeans clustering is used best
when there is high volume of data.

The given case can be explained based on Kmeans. As there are no data available from the case. I have
assumed few of the variables as my starting point. As it is for B2B so my end user would be a business
entity and not direct customer. In this case RFM analysis can be used to select the variables for
clustering.

Variables which I assumed are: (all numeric)

1. Customer (B2B business entity)

2. Tenure as customer (taking it as >= 12 months, each customer has made purchase atleast once)
3. Recency of last transaction (based on RFM analysis)
4. No.of times transactions made in 24 months (based on RFM analysis)
5. Total revenue earned in the last 24 months (based on RFM analysis)
6. Total cost incurred in the last 24 months

Since I don’t know what is my K, I assumed it to be k=3. (K can be found using Elbow method)

I can use Python for Kmeans

From sklearn.cluster import Kmeans

Kmeans=Kmeans(n_cluster=3, n_init=, max_iter=, random_State=0)

Output:
Tenure as Recency of last No. of times tranaction Total revenue earned Total cost incurred
Customer Customer transaction made in Last 24 months in last 24 months in last 24 months Cluster
1 12 0 30 1000 200 1
2 18 1 25 900 100 1
3 13 1 22 800 100 1
4 24 3 18 1000 200 1
5 35 4 12 750 100 2
6 40 5 11 600 70 2
7 31 7 9 500 80 3
8 26 9 5 200 60 3
9 29 2 21 900 100 1
10 33 2 23 650 50 2

Note: Above data is just for example, there is no relation between clusters and the data. It just
for explanation.
cluster 1 has more high chance of taking subscripition

cluster 2 has second most chance of taking subscription

cluster 3 has least chance of taking subscription

So what I want to point out here is

It can be possible that my 1000 customers might have come from cluster 1 only then in this case I will
not look for cluster 2 and 3 customers as I got my most profitable customers within cluster1.

if not then It might possible that I get 300 customers from cluster1 and 700 from cluster 2 so and so
forth….

How it will benefit to the Business?

Assuming that I have got all 50% customers in cluster 1 then I can select top 1000 customers whom I
want to target for Marketing offer. This can be done by calculating profits and then give them a ranking
from highest to lowest.

Example:

Total
Total cost
revenue incurre
earned d
in last in last
24 24
Cluster1 months months Profit Rank
1 1000 200 800 1
2 900 100 800 2
3 800 100 700 3
4 700 200 500 5
5 750 100 650 4
Note: Above data is just for example, there is no relation between ranking and the data. It just for
explanation.

Conclusion: Top 1000 rank can be my most profitable customers, further I can drill down to calculate

Future expected revenue for next 12 months

Future expected cost for next 12 months