Chapter 1

INTRODUCTION

1.1 Statement of the Problem.

A retail store wants to get insights about its customers. And then build a system that can
cluster customers into different groups.

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.

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
A customer segmentation strategy allows firms to target particular groups of consumers,
resulting in more efficient marketing resource allocation and greater potential for cross and
up-selling. It's easier for firms to create unique offers to entice customers to spend more when
they deliver customized communications to a group of customers as part of a marketing mix
tailored to their requirements.

1.2 Objective and Scope

1.Objectives:

The goal of segmenting customers is to decide how to relate to customers in each

segment in order to maximize the value of each customer to the business.

• Increased resource efficiency

• Stronger brand image

• Greater potential for brand loyalty

• Stronger market differentiation

• Better targeted digital advertising

2.Scope:

While this guide provides a step-by-step process for identifying, prioritizing, and
targeting your best current customer segments, simply following it does not guarantee
success. To be effective, you must prepare and plan for the various challenges and hurdles
that each step may present, and always make sure to adapt your process to any new
information or feedback that might change its output.

If you properly manage the best current customer segmentation process, however, the
impact it can have on every part of your organization sales, marketing, product development,
customer service, etc. is immense. Your business will possess stronger customer focus and
market clarity, allowing it to scale in a far more predictable and efficient manner.

• What are the main groups of customers that our business serves?
 • Who are our most and least profitable customers?

• Which aspects of our products/services appeal most to our customers?

1.3 Modules:

The K-Means divides the data into non-overlapping subsets without any cluster-internal
structure. The values which are within a cluster are very similar to each other but, the values
across different clusters vary enormously. K-Means clustering works really well with medium
and large-sized data.

We can build the K-Means in python using the ‘KMeans’ algorithm provided by the
scikit-learn package.

The KMeans class has many parameters that can be used, but we will be using these three:

 init - Initialization method of the centroids. The value will be: ‘k-means++’. k-
means++ - Selects initial cluster centers for the k-means clustering in a smart way to
speed up convergence.
 n_clusters - The number of clusters to form as well as the number of centroids to
generate. The value will be 3.
 n_init - Number of times the k-means algorithm will be run with different centroid
seeds.

Chapter 2

REQUIREMENTS ANALYSIS

2.1 Introduction

Customer segmentation is the process of examining customer attributes and creating

groups based on how they behave, who they are, and their specific characteristics. These
customer groups are beneficial in marketing campaigns, in identifying potentially profitable
customers, and in developing customer loyalty.

Customer segmentation allows businesses to use targeted messaging, rather than

taking a one-size-fits-all approach, to drive business results. Segmentation is defined as
division and grouping of existing or potential customers into segments based on their traits.
This allows marketers to address a group of customers’ specific needs in a targeted manner.
The highest level of segmentation is so-called segment-of-one marketing, which takes into
account a single customer’s individual behaviors.

2.2 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.

2.3 Proposed System

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.

2.3.1 Overview

This is a mall customer segmentation data which contains 5 columns and 200 rows.
Customer Segmentation can be a powerful means to identify unsatisfied customer needs.
Using the above data companies can then outperform the competition by developing uniquely
appealing products and services.
2.3.2 Functional Requirements

1. Hardware requirements:

• Processor: core i3 or any higher versions.

• RAM: 4GB or above.
• Hard Disk utilization: 40GB or above.

2. Software requirements:

• Operating system: Windows 10, Linux.

• Language: Python 3.
• Microsoft Excel.