Chapter 3

SOFTWARE REQUIREMENTS SPECIFICATION

3.1. Introduction

Customer segmentation is a marketing strategy that involves dividing a customer base

into smaller groups based on certain characteristics such as demographics, behavior,
or buying habits. The goal of customer segmentation is to identify specific groups of
customers with unique needs and characteristics, and then create targeted marketing
campaigns and product offerings that meet those needs. This helps companies to
better understand their customers, increase customer loyalty and engagement, and
ultimately drive sales and revenue growth.

There are many different approaches to customer segmentation, including

demographic, behavioral, psychographic, and geographic segmentation. Each
approach uses a different set of criteria to group customers, and the specific approach
used will depend on the company's specific goals and target market.

Customer segmentation is an important part of a company's overall marketing strategy

and can lead to a more efficient use of resources, improved customer experiences, and
increased profitability. By better understanding the needs and preferences of different
customer segments, companies can create more effective marketing campaigns and
develop products that meet the specific needs of their target market.

3.1.1. Purpose
The purpose of customer segmentation is to divide a customer base into smaller
groups of individuals who share similar characteristics relevant to marketing. This
enables companies to tailor their marketing efforts and offerings to specific groups of
customers based on their unique needs and preferences. The primary objectives of
customer segmentation are:
 To understand customer needs and behavior: Customer segmentation helps companies
gain insights into customer needs, behavior, and preferences, allowing them to better
understand their target audience.
To improve marketing effectiveness: By tailoring marketing efforts to specific
customer segments, companies can increase the relevance and effectiveness of their
marketing campaigns, resulting in higher response rates and conversion rates.
To develop targeted product offerings: Customer segmentation can inform the
development of new products and services that are specifically designed to meet the
needs of individual customer segments.

3.1.2. Project Scope

The scope of a customer segmentation project depends on the specific goals and
objectives of the project, as well as the resources available. However, here is a general
outline of what a customer segmentation project might encompass:

o Data collection: Collection of customer data from various sources, including

customer demographic data, transaction data, and any other relevant data.
o Data cleaning and preparation: Cleaning, transforming, and normalizing the
collected data to prepare it for analysis.
o Segmentation analysis: Applying statistical techniques and algorithms to
segment the customer base into smaller, more homogeneous groups.
o Segment validation: Validating the segments generated by the analysis and
adjusting the segments as necessary.
o Segment characterization: Characterizing each segment by describing the key
characteristics, such as demographics, buying behavior, and customer needs.
o Segment prioritization: Prioritizing the segments based on their potential value
and growth opportunities.
o Marketing strategy development: Developing tailored marketing strategies and
programs for each segment.
o Implementation: Implementing the marketing strategies and programs,
including customer engagement and retention efforts.
o Evaluation and monitoring: Monitoring the results of the marketing efforts and
evaluating the effectiveness of the customer segmentation project.
3.1.3. Definitions, Acronyms, Abbreviations
Here are some common definitions, acronyms, and abbreviations that are relevant to
customer segmentation:

1. Customer Segmentation: The process of dividing a customer base into smaller

groups of individuals who have similar needs and characteristics.
2. Demographic Segmentation: A segmentation method that divides customers
into groups based on demographic characteristics, such as age, gender,
income, and education level.
3. Behavioral Segmentation: A segmentation method that divides customers into
groups based on their behavior, such as buying behavior, usage rate, and
customer loyalty.
4. Psychographic Segmentation: A segmentation method that divides customers
into groups based on their lifestyle, values, personality, and social class.
5. Geographical Segmentation: A segmentation method that divides customers
into groups based on their geographic location, such as region, climate, and
population density.
6. Benefit Segmentation: A segmentation method that divides customers into
groups based on the benefits they seek from a product or service.
7. CLV (Customer Lifetime Value): A measure of the total value a customer is
expected to generate for a company over the course of their relationship.
8. CRM (Customer Relationship Management): A business strategy and
technology used to manage customer interactions and data throughout the
customer lifecycle.
9. RFM (Recency, Frequency, Monetary): A customer segmentation method
based on the customer's recent purchases, frequency of purchases, and
monetary value of purchases.
10. SRS (Software Requirements Specification): A detailed description of the
software requirements for a customer segmentation system, including
functional and non-functional requirements.
 11. KPI (Key Performance Indicator): A metric used to measure the success of a
customer segmentation project, such as customer engagement, customer
satisfaction, and customer retention.

3.1.4. Overview
Customer segmentation is the process of dividing a customer base into smaller groups
of individuals who have similar needs and characteristics. The goal of customer
segmentation is to gain a deeper understanding of customer behavior and preferences,
and to use this information to design more effective marketing campaigns and
improve customer experiences.
Once the customer base has been segmented, companies can use the resulting
segments to design more effective marketing campaigns, allocate resources more
efficiently, and prioritize their efforts to target the segments that offer the greatest
potential for growth and profitability.

3.2. Overall Description

Customer segmentation is the process of dividing a customer base into groups of
individuals that are similar in specific ways relevant to marketing, such as age, gender,
interests, buying behavior, and income.
The k means clustering algorithm is a popular technique used in customer segmentation.
It is a machine learning algorithm that works by dividing a set of data points into k
groups, where k is the number of segments you want to create. The algorithm iteratively
groups the data points based on their similarity and assigns each data point to the closest
cluster, or segment. The result is a set of k clusters, where each cluster represents a
segment of customers.

3.2.1. Product perspective

Customer segmentation from a product perspective involves dividing a customer base
into different groups based on their preferences and behavior towards products. By
understanding the unique needs and wants of different customer segments, companies
can tailor their products and marketing efforts to better meet the needs of each
segment.

3.2.2. Product Feature

 A customer segmentation product feature typically includes the following
components:
1. Data Collection and Management: The first step in customer segmentation is
to collect and manage data on customer demographics, behaviors, and
preferences. This data can come from various sources, such as customer
surveys, website analytics, and sales data.
2. Data Analysis: Once the data has been collected, it needs to be analyzed to
identify patterns and trends. Data analysis tools can be used to cluster
customers into groups based on common characteristics and behaviors.
3. Segment Definition: After the data has been analyzed, the customer segments
can be defined and described in detail. This includes information on the size
and characteristics of each segment, as well as their unique needs and
preferences.
4. Targeted Marketing: With the customer segments defined, the next step is to
develop targeted marketing campaigns for each segment. This can include
personalized email campaigns, targeted advertising, and special promotions.
5. Measurement and Optimization: Finally, it's important to measure the
effectiveness of the customer segmentation and marketing efforts. This
information can be used to optimize and improve future campaigns, and to
ensure that the customer segments continue to align with the changing needs
of the customers.
3.2.3. User Characteristics
Customer segmentation is a marketing strategy that involves dividing a customer base
into smaller groups with similar needs or characteristics. The goal of customer
segmentation is to better understand the unique needs of each customer group, and to
develop targeted marketing campaigns that resonate with each group.

3.2.4. General Constraints

  Data Quality: The quality of the data used for customer segmentation can
significantly impact the accuracy of the segments. Poor quality data can result
in incorrect segmentation, leading to ineffective marketing efforts.
 Data Privacy: The collection and storage of customer data raises privacy
concerns, and businesses must ensure that they are compliant with data
privacy regulations.
 Segment Overlap: Customer segments can sometimes overlap, making it
difficult to determine which segment a customer belongs to. This can result in
ineffective marketing efforts and customer confusion.
 Segment Stability: Customer segments can change over time, as customer
behaviors and preferences evolve. This means that the segmentation process
must be continually reviewed and updated to ensure that it remains relevant
and effective.
 Segmentation Complexity: Customer segmentation can be complex and time-
consuming, requiring significant resources and expertise. This can make it
difficult for businesses with limited resources to effectively implement a
customer segmentation strategy.
 Segmentation Bias: There is a risk of biases in the segmentation process,
which can result in inaccurate segmentation and ineffective marketing efforts.
This can be due to factors such as personal beliefs, preconceptions, or limited
data.
3.3. Specific Requirements
Software Requirements Specification (SRS) is a detailed description of the software
system to be developed, including functional and non-functional requirements. The SRS
provides a comprehensive and complete description of what the software will do and how
it will be implemented.
Having a clear and comprehensive SRS is important because it helps ensure that everyone
involved in the software development process, including developers, stakeholders, and
customers, have a common understanding of the software requirements.

3.3.1. External Interface Requirements

External Interface Requirements specify the interactions between a software system
and the outside world, including other systems, users, and external devices. These
 requirements are critical in ensuring that the software integrates seamlessly with its
external environment and meets the needs of its users.
It's important to carefully consider the external interface requirements when
designing a software system, as they have a significant impact on the software's
functionality, usability, and security. Having a clear and comprehensive set of
external interface requirements will ensure that the software integrates seamlessly
with its external environment and meets the needs of its users.

3.3.2. HARDWARE REQUIREMENTS:

• Processor: core i3 or any higher versions
• RAM: 4GB or above
• Hard Disk utilization: 40GB or above

3.3.3. SOFTWARE REQUIREMENTS:

• Operating system: Windows 10, Linux
• Language: Python 3
• Microsoft Excel
• Jupyter Notebook

3.3.4. Functional Requirements

 Data collection: To segment customers effectively, businesses need to collect
relevant data about their customers.
 Segmentation criteria: Once the data is collected, businesses need to identify the
criteria they will use to segment their customers.
 Segmentation algorithm: Businesses also need to have an algorithm in place to
segment customers based on the criteria they have selected
 Data analysis: After segmentation, businesses need to analyse the resulting customer
groups to identify common characteristics and behaviours.
 Implementation: The results of customer segmentation should be integrated into the
company's overall marketing strategy
3.3.5. Non-Functional Requirements
 Accuracy: The customer segmentation algorithm should be accurate and reliable,
producing consistent and meaningful results.
 Performance: The customer segmentation system should perform efficiently and
effectively, handling large volumes of customer data and producing results in a
timely manner.
 Security: The customer data used for segmentation must be protected against
unauthorized access, use, or disclosure.
 Usability: The customer segmentation system should be easy to use and
understand, with a clear user interface and intuitive navigation.
 Flexibility: The customer segmentation system should be flexible and adaptable to
changing business needs, such as the addition of new customer data sources or
changes in segmentation criteria.

3.3.4 Performance Requirements

Performance requirements in customer segmentation typically relate to the speed and
scalability of the system. Some specific performance requirements include:
 Processing speed
 Response time
 Availability
 Scalability
 Resource usage