Enhancing Customer Segmentation Using

Machine Learning
Hariprasath S R1
¹ Department of CSE, Saveetha Engineering College, India
1
hariprasathsr25@gmail.com

Abstract--- In today's highly competitive business

environment, the rise of new competitors and
entrepreneurial ventures has intensified the race
to attract new customers and retain existing ones.
Regardless of a company's size, the demand for
exceptional customer service has never been
greater. To meet customer expectations,
companies need to understand the needs of each
individual customer. Tailoring customer service
and developing personalized service plans are
essential to this goal. A systematic approach to
customer service can facilitate this
understanding.
Customer segmentation is a key strategy in this
context. By dividing customers into different
groups based on common market characteristics,
companies can develop specific marketing and
service strategies for each segment. However, as
traditional market analysis is often insufficient
for a large customer base, big data concepts and
machine learning techniques have become
increasingly important. These technologies enable
the automation of customer segmentation and
make it more efficient and accurate. The K-
Means clustering algorithm, a popular method of
unsupervised machine learning, is used for this
purpose.
The implementation of the K-Means algorithm is
facilitated by the library Scikit-learn (Sklearn).
Sklearn is a versatile Python library commonly
used for machine learning and data analysis
tasks. The program uses a retail data set that
likely contains customer behavior data, such as
average number of purchases and monthly
customer count.
Keywords— data mining; machine learning; big
data; customer segment; k-Mean algorithm;
sklearn;
I. INTRODUCTION
Customer segmentation is the process of dividing a
customer base into different groups based on
various relevant marketing factors such as gender,
age, interests and buying habits. Companies that
use customer segmentation recognize that each
customer has unique needs and requires tailored
marketing efforts to address them effectively. The
goal of companies is to gain a deeper understanding
of their target customers, which requires specific,
personalized approaches to meet individual
customer needs. By collecting data, companies can
gain insight into their customers' preferences and
identify the segments that generate the most profit,
allowing for more efficient marketing strategies
and risk mitigation.
Customer segmentation relies on key differentiators
such as demographics, geography, economic status
and behavioral patterns to divide customers into
target groups. Integrated databases are essential to
uncover subtle patterns and correlations. These
learning techniques are classified as supervised
learning and use algorithms such as K-Means, K-
closest, self-organizing maps (SOM) and others to
identify clusters in data without prior knowledge,
as long as consistent patterns are detected in
training models based on context or behavior.
Each cluster includes data points that have
similarities but are distinctly different from data
points in other clusters. Integration is widely used
in pattern recognition, image analysis,
bioinformatics and other fields. In this work, the K-
Means clustering algorithm is used for customer
segmentation. A scalar library of the K-Means
algorithm was developed and trained using a
dataset with two attributes and 100 training
samples from the retail industry. After the analysis,
four different and stable customer segments are
identified.

II. RELATED WORKS
1] "Marketing Analytics Scientific Data" by
Blanchard, Bhatnagar, and Behera (2019): This
book explores the application of Python's data
analytics capabilities to achieve marketing
objectives, making use of scientific data
analysis techniques.
2] "Sales Business Analysis" by Griva, Bardaki,
Pramatari, and Papakiriakopoulos (2018): This
study focuses on customer categorization using
market basket data, aiming to enhance sales
and business analysis through data-driven
approaches.
3] "It Separates Consumers from Online Stores"
by Hong and Kim (2011): This research delves
into the factors influencing customer intentions
to purchase from online stores, emphasizing
the significance of understanding and
segmenting online consumers.
4] "Hands-on Advertising Science Data" by
Hwang (2019): This resource provides
practical insights into developing machine
learning marketing strategies using Python and
R, aligning with data science for advertising.
. Centro's first stage, allocation phase and
5] "Market Classification and Its Impact on
Customer Satisfaction" by Puwanenthiren
Premkanth: This work investigates the impact
of market classification on customer
satisfaction with a specific reference to the
Commercial Bank of Ceylon PLC.
6] "The Basis of Market Segmentation: A Critical
Review of the Literature" by Sulekha Goyat
(2011): This review critically examines the
literature on market segmentation, shedding
light on the fundamental principles and
research in this area.
7] "Big Data: The Next Frontier" by McKinsey
Global Institute (2011): This report highlights
the significance of big data in fostering
creativity, competition, and productivity across
various domains.
8] "Data Integration: A Review" by A.K. Jain,
M.N. Murty, and P.J. Flynn (1999): This
review discusses the challenges and techniques
related to data integration, a crucial aspect of
managing and analyzing large datasets.
9] "By Jerry W Thomas" (2007): This source,
authored by Jerry W Thomas, discusses a topic
related to decision analysis. Unfortunately, the
specific content or focus of the work is not
provided in the reference. It was accessed at
www.decisionanalyst.com on July 12, 2015.
10] "Manufactured Cluster Analysis Using a New
Algorithm from Structured and Unstructured
Data" by T. Nelson Gnanaraj, Dr. K. Ramesh
Kumar, and N. Monica (2007): This
publication, found in the "International Journal
of Advances in Computer Science and
Technology," details the application of a new
algorithm for cluster analysis using structured
and unstructured data. The algorithm's usage
and findings are likely explored in this work.
III. METHOLOGY
In this paper several steps were taken to obtain
an accurate result. It includes a feature with
update phase, which are the most common
phase k-means algorithms.
A. Collect data
Information collection is known as the
methodical approach to collecting customer
data. In each information index, individual
details such as name, address, telephone
number, etc. are recorded. An information
collection is the basis for every AI project.
Generally, Informational indexes are available
as CSV ( Comma Seperated Values).
.
B. Preprocessing data
This is a significant stage prior to going to the
following phase. In this stage we eliminate all
the invalid values, invalid objects, symbols,
strings, etc.
 Data preprocessing is a critical step to ensure
that the data used for analysis and modeling is
of high quality and appropriate for the intended
analytical or machine learning tasks. It aims to
prepare the data in a way that minimizes the
risk of introducing biases, errors, or
inaccuracies into the results.
C. Group analysis
Group analysis is an integration or unification,
approach to consumers based on their
similarity.
There are 2 main types of categorical group
analysis in market policy: hierarchical group
analysis, and classification (Miller, 2015). In
the meantime, we will discuss how to classify
groups, called k-methods.
D. K Means encounter
The K-means clustering algorithm is an
algorithm often used to draw insights into
formats and differences within a database .In
marketing, it is often used to build customer
segments and understand the behavior of
these unique segments. Let's try to build an
assembly model in Python's environment.
D. Select the optimal number of groups:
IV. PROPOSED WORK
A. Import data and packages:
First, we import the xlsx (Excel spreadsheet)
data file, followed by the packages we need to
perform our analysis.You must download the
data from UCI if you wish to use it for follow-
up. I put the xlsx file in the folder (directory)
where I show Jupiter's notebook in this
example.
. computes the within-cluster sum of squares
B. Data Cleaning:
Upon importing the package and date, we will
observe that cluster 4 exhibited the most
comprehensive silhouette fit, suggesting that 4
would be the optimal cluster count.Since the
data isn't as useful as that, we must clean and
arrange it so that we can draw conclusions that
are more practically useful.
C. Normalize the data:
Normalizing the data is essential to improving
the K-means clustering algorithm's
performance and reducing its sensitivity to
different feature scales. Standardization,
sometimes referred to as Z-score
normalization, is a suggested method that
aligns the scale with the unit variance and
centers the data around the mean. The scikit-
learn library's StandardScaler can be used to
accomplish this. The features are standardized
by first initializing the scaler ({scaler =
StandardScaler()}), then fitting and
transforming the data ({normalized_data =
scaler.fit_transform(data)}). An alternative
method for normalizing data inside a given
range—typically between 0 and 1—is to use
Min-Max Scaling. The normalization
procedure is carried out in two parts in this
technique, which uses the MinMaxScaler from
scikit-learn: initializing the scaler (`scaler =
MinMaxScaler()) and normalizing the data
(`normalized_data =
scaler.fit_transform(data)`). The choice
between these normalization techniques
depends on the specific characteristics of the
dataset and the analytical requirements at hand.
Determining the ideal number of groups is
essential before beginning any cluster analysis.
The elbow method and the silhouette
coefficient are two methods that are frequently
applied to this task. The silhouette coefficient
evaluates how well each item is arranged
within clusters by evaluating the consistency
across data structures. Creating a diagram to
show the quality of the clustering is part of this
process. Conversely, the elbow technique
over a range of cluster sizes. Plotting this data
allows for the identification of a "elbow" point,
or the ideal number of clusters at which the
pace of improvement starts to decline. The
elbow method and the silhouette coefficient are
both useful instruments for assisting in the
process of choosing the ideal number of
groups.
V. EXPERIMENT AND RESULT
The process of customer segmentation is
grouping consumers according to demands,
behaviors, and shared traits. This tactical
strategy provides numerous advantages,
allowing businesses to customize goods,
enhance features, and focus on certain clientele.
The company's market value increases overall
as a result of this precision.
In this paper, we investigate the use of Python's
Unsupervised Machine Learning algorithms for
Customer Segmentation. Importing the required
libraries, including Seaborn, NumPy,
Matplotlib, Pandas, and Scikit-learn, is a step in
the process. The dataset is then imported and
preprocessed, incorporating client
characteristics like income, marital status, and
past purchases.
Fig. 1. Customer dataset
In data preprocessing, missing values are
handled, unnecessary columns are
removed, and the date column is divided
into distinct columns for the day, month,
and year. After that, visualization and
analysis are conducted using bar plots
and count plots to obtain understanding
of categorical distribution of data. For
the purpose of model understanding,
label encoding is used to translate
categorical variables into numerical
ones.
Fig. 2. Visualization and analysis are conducted using
graph
Standardizing data improves machine
learning models, and a heatmap
visualizes feature correlations. Optimal
cluster number is determined with the
elbow technique, guiding KMeans
Clustering for cluster identification.
Fig. 3. AvgOrderValue vs ToatalSales Clusters

Fig. 3. Final Clusters
Scatterplots are used to illustrate the generated
clusters, giving a clear picture of different client
categories. This methodology not only enables
focused marketing tactics but also contributes to
the comprehension of consumer behavior for
improved business judgment.
VI. CONCLUSION
One of the most important techniques for
examining the company's consumer data is client
segmentation. Customers are categorized using the
K-means clustering machine learning method
according to important characteristics like annual
income and total spending. This study highlights
the K-means clustering algorithm as a reliable
option for handling this segmentation difficulty,
underscoring the efficacy of behavioral features as
a superior criterion for consumer segmentation.
Because of its ability to identify trends in consumer
behavior, the algorithm is a good fit for developing
insightful segments that support business goals.
The results highlight the importance of taking
behavioral subtleties into account in addition to
demographic characteristics when fine-tuning
consumer segmentation tactics, which will
ultimately improve the company's capacity to
customize its products to meet the needs of a wide
range of customers.
VII. FUTURE WORK
In the next phase of this project, we aim to enrich
our customer segmentation model by incorporating
dynamic features, such as evolving engagement
metrics, to capture temporal variations in customer
behavior. Additionally, we plan to explore
advanced clustering algorithms like hierarchical or
density-based methods to discern more intricate
patterns within the dataset. Extending beyond static
segmentation, we intend to implement predictive
modeling, enabling the anticipation of future
customer behavior within identified segments.
Furthermore, a real-time segmentation mechanism
will be developed to ensure the model's adaptability
to changing customer dynamics, providing more
timely insights. Lastly, we will focus on creating an
intuitive user interface to empower stakeholders in
visualizing and interpreting segmentation results,
fostering more effective decision-making.
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