In my our project, I utilized Hierarchical Clustering to uncover inherent groupings within our dataset, which comprised diverse customer profiles based on their purchasing behavior. The primary objective was to segment the customers into distinct categories to enable personalized marketing strategies.
Data Preprocessing:
Initially, I cleaned the dataset to handle any missing values and normalized the features to ensure they were on a similar scale, a crucial step to enhance the accuracy of the distance calculations in hierarchical clustering.
I decided on the Euclidean distance metric to compute the dissimilarities between data points. For linkage criteria, I employed the Ward method, as it minimizes the variance within each cluster, ensuring more compact and reliable groupings.
To visually assist in determining the optimal number of clusters, I generated a dendrogram. It showcased how individual data points progressively merged into clusters as the distance threshold increased. Determining Optimal Number of Clusters:
By analyzing the dendrogram, I identified a significant jump in distance, which suggested a natural division in the data. This observation led me to set the threshold at this point, resulting in an optimal number of clusters that balanced granularity and cohesion. Applying Agglomerative Clustering:
With the parameters established, I applied Agglomerative Hierarchical Clustering to the dataset, and the algorithm iteratively merged data points and clusters until everything was grouped into the predetermined number of clusters. Analyzing and Interpreting the Results:
Post-clustering, I conducted a thorough analysis of the characteristics and statistical properties of each cluster. This analysis revealed distinct customer segments, such as “High-Value Customers,” “Frequent Bargain Shoppers,” and “Occasional Shoppers. ”Actionable Insights and Business Impact:
The insights derived from the customer segmentation were instrumental in devising targeted marketing campaigns. For instance, “High-Value Customers” were offered premium products and loyalty programs, while “Frequent Bargain Shoppers” received promotions on high-turnover items.
The application of Hierarchical Clustering proved to be a powerful tool in uncovering hidden patterns within the customer data. It not only enhanced our marketing strategies but also played a pivotal role in improving customer engagement and boosting sales.