In this project apply unsupervised learning techniques on product spending data collected for customers of a wholesale distributor in Lisbon, Portugal to identify customer segments hidden in the data. You will first explore the data by selecting a small subset to sample and determine if any product categories highly correlate with one another. Afterwards, you will preprocess the data by scaling each product category and then identifying (and removing) unwanted outliers. With the good, clean customer spending data, you will apply PCA transformations to the data and implement clustering algorithms to segment the transformed customer data. Finally, you will compare the segmentation found with an additional labeling and consider ways this information could assist the wholesale distributor with future service changes.
A wholesale distributor recently tested a change to their delivery method for some customers, by moving from a morning delivery service five days a week to a cheaper evening delivery service three days a week. Initial testing did not discover any significant unsatisfactory results, so they implemented the cheaper option for all customers. Almost immediately, the distributor began getting complaints about the delivery service change and customers were canceling deliveries, losing the distributor more money than what was being saved. You've been hired by the wholesale distributor to find what types of customers they have to help them make better, more informed business decisions in the future. Your task is to use unsupervised learning techniques to see if any similarities exist between customers, and how to best segment customers into distinct categories.
The customer segments data is included as a selection of 440 data points collected on data found from clients of a wholesale distributor in Lisbon, Portugal. More information can be found on the UCI Machine Learning Repository.
Note (m.u.) is shorthand for monetary units.
Features
Fresh: annual spending (m.u.) on fresh products (Continuous);Milk: annual spending (m.u.) on milk products (Continuous);Grocery: annual spending (m.u.) on grocery products (Continuous);Frozen: annual spending (m.u.) on frozen products (Continuous);Detergents_Paper: annual spending (m.u.) on detergents and paper products (Continuous);Delicatessen: annual spending (m.u.) on and delicatessen products (Continuous);Channel: {Hotel/Restaurant/Cafe - 1, Retail - 2} (Nominal)Region: {Lisbon - 1, Oporto - 2, or Other - 3} (Nominal)