New NABARD Workshop - Last 4 year trend. March 5 at 5 PM. Register here

    Question

    A retailer wants to segment its customers to optimize

    targeted marketing campaigns. Which of the following approaches would be most effective for customer segmentation based on purchasing patterns?
    A Linear Regression Correct Answer Incorrect Answer
    B Principal Component Analysis (PCA) Correct Answer Incorrect Answer
    C K-means Clustering Correct Answer Incorrect Answer
    D Logistic Regression Correct Answer Incorrect Answer
    E Naive Bayes Classifier Correct Answer Incorrect Answer

    Solution

    K-means clustering is well-suited for customer segmentation as it groups customers based on similarities in purchasing behaviors, allowing retailers to identify clusters of customers with similar shopping patterns. By analyzing customer purchasing data, K-means assigns each customer to the nearest cluster center, effectively organizing the customer base into distinct segments. This method is ideal for developing targeted marketing strategies, as each segment represents a specific customer type that can be addressed with tailored promotions. K-means is computationally efficient and works well with large datasets, making it a popular choice for customer segmentation in retail. The other options are incorrect because: • Linear Regression is used for continuous prediction, not clustering. • Principal Component Analysis (PCA) reduces dimensions but doesn’t segment data into groups. • Logistic Regression is a classification tool, not suited for unsupervised segmentation. • Naive Bayes Classifier is a supervised technique that classifies data based on probability, not clustering.

    Practice Next