Choosing Relevant Attributes (Segmentation Criteria)

To use clustering for customer segmentation (to group customers with other customers who have similar traits), you first have to decide what similar means, or in other words, you need to be precise when defining what kinds of customers are similar. Choosing the properties that go into the segmentation process is an extremely important decision as it defines how the entities are represented and directs the nature of the groups formed.

Let's say we wish to segment customers solely by their purchase frequency and transaction value. In such a situation, attributes such as age, gender, or other demographic data would not be relevant. On the other hand, if the intent is to segment customers purely on a demographic basis, their purchase frequency and transaction value would be the attributes that won't be relevant to us.

A good criterion for segmentation could be customer engagement, involving features such as time spent...