This post is the third and final part in the customer segmentation analysis. The first post focused on K-Means Clustering to segment customers into distinct groups based on purchasing habits. The second post takes a different approach, using Pricipal Component Analysis (PCA) to visualize customer groups. The third and final post performs Network Visualization (Graph Drawing) using the
networkD3 libraries as a method to visualize the customer connections and relationship strengths.
3 Part Series
- CUSTOMER SEGMENTATION PART 1: K-MEANS CLUSTERING
- CUSTOMER SEGMENTATION PART 2: PCA FOR SEGMENT VISUALIZATION
- CUSTOMER SEGMENTATION PART 3: NETWORK VISUALIZATION
Customer Segmentation Cheat Sheet
We have a cheat sheet that walks the user through the workflow for segmenting customers. You can download it here.
10-Minute Overview of Segmentation and Clustering taught in our Business Analysis with R (DS4B 101-R) Course
Table of Contents
- Why Network Visualization?
- Where We Left Off
- Getting Ready for Network Visualization
- Developing the Network Visualization
- Visualizing the Results with networkD3
- Further Reading
According to Katya Ognyanova, an expert in network theory, Network Visualization is a useful technique for viewing relationships in the data, with the key benefits being identification of the following:
Source: Network Visualization with R
For customer segmentation, we can utilize network visualization to understand both the network communities and the strength of the relationships. Before we jump into network visualization, it’s a good idea to review where we left off in the previous customer segmentation posts.
In the first post, we used k-means clustering to analyze the
bikes data set, a collection of excel files that contains data for bike shops (customers), bikes (products), and sales orders for the bike manufacturer, Cannondale. The bike shops and sales orders are fictional / simulated (see the orderSimulatoR post for more on this), but the bikes (products) are actual models from Cannondale’s website.
A hypothesis was formed that bike shops purchase bikes based on bike features such as unit price (high end vs affordable), primary category (Mountain vs Road), frame (aluminum vs carbon), etc. The sales orders were combined with the customer and product information and grouped to form a matrix of sales by model and customer. The
kmeans() function was run on a range of potential clusters, k, and the
silhouette() function from the
cluster package was used to determine the optimal number of clusters.
In the second post, we used PCA to visually examine the customer segments using the
prcomp() function in base
R. PCA visualization allowed us to identify a customer segment that k-means failed to pick up.
For those that would like to follow along, rather than run through the previous posts the sections below can be used to get everything ready for network visualization.
You can access the data here if you would like to follow along. You’ll need to download the following files:
orders.xlsx: Contains the fictional sales orders for Cannondale.
customer.idin the orders.xlsx file relates to
bike shop.idin the bikeshops.xlsx file, and
product.idin the orders.xlsx file relates to
bike.idin the bikes.xlsx file.
bikes.xlsx: Contains information on products (e.g. bike model, primary category, secondary category, unit price, etc).
bike.idis the primary key.
bikeshops.xlsx: Contains information on customers (e.g. customer name and location).
bikeshop.idis the primary key.
The script to load and configure the data into a customer trends matrix is shown below.
This script will read the data. Make sure you have the excel files in a folder named “data” in your current working directory prior to running the script below.
The script below combines the
products data frames into
orders.extended, which is a data frame that simulates output we would get from an SQL query of a sales orders database / ERP system. The data is then manipulated to form
customerTrends, which has the data structured such that the rows contain products and the columns contain purchase quantity (as percentage of total) by customer.
Note that if the code above seems confusing, I recommend stepping through each step in the code chunk separately, then stopping to view the data frame that is created. the intention is to build the orders data frame and then convert it into a data frame that relates customers to the product purchase history.
Here’s the first 6 rows of
|model||category1||category2||frame||price||Albuquerque Cycles||Ann Arbor Speed||Austin Cruisers||Cincinnati Speed||Columbus Race Equipment||Dallas Cycles||Denver Bike Shop||Detroit Cycles||Indianapolis Velocipedes||Ithaca Mountain Climbers||Kansas City 29ers||Las Vegas Cycles||Los Angeles Cycles||Louisville Race Equipment||Miami Race Equipment||Minneapolis Bike Shop||Nashville Cruisers||New Orleans Velocipedes||New York Cycles||Oklahoma City Race Equipment||Philadelphia Bike Shop||Phoenix Bi-peds||Pittsburgh Mountain Machines||Portland Bi-peds||Providence Bi-peds||San Antonio Bike Shop||San Francisco Cruisers||Seattle Race Equipment||Tampa 29ers||Wichita Speed|
|Bad Habit 1||Mountain||Trail||Aluminum||[ 415, 3500)||0.0174825||0.0066445||0.0081301||0.0051151||0.0101523||0.0128205||0.0117340||0.0099206||0.0062696||0.0181962||0.0181504||0.0016026||0.0062893||0.0075949||0.0042135||0.0182648||0.0086705||0.0184783||0.0074074||0.0129870||0.0244898||0.0112755||0.0159151||0.0108696||0.0092251||0.0215054||0.0026738||0.0156250||0.0194175||0.0059172|
|Bad Habit 2||Mountain||Trail||Aluminum||[ 415, 3500)||0.0069930||0.0099668||0.0040650||0.0000000||0.0000000||0.0170940||0.0139070||0.0158730||0.0031348||0.0110759||0.0158456||0.0000000||0.0094340||0.0000000||0.0112360||0.0167428||0.0173410||0.0021739||0.0074074||0.0095238||0.0040816||0.0190275||0.0026525||0.0108696||0.0239852||0.0000000||0.0026738||0.0078125||0.0000000||0.0000000|
|Beast of the East 1||Mountain||Trail||Aluminum||[ 415, 3500)||0.0104895||0.0149502||0.0081301||0.0000000||0.0000000||0.0042735||0.0182529||0.0119048||0.0094044||0.0213608||0.0181504||0.0016026||0.0251572||0.0000000||0.0140449||0.0167428||0.0086705||0.0086957||0.0172840||0.0242424||0.0000000||0.0126850||0.0053050||0.0108696||0.0092251||0.0053763||0.0000000||0.0156250||0.0097087||0.0000000|
|Beast of the East 2||Mountain||Trail||Aluminum||[ 415, 3500)||0.0104895||0.0099668||0.0081301||0.0000000||0.0050761||0.0042735||0.0152108||0.0059524||0.0094044||0.0181962||0.0138289||0.0000000||0.0220126||0.0050633||0.0084270||0.0076104||0.0086705||0.0097826||0.0172840||0.0086580||0.0000000||0.0232558||0.0106101||0.0155280||0.0147601||0.0107527||0.0026738||0.0234375||0.0291262||0.0019724|
|Beast of the East 3||Mountain||Trail||Aluminum||[ 415, 3500)||0.0034965||0.0033223||0.0000000||0.0000000||0.0025381||0.0042735||0.0169492||0.0119048||0.0000000||0.0102848||0.0181504||0.0032051||0.0000000||0.0050633||0.0042135||0.0152207||0.0202312||0.0043478||0.0049383||0.0051948||0.0204082||0.0162086||0.0026525||0.0201863||0.0073801||0.0322581||0.0000000||0.0078125||0.0097087||0.0000000|
|CAAD Disc Ultegra||Road||Elite Road||Aluminum||[ 415, 3500)||0.0139860||0.0265781||0.0203252||0.0153453||0.0101523||0.0000000||0.0108648||0.0079365||0.0094044||0.0000000||0.0106598||0.0112179||0.0157233||0.0278481||0.0210674||0.0182648||0.0375723||0.0152174||0.0172840||0.0103896||0.0163265||0.0126850||0.0026525||0.0139752||0.0073801||0.0053763||0.0026738||0.0078125||0.0000000||0.0098619|
Going from the
customerTrends to a network visualization requires three main steps:
The first step to network visualization is to get the data organized into a cosine similarity matrix. A similarity matrix is a way of numerically representing the similarity between multiple variables similar to a correlation matrix. We’ll use Cosine Similarity to measure the relationship, which measures how similar the direction of a vector is to another vector. If that seems complicated, just think of a customer cosine similarity as a number that reflects how closely the direction of buying habits are related. Numbers will range from zero to one with numbers closer to one indicating very similar buying habits and numbers closer to zero indicating dissimilar buying habits.
Implementing the cosine similarity matrix is quite easy since we already have our
customerTrends data frame organized relating customers (columns) to product purchases (rows). We’ll use the
cosine() function from the
lsa library, and this will calculate all of the cosine similarities for the entire matrix of
customerTrends.mat. Make sure to use the
matrix version of customer trends (
customerTrends.mat) because the data frame version needs to be vectorized to work with the
cosine() function. Also, set the diagonal of the matrix to zero since showing a customer perfectly related to itself is of no significance (and it will mess up the network visualization).
|Albuquerque Cycles||Ann Arbor Speed||Austin Cruisers||Cincinnati Speed||Columbus Race Equipment||Dallas Cycles||Denver Bike Shop||Detroit Cycles||Indianapolis Velocipedes||Ithaca Mountain Climbers||Kansas City 29ers||Las Vegas Cycles||Los Angeles Cycles||Louisville Race Equipment||Miami Race Equipment||Minneapolis Bike Shop||Nashville Cruisers||New Orleans Velocipedes||New York Cycles||Oklahoma City Race Equipment||Philadelphia Bike Shop||Phoenix Bi-peds||Pittsburgh Mountain Machines||Portland Bi-peds||Providence Bi-peds||San Antonio Bike Shop||San Francisco Cruisers||Seattle Race Equipment||Tampa 29ers||Wichita Speed|
|Ann Arbor Speed||0.6196043||0.0000000||0.7431950||0.7192722||0.6592156||0.6620349||0.6040483||0.7386500||0.7564289||0.4220565||0.6025264||0.6672118||0.6457366||0.6989536||0.8870122||0.7440162||0.8124362||0.8508068||0.7319914||0.8752170||0.6297372||0.7734097||0.3701049||0.7219594||0.7822326||0.6049646||0.6840396||0.7040305||0.2977984||0.6616981|
|Columbus Race Equipment||0.5820150||0.6592156||0.5669442||0.7958886||0.0000000||0.5185814||0.5309790||0.7042962||0.5234586||0.6141313||0.5104736||0.7938090||0.5372245||0.7807134||0.6335681||0.6013218||0.6266589||0.6613703||0.5650758||0.6378461||0.5721180||0.6128332||0.5935363||0.5948224||0.5692300||0.5193049||0.7784591||0.6046323||0.4425796||0.7480177|
It’s a good idea to prune the tree before we move to graphing. The network graphs can become quite messy if we do not limit the number of edges. We do this by reviewing the cosine similarity matrix and selecting an
edgeLimit, a number below which the cosine similarities will be replaced with zero. This keeps the highest ranking relationships while reducing the noise. We select 0.70 as the limit, but typically this is a trial and error process. If the limit is too high, the network graph will not show enough detail. Try testing different edge limits to see what looks best in Step 3.
igraph is easy with the
graph_from_adjacency_matrix() function. Just pass the pruned
simMatrix. We can also get the communities by passing the
simMatrix to the
Let’s pause to take a look as the cluster edge betweenness (
ceb). We can view a plot of the clusters by passing
ceb to the
dendPlot() function. Set the
mode to “hclust” to view as a hierarchical clustered dendrogram (it uses
hclust from the
stats library). We can see that the cluster edge betweenness has detected three distinct clusters.
Now we can plot the network graph by passing
simIgraph to the
plot() function. See
plot.igraph for additional documentation.
Yikes. This is a little difficult to read. With that said, the graph did a nice job of showing the major customer segments. Also notice how the color of the node clusters match the dendrogram groupings. For readability sake, we’ll take a look at what the
networkD3 package has to offer.
R. It has an
igraph_to_networkD3() function that can be used to seamlessly convert an
igraph object to
network3D. The benefits to D3 are interactivity:
- The names are hidden until the user hovers over the node, improving readability.
- Nodes can be dragged to manipulate the network graph for easier viewing.
- Zoom is enabled, allowing the user to zero-in on specific nodes to more easily see the edges and thus better understand relationships.
Network visualization is an excellent way to view and understand interrelationships between customers. Network graphs are particularly useful as the data scales, as they can be pruned and viewed interactively to zero-in on complex relationships. We’ve all heard the saying a picture is worth a thousand words. A network graph could be worth many more as customers go from 30 in our example to hundreds, thousands or even millions.
This post expanded on our customer segmentation methodology by adding network graphing to our tool set. We manipulated our sales order data to obtain a format that relates products to customer purchases. We created a cosine similarity matrix using the
cosine() function from the
lsa library, and we used this as the foundation for our network graph. We “pruned the tree” to remove edges with low significance. We used the
igraph library to create an igraph with communities shown. Finally, we converted the igraph to an interactive graph using the
networkD3 package. Pretty impressive, and hopefully you see that it’s not that difficult with a basic knowledge of
Network Visualization with R: This article is an excellent place to start for those that want to understand the details behind Network Visualization in R.
CRAN Task View: Cluster Analysis & Finite Mixture Models: While we did not specifically focus on clustering in this post, the CRAN task view covers a wide range of libraries and tools available for clustering that can be used in addition to those covered in the three part series.
Data Smart: Using Data Science to Transform Information into Insight: Chapter 5 uses a similar approach on customers that purchase wine deals based on different buying preferences. This is a great book for those that are more familiar with Excel than
Enjoy data science for business? We do too. This is why we created Business Science University where we teach you how to do Data Science For Busines (#DS4B) just like us!
Our first DS4B course (HR 201) is now available!
Who is this course for?
Anyone that is interested in applying data science in a business context (we call this DS4B). All you need is basic
ggplot2 experience. If you understood this article, you are qualified.
What do you get it out of it?
You learn everything you need to know about how to apply data science in a business context:
Using ROI-driven data science taught from consulting experience!
Solve high-impact problems (e.g. $15M Employee Attrition Problem)
Use advanced, bleeding-edge machine learning algorithms (e.g. H2O, LIME)
Apply systematic data science frameworks (e.g. Business Science Problem Framework)
“If you’ve been looking for a program like this, I’m happy to say it’s finally here! This is what I needed when I first began data science years ago. It’s why I created Business Science University.”
Matt Dancho, Founder of Business Science
Did you know that an organization that loses 200 high performing employees per year is essentially losing $15M/year in lost productivity? Many organizations don’t realize this because it’s an indirect cost. It goes unnoticed. What if you could use data science to predict and explain turnover in a way that managers could make better decisions and executives would see results? You will learn the tools to do so in our Virtual Workshop. Here’s an example of a Shiny app you will create.
Shiny App That Predicts Attrition and Recommends Management Strategies, Taught in HR 301
Our first Data Science For Business (HR 201) Virtual Workshop teaches you how to solve this employee attrition problem in four courses that are fully integrated:
- HR 201: Predicting Employee Attrition with
- HR 301: Building A
- HR 302: Data Story Telling With
RMarkdownReports and Presentations
- HR 303: Building An R Package For Your Organization,
The Virtual Workshop is intended for intermediate and advanced R users. It’s code intensive (like these articles), but also teaches you fundamentals of data science consulting including CRISP-DM and the Business Science Problem Framework. The content bridges the gap between data science and the business, making you even more effective and improving your organization in the process.
Interested? Enroll in Business Science University today!