# K-Means Algorithm in Python

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## Contents

## Introduction

K-means is one of the simplest unsupervised learning algorithms that solve the clustering problem, in other words, classify a given dataset on a certain number of clusters (assume *k* clusters) fixed a priori.

### Theoretical aspect

The main idea is to define *k* centroids, one for each cluster. These centroids should be placed in a cunning way because different location causes different result. Therefore, the better choice is to place them as much as possible far away from each other. The next step is to take each point belonging to a given data set and associate it to the nearest centroid. When no point is pending, the first step is completed and an early group is done. At this point, it is needed to recalculate *k* new centroids as centers of the clusters resulting from the previous step. After that a new binding has to be done between the same data points and the nearest new centroid. A loop has been generated. As a result of this loop the centroids change their location step by step until no more changes are done, so centroids do not move any more.

For a given dataset *X* containing *n* multidimensional data points and the number of categories *k* to be divided, the **Euclidean distance** is selected as the similarity index and the clustering aims to minimize the sum of the squares of the various types:

where *k* - cluster centers, *n* - number of data points, *u _{k}* - the k

^{th}center, and

*x*the ith point in the data set.

_{i}**The algorithm consists of the following steps:**

1. Place k points in the space represented by the objects that are being clustered. These points are considered as initial group centroids.

2. Assign each object to the group that has the closest centroid.

3. When all objects have been assigned, recalculate the positions of the k centroids.

4. Repeat Step 2 and 3 until the centroids stop moving.

## Python Example

### RFM analysis

Recency, frequency and monetary (RFM) analysis is a powerful and recognized technique in database marketing. It is widely used to rank the customers based on their prior purchasing history.

1. *Recency*: When was the last time the customer made a purchase?

2. *Frequency*: How many times did the customer purchase?

3. *Monetary*: How much money did the customer spend?

import pandas as pd import numpy as np import matplotlib.pyplot as plt import seaborn as sns import datetime as dt from sklearn.cluster import KMeans from sklearn.neighbors import NearestNeighbors from sklearn import metrics #loading dataset (we use online retail dataset) df = pd.read_excel(r"filepath\online_retail.xlsx") df

Column1 | CustomerID | OrderID | Date | Revenue | date_format | YEAR | month | |
---|---|---|---|---|---|---|---|---|

0 | 111382 | 13930366 | 43771330 | 20191023 | 5834 | 2019-10-23 | 2019 | 10 |

1 | 111385 | 11545838 | 43723657 | 20191023 | 5834 | 2019-10-23 | 2019 | 10 |

#### Recency

# last date available in our dataset df["date_format"].max() # Out: Timestamp('2020-04-19 00:00:00') # setting max time as now to calculate time differences now = dt.date(2020,4,19)

# group by customer by last date they purchased df_recency = df.groupby(["CustomerID"] , as_index = False)["date_format"].max() df_recency.columns = ["CustomerID" , "LastPurchaseDate"] df_recency["LastPurchaseDate"] = pd.DatetimeIndex(df_recency.LastPurchaseDate).date df_recency.head()

CustomerID | LastPurchaseDate | |
---|---|---|

0 | 465132 | 2019-11-30 |

1 | 465164 | 2020-02-28 |

2 | 465198 | 2020-04-13 |

3 | 465204 | 2019-11-03 |

4 | 465211 | 2020-01-22 |

# calculate how often the customers are buying in the last few days df_recency['Recency'] = df_recency.LastPurchaseDate.apply(lambda x : (now - x).days) # dropping LastPurchase Date df_recency.drop(columns=['LastPurchaseDate'],inplace=True) # checking recencyFrequency df_recency.head()

CustomerID | Recency | |
---|---|---|

0 | 465132 | 141 |

1 | 465164 | 51 |

2 | 465198 | 6 |

3 | 465204 | 168 |

4 | 465211 | 88 |

#### Frequency

frequency_df = df.groupby("CustomerID",as_index = False)["OrderID"].count() frequency_df = frequency_df.sort_values(by = "OrderID" , ascending=False) frequency_df = frequency_df.rename(columns={"OrderID" :"Frequency"}) frequency_df.head()

CustomerID | Frequency | |
---|---|---|

1525 | 502561 | 231 |

66329 | 5556237 | 180 |

136996 | 11826511 | 159 |

137116 | 11836775 | 153 |

164161 | 14188909 | 143 |

#### Monetary

# check summed up spends of customers monetary_df = df.groupby('CustomerID',as_index=False)["Revenue"].sum() monetary_df.columns = ['CustomerID','Monetary'] monetary_df.head()

CustomerID | Monetary | |
---|---|---|

0 | 465132 | 7302 |

1 | 465164 | 578 |

2 | 465198 | 5688 |

3 | 465204 | 1464 |

4 | 465211 | 4760 |

# merging these three features rf = df_recency.merge(frequency_df,left_on='CustomerID',right_on='CustomerID') # combining with monetary values rfm = rf.merge(monetary_df,left_on='CustomerID',right_on='CustomerID') rfm.set_index('CustomerID',inplace=True) # saving to file rfm.to_csv('rfm.csv', index=False) #rf_new = rfm.sort_values(by = "Frequency" , ascending = False) # checking the dataframe rfm.head()

CustomerID | Recency | Frequency | Monetary |
---|---|---|---|

465132 | 141 | 1 | 7302 |

465164 | 51 | 1 | 578 |

465198 | 6 | 1 | 5688 |

465204 | 168 | 1 | 1464 |

465211 | 88 | 1 | 4760 |

### Segmentation and Evaluation

In the literature several approaches have been proposed to determine the number of clusters for k-mean clustering algorithm, for instance: i) Rule of thumb; ii) Elbow method; iii) Information Criterion Approach; iv) Information Theoretic Approach; v) Silhouette method and vi) Cross-validation.

In this case we will use Elbow method to determine the number of clusters. The basic idea of the elbow rule is to use a squareed distance between the sample points in each cluster and the centroid of the cluster to give a series of K values. The sum of squared errors (SSE) is used as a performance indicator. The method iterates over the K-value and calculates the SSE.

# creating a copy of the dataframe rfm_segmentation = rfm.copy() # find the proper number of clusters fig,ax = plt.subplots(figsize=(10,8)) wcss = [] for i in range(1,11): kmeans = KMeans(n_clusters = i, init = 'k-means++', max_iter = 300, n_init = 10, random_state = 0) kmeans.fit(rfm_segmentation) wcss.append(kmeans.inertia_) plt.plot(range(1,11), wcss, 'o') plt.plot(range(1 , 11) , wcss , '-' , alpha = 0.5) plt.title('Elbow Method') plt.xlabel('Number of Clusters') plt.ylabel('WCSS') plt.savefig('Elbow_Method.png') plt.show()

The graph shows, that the curve changes its behaviour from steep to moderate slope at the point of 4 clusters, therefore, we will choose 3 as the proper number of clusters for k-means segmentation. This will be included in the model as a parameter.

# instantiating the model kmeans = KMeans(n_clusters = 3, init = 'k-means++', max_iter = 300, n_init = 10, random_state = 0) y_kmeans = kmeans.fit_predict(rfm_segmentation) # creating a column for the cluster rfm_segmentation['Cluster'] = kmeans.labels_ # checking the column rfm_segmentation[rfm_segmentation.Cluster == 0].head()

CustomerID | Recency | Frequency | Monetary | Cluster |
---|---|---|---|---|

465132 | 141 | 1 | 7302 | 0 |

465164 | 51 | 1 | 578 | 0 |

465198 | 6 | 1 | 5688 | 0 |

465204 | 168 | 1 | 1464 | 0 |

465211 | 88 | 1 | 4760 | 0 |

As we applied clustering, we are now able to analyze Recency, Frequency and Monetary values for each group.

#### Recency rate analysis

fig, ax = plt.subplots(figsize=(8,8)) plt.title('Recency for each Cluster') sns.boxplot(rfm_segmentation.Cluster,rfm_segmentation.Recency) plt.savefig("recency_clusters.png")

Cluster 0 has high recency rate, respectively, which means it has been the longest for any cluster when it comes to Last Purchase Date.

Cluster 1 and 2 have low recency rate, which is good. They can be our Gold and Silver Customers.

#### Frequency rate analysis

fig, ax = plt.subplots(figsize=(8,8)) plt.title('Frequency for each Cluster') sns.boxplot(rfm_segmentation.Cluster,rfm_segmentation.Frequency); plt.savefig('frequency_cluster.png')

Cluster 0 has a low frequency rate, which means consumers in this cluster are not very frequent.

Clusters 1 and 2 have high frequency rates, which puts them even further in the race for Gold and Silver.

#### Monetary rate analysis

fig, ax = plt.subplots(figsize=(8,8)) plt.title('Monetary for each Cluster') sns.boxplot(rfm_segmentation.Cluster,rfm_segmentation.Monetary); plt.savefig('monetary_cluster.png')

Cluster 0 has a small monetary rate, which could be referred to Bronze Customers.

Cluster 2 has a medium level monetary rate, which makes this Cluster to be Silver Customers.

Cluster 1 has the highest monetary rate, suggesting this Cluster to be Gold Customers.

### Result

We may conclude the following results, based on analyses:

- Gold Customers are in Cluster 1.
- Silver Customers are in Cluster 2.
- Bronze Customers are in Cluster 0.

### Visualization

# getting the values X = rfm_segmentation.iloc[:, [0,1,2]].values # 2d plot fig, ax = plt.subplots(figsize=(10,10)) plt.scatter(X[:, 0], X[:, 1], c=y_kmeans, s=100, cmap='OrRd') centers = kmeans.cluster_centers_ plt.scatter(centers[:, 0], centers[:, 1], c='black', s=200, alpha=0.5)

# checking number of clients per cluster rfm_segmentation.Cluster.value_counts()

0 | 179083 |

2 | 581 |

1 | 16 |

## Strenghts and Drawbacks of k-means Algorithm

**Strenghts:**

1. Simple.

2. Fast for low dimensional data.

3. It can find pure sub clusters, if large number of clusters is specified.

4. With a large number of variables, k-Means may be viewed as computationally faster than hierarchical clustering.

5. K-Means is expected to produce tighter clusters than hierarchical clustering.

**Drawbacks:**

1. Sensitive to the selection of initial cluster center.

2. There is no rule for the decision of value of k and sensitive to initial value , for different initial value there will be different result.

3. This algorithm is easy to be effected by abnormal points.

4. It may contain dead unit problem.

## References

2. https://www.mdpi.com/2571-8800/2/2/16

The author of this entry is Faezeh Moradi. Edited by Evgeniya Zakharova.