Digitalworld is a company that sells digital products and was impressed by your past work on (RFM) segmentation. Recently, Digitalworld developed a new product which could improve user online viewing experience and would like to promote the new product to the market. Digitalworld reached you again and would like to seek some insights about customer segmentation.

Digitalworld provided you the dataset which has variables in the following table:

Variable	Definition
customer	Customer’s ID
income	Customer’s annual income (in dollars)
age	Customer’s age (in years)
purchase_location	The purchasing location where a customer buys Digitalworld’s products (takes one of the following five values: specialty stores, mass-consumer electronics, discount stores, regular retail stores, and online stores)
spending	Customer’s annual spending on Digitalworld’s products (in dollars)
online_hours	The number of hours that a customer spends online per day
early_adopter	Whether customer is an early adopter of the digital product, 1 = early adopter and 0 = late adopter

You compute the correlations among variables such as “income”, “age”, “spending”, and “online_hours” and get the following table:

Correlation Coefficient Table
income	age	spending	online_hours
income	1
age	0.7698	1
spending	0.5385	0.4123	1
online_hours	-0.1732	-0.6245	-0.7874	1

You also generate a pivot table that shows customers’ annual income (affordability) and annual spending on Digitalworld’s products (profitability) based on their purchasing locations.

Purchasing location	Average annual income	Average annual spending on Digitalworld’s product
specialty stores	$69,910	$5,500
mass-consumer electronics stores	$55,080	$4,100
discount stores	$29,840	$610
regular retail stores	$29,970	$590
online stores	$30,020	$3,900

Based on the above information, please answer the following questions (16 marks):

1. Digitalworld would like to know how consumers’ annual spending is associated with their hours spent online per day. Please provide this insight. (3 marks)

2. Digitalworld is considering using the variables “income” and “age” to segment the customers. Do you agree with the Digitalworld’s approach? Please explain why you agree or disagree. Digitalworld is also considering using the variables “online hours” and “spending” to segment the customers simultaneously. Do you agree with the Digitalworld’s approach? Please explain why you agree or disagree. (6 marks, 3 marks for each sub question)

3. Digitalworld presents you three segmentation plans as follows:

Segment ID	Plan A	Plan B	Plan C
1	Customers who buy at specialty stores and customers who buy at online stores	Customers who buy at specialty stores and customers who buy at discount stores	Customers who buy at specialty stores
2	Customers who buy at mass-consumer electronics stores and customers who buy at discount stores	Customers who buy at mass-consumer electronics stores	Customers who buy at mass-consumer electronics stores
3	Customers who buy at regular retail stores	Customers who buy at retail stores	Customers who buy at discount stores and customers who buy at regular retail stores
4	Customers who buy at online stores	Customers who buy at online stores

Among three customer segmentation plans above, please help Digitalworld make the decision on which one is the best customer segmentation plan and state the rationale for your decision. (7 marks)

Answer rating: 100% (QA)

Answer and Explanation 1 To understand the association between consumers annual spending and their hours spent online per day we can refer to the correlation ... View the full answer