How to Implement Hierarchical Clustering for Direct Marketing Campaigns— with Python Code

Understand the ins and outs of hierarchical clustering, and how it applies to marketing campaign analysis in the banking industry.

Photo by Frederick Warren on Unsplash

Motivation

Imagine being a Data Scientist at a leading financial institution, and your task is to assist your team in categorizing existing clients into distinct profiles:low , average , medium and platinum for loan approval.

But, here is the catch:

There is no such historical label attached to these customers, so how do you proceed with the creation of these categories?

This is where clustering can help, an unsupervised machine-learning technique to group unlabeled data into similar categories.

Multiple clustering techniques exist, but this tutorial will focus more on the hierarchical clustering approach.

It starts by providing an overview of what hierarchical clustering is, before walking you through a step-by-step implementation in Python using the popular Scipy library.

What is hierarchical clustering?