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A mixed-integer programming approach to the clustering problem with an application in customer segmentation

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Sağlam, Burcu

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This paper presents a mathematical programming based clustering approach that is applied to a digital platform company's customer segmentation problem involving demographic and transactional attributes related to the customers. The clustering problem is formulated as a mixed-integer programming problem with the objective of minimizing the maximum cluster diameter among all clusters. In order to overcome issues related to computational complexity of the problem, we developed a heuristic approach that improves computational times dramatically without compromising from optimality in most of the cases that we tested. The performance of this approach is tested on a real problem. The analysis of our results indicates that our approach is computationally efficient and creates meaningful segmentation of data.

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Elsevier

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Management, Operations research, Management science

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European Journal Of Operational Research

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10.1016/j.ejor.2005.04.048

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