From Business Problems to Data Mining Tasks

Despite a large number of specific data mining algorithms developed over the years, there are only a handful of fundamentally different types of tasks these algorithms address. It is worth defining these tasks clearly.  In many business analytics projects, we want to find “correlations” between a particular variable describing an individual and other variables. For example, in historical data, we may know which customers left the company after their contracts expired. We may want to find out which other variables correlate with a customer leaving in the near future. Finding such correlations are the most basic examples of classification and regression tasks.

1. Classification

Classification and class probability estimation attempt to predict, for each individual in a population, which of a (small) set of classes this individual belongs to. Usually the classes are mutually exclusive. An example classification question would be: “Among all the customers of MegaTelCo, which are likely to respond to a given offer?” In this example the two classes could be called will respond and will not respond.

For a classification task, a data mining procedure produces a model that, given a new individual, determines which class that individual belongs to. A closely related task is scoring or class probability estimation. A scoring model applied to an individual produces, instead of a class prediction, a score representing the probability (or some other quantification of likelihood) that that individual belongs to each class. In our customer response scenario, a scoring model would be able to evaluate each individual customer and produce a score of how likely each is to respond to the offer. Classification and scoring are very closely related; as we shall see, a model that can do one can usually be modified to do the other.

2. Regression

Regression (“value estimation”) attempts to estimate or predict, for each individual, the numerical value of some variable for that individual. An example regression question would be: “How much will a given customer use the service?” The property (variable) to be predicted here is service usage, and a model could be generated by looking at other, similar individuals in the population and their historical usage. A regression procedure produces a model that, given an individual, estimates the value of the particular variable specific to that individual. Regression is related to classification, but the two are different. Informally, classification predicts whether something will happen, whereas regression predicts how much something will happen. The difference will become clearer as the book progresses.

3. Similarity matching 

Similarity matching attempts to identify similar individuals based on data known about them. Similarity matching can be used directly to find similar entities. For example, IBM is interested in finding companies similar to their best business customers, in order to focus their sales force on the best opportunities. They use similarity matching based on “firmographic” data describing characteristics of the companies. Similarity matching is the basis for one of the most popular methods for making product recommendations (finding people who are similar to you in terms of the products they have liked or have purchased).


Clustering attempts to group individuals in a population together by their similarity, but not driven by any specific purpose. An example clustering question would be: “Do our customers form natural groups or segments?” Clustering is useful in preliminary domain exploration to see which natural groups exist because these groups, in turn, may suggest other data mining tasks or approaches. Clustering also is used as input to decision-making processes focusing on questions

5. Co-occurrence grouping

Co-occurrence grouping (also known as frequent itemset mining, association rule discovery, and market-basket analysis) attempts to find associations between entities based on transactions involving them. An example co-occurrence question would be: What items are commonly purchased together? While clustering looks at the similarity between objects based on the objects’ attributes, co-occurrence grouping considers the similarity of objects based on their appearing together in transactions. For example, analyzing purchase records from a supermarket may uncover that ground meat is purchased together with hot sauce much more frequently than we might expect. Deciding how to act upon this discovery might require some creativity, but it could suggest a special promotion, product display, or combination offer. Co-occurrence of products in purchases is a common type of grouping known as market-basket analysis. Some recommendation systems also perform a type of affinity grouping by finding, for example, pairs of books that are purchased frequently by the same people (“people who bought X also bought Y”).

Data Science For Business 

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6. Profiling

Profiling (also known as behavior description) attempts to characterize the typical behavior of an individual, group, or population. An example profiling question would be: “What is the typical cell phone usage of this customer segment?” Behavior may not have a simple description; profiling cell phone usage might require a complex description of night and weekend airtime averages, international usage, roaming charges, text minutes, and so on. Behavior can be described generally over an entire population, or down to the level of small groups or even individuals.

7. Link prediction

Link prediction attempts to predict connections between data items, usually by suggesting that a link should exist and possibly also estimating the strength of the link. Link prediction is common in social networking systems: “Since you and Karen share 10 friends, maybe you’d like to be Karen’s friend?” Link prediction can also estimate the strength of a link. For example, for recommending movies to customers one can think of a graph between customers and the movies they’ve watched or rated. Within the graph, we search for links that do not exist between customers and movies, but that we predict should exist and should be strong. These links form the basis for recommendations.

8. Data reduction
Data reduction attempts to take a large set of data and replace it with a smaller set of data that contains much of the important information in the larger set. The smaller dataset may be easier to deal with or to process. Moreover, the smaller dataset may better reveal the information. For example, a massive dataset on consumer movie-viewing preferences may be reduced to a much smaller dataset revealing the consumer taste preferences that are latent in the viewing data (for example, viewer genre preferences). Data reduction usually involves loss of information. What is important is the trade-off for improved insight.


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