Profiling restaurant customers using cluster and factor analysis

MKT3417 ASSIGNMENT 2
A0124956X Kevin Yeo
NUS BUSINESS SCHOOL

1A) Usage of Principal Component Analysis – Factor Analysis
Based from “Total Variance Explained” table and Scree Plot, only Components 1,2,3,4 are kept as they have
Eigenvalues > 1.
Using the Principal Component Analysis results, we name the components. From the original 10 variables,
we extract 4 components.
From the Rotated Component Matrix Table:

What each component is highly correlated to:
Component 1: (fresh food, excellent food taste, proper
food temp)
Component 2: (friendly employees, knowledgeable,
speed service)
Component 3: (large size portion, reasonable prices)
Component 4: (fun place to eat, attractive interior)
Naming of Components
Component 1: Food connoisseurs
Component 2: Expects high level of customer service
Component 3: Price and value conscious
Component 4: Fun seekers
1
1B) Cluster Analysis – Cluster with K-Means
By running the cluster analysis using the K-means method, we have 3 clusters.
Initial Cluster Centers

Cluster
1 2 3
REGR factor score 1 for 1.10750 -2.11707 0.78116
analysis 2

analysis 2
REGR factor score 3 for -0.81883 1.06065 -1.49181

analysis 2
REGR factor score 4 for -2.72435 -0.19220 2.49479

analysis 2
Final Cluster Centers

Cluster
1 2 3
analysis 2
REGR factor score 2 for 0.20978 -0.08537 -0.11229

analysis 2
REGR factor score 3 for -0.40983 0.94856 -0.89452

analysis 2
REGR factor score 4 for -0.95853 0.12751 0.88713

analysis 2
Number of Cases in each Cluster
Cluster 1 126.000
2 161.000
3 113.000
Valid 400.000
Missing 0.000
By performing the cluster analysis using the K-means method, we have 3 clusters. Cluster 1 has 126
respondents. Cluster 2 has 161 respondents. Cluster 3 has 113 respondents. In total, there is 400 valid
responses, and zero cases of missing responses.
2
Q1C) Profiling Clusters
Cluster Number of Case * X32 -- Gender Crosstabulation
X32 -- Gender
Males Females Total
Cluster Number of Case 1 Count 42 84 126
% within Cluster Number of 33.3% 66.7% 100.0%
Case
2 Count 131 30 161

Case
3 Count 63 50 113
Case
Total Count 236 164 400

Case
Cluster Number of Case * X34 -- Age Crosstabulation

X34 -- Age
18 - 25 26 - 34 35 - 49 50 - 59 60 and Over Total
Cluster Number of Case 1 Count 0 19 59 42 6 126
% within Cluster Number of 0.0% 15.1% 46.8% 33.3% 4.8% 100.0%
Case
2 Count 13 12 100 30 6 161

Case
3 Count 26 6 48 28 5 113
Case
Total Count 39 37 207 100 17 400

Case
Crosstabulation tables serve to indicate the distributions of demographics (gender and age) across clusters
1, 2 and 3.
From the crosstabulation tables with gender and age, we can infer that:
Gender
Cluster 1: Majority of the respondents in cluster 1 are female, with the rest being male
Cluster 2: Majority of the respondents in cluster 2 are male, with the rest being female
Cluster 3: Fairly even distribution of both genders (slightly more males than females) as compared to cluster
1 and 2.
Age:
Cluster 1: Consists mostly adults aged 35 and above and adults aged 50 and above.
Cluster 2: Consists mostly of adults aged 35 and above.
Cluster 3: Consists mostly of adults aged 35-49, has the most number of young adults aged (18-25) among
the three clusters
3
Subsequently, the individual samples T-test are run thrice to take into account clusters (1,2), (1,3), (2,3).
Profiling Clusters – Comparing Means for Clusters 1 & 2
Group Statistics
Cluster Number of Case N Mean Std. Deviation Std. Error Mean

X12 -- Friendly Employees 1 126 4.38 0.788 0.070
2 161 4.22 0.960 0.076
X13 -- Fun Place to Eat 1 126 3.36 0.721 0.064
2 161 4.08 0.671 0.053
X14 -- Large Size Portions 1 126 3.78 1.019 0.091
2 161 5.76 0.426 0.034
X15 -- Fresh Food 1 126 6.10 1.155 0.103
2 161 5.32 1.202 0.095
X16 -- Reasonable Prices 1 126 3.73 0.933 0.083
2 161 5.48 0.653 0.051
X17 -- Attractive Interior 1 126 3.17 0.787 0.070
2 161 4.23 0.793 0.062
X18 -- Excellent Food Taste 1 126 5.64 1.031 0.092
2 161 4.89 1.072 0.085
X19 -- Knowledgeable 1 126 4.68 0.641 0.057
Employees
2 161 4.68 0.998 0.079
X20 -- Proper Food 1 126 4.60 0.947 0.084
Temperature
2 161 4.29 1.292 0.102
X21 -- Speed of Service 1 126 5.47 0.666 0.059
2 161 5.25 0.846 0.067
Independent Samples Test
Levene's Test for Equality of Variances t-test for Equality of Means

95% Confidence Interval of the
Std. Error Difference
F Sig. t df Sig. (2-tailed) Mean Difference Difference Lower Upper
X12 -- Friendly Employees Equal variances assumed 12.079 0.001 1.547 285 0.123 0.164 0.106 -0.045 0.372
Equal variances not assumed 1.584 284.310 0.114 0.164 0.103 -0.040 0.367
X13 -- Fun Place to Eat Equal variances assumed 11.842 0.001 -8.778 285 0.000 -0.724 0.082 -0.886 -0.561
Equal variances not assumed -8.701 258.911 0.000 -0.724 0.083 -0.887 -0.560
X14 -- Large Size Portions Equal variances assumed 57.667 0.000 -22.370 285 0.000 -1.986 0.089 -2.161 -1.811
X15 -- Fresh Food Equal variances assumed 2.219 0.137 5.494 285 0.000 0.772 0.141 0.496 1.049
Equal variances not assumed 5.520 273.280 0.000 0.772 0.140 0.497 1.048
X16 -- Reasonable Prices Equal variances assumed 10.201 0.002 -18.649 285 0.000 -1.748 0.094 -1.933 -1.564
X17 -- Attractive Interior Equal variances assumed 0.728 0.394 -11.310 285 0.000 -1.063 0.094 -1.248 -0.878
X18 -- Excellent Food Taste Equal variances assumed 0.619 0.432 6.017 285 0.000 0.755 0.125 0.508 1.002
X19 -- Knowledgeable Equal variances assumed 27.464 0.000 0.054 285 0.957 0.006 0.102 -0.196 0.207
Employees
X20 -- Proper Food Equal variances assumed 19.227 0.000 2.268 285 0.024 0.311 0.137 0.041 0.581
Temperature
X21 -- Speed of Service Equal variances assumed 19.488 0.000 2.326 285 0.021 0.214 0.092 0.033 0.394
4
Cluster 1 and 2 have different opinions on X14 – Large Size Portions and X16 – Reasonable Prices. They both
have sig (2-tailed) < 0.05, hence we reject the null hypothesis H0 that these 2 variables are not significantly
different. These 2 variables have the largest difference in means among all 10 variables, with X14 having a
mean difference of -1.986 and X16 having a mean difference of -1.748, hence we identify that respondents
in Cluster 2 are more value conscious and places more significance on portion size and food pricing in their
restaurant patronage decision as compared to Cluster 1.
Cluster 1 and 2 have different opinions on X13 – Fun Place to eat and X17 – Attractive interior. They both
have sig (2-tailed) < 0.05, hence we reject the null hypothesis h0 that these 2 variables are not significantly
different. Based on the mean diffrences of X13 (-0.724), X17 (-1.063), we can identify that respondents in
Cluster 2 places more value in whether a restaurant has a fun atmosphere as compared to Cluster 1.
Cluster 1 and 2 have different opinions on X15 – Fresh Food, X18 – Excellent food taste and X20 – Proper food
temperature in their restaurant patronage decision. These 3 variables have sig(2-tailed) <0.05, hence we
reject the null hypothesis H0 that these 3 variables are not significantly different. Based on the mean
differences of X15 (0.772), X18 (0.755), X20 (0.311), we can identify that respondents in Cluster 1 places more
value in food quality in their restaurant patronage decision as compared to Cluster 2.
Cluster 1 and 2 have very minor differing opinions on service speed with a difference of mean of 0.021,
however Cluster 1 and 2 are not different in the importance of service quality in their patronage decision, as
X12 – Friendly Employees and X19 – Knowledgable employees have sig(2-tailed) >0.05, hence we do not
reject the null hypothesis h0 that these 2 variables are not significantly different.
Profiling Clusters – Comparing Means for Cluster 1 & 3
Group Statistics

3 113 4.22 0.952 0.090
X13 -- Fun Place to Eat 1 126 3.36 0.721 0.064
3 113 4.45 0.856 0.080
3 113 3.54 0.955 0.090
X15 -- Fresh Food 1 126 6.10 1.155 0.103
3 113 6.01 1.031 0.097
3 113 3.40 0.785 0.074
3 113 4.77 0.707 0.067
3 113 5.55 0.973 0.092
X19 -- Knowledgeable 1 126 4.68 0.641 0.057
Employees
3 113 4.88 1.148 0.108
X20 -- Proper Food 1 126 4.60 0.947 0.084
Temperature
3 113 4.93 0.842 0.079
3 113 5.30 0.885 0.083
5

X12 -- Friendly Employees Equal variances assumed 25.545 0.000 1.418 237 0.158 0.160 0.113 -0.062 0.382
X14 -- Large Size Portions Equal variances assumed 0.449 0.504 1.857 237 0.065 0.238 0.128 -0.014 0.490
X15 -- Fresh Food Equal variances assumed 0.188 0.665 0.607 237 0.544 0.086 0.142 -0.194 0.367
X16 -- Reasonable Prices Equal variances assumed 1.192 0.276 2.957 237 0.003 0.332 0.112 0.111 0.553
X18 -- Excellent Food Taste Equal variances assumed 0.428 0.513 0.724 237 0.470 0.094 0.130 -0.162 0.350
X19 -- Knowledgeable Equal variances assumed 24.883 0.000 -1.706 237 0.089 -0.202 0.119 -0.436 0.031
Employees
Equal variances not assumed -1.658 171.358 0.099 -0.202 0.122 -0.443 0.039
X20 -- Proper Food Equal variances assumed 4.022 0.046 -2.799 237 0.006 -0.326 0.116 -0.556 -0.097
Temperature
X21 -- Speed of Service Equal variances assumed 29.619 0.000 1.662 237 0.098 0.167 0.101 -0.031 0.366
Cluster 1 and 3 have different opinions on X13 – Fun place to eat and X17 – Attractive interior. They both
mean difference of -1.094 and X17 having a mean difference of -1.603, hence we identify that Cluster 3 values
restaurant atmosphere more than Cluster 1 with regards to their restaurant patronage decision.
Cluster 1 and 3 have different opinions on X16 – Reasonable Prices and. They both have sig (2-tailed) <0.05,
hence we reject the null hypothesis H0 that these 2 variables are not significantly different. However, despite
so, they are not different in the importance of food quality and value in their patronage decision, as all other
factors have sig (2-tailed) >0.05, hence we do not reject the null hypothesis H0 that the other variables are
not significantly different.
6
Profiling Clusters – Comparing Clusters 2 & 3
Group Statistics

3 113 4.22 0.952 0.090
X13 -- Fun Place to Eat 2 161 4.08 0.671 0.053
3 113 4.45 0.856 0.080
3 113 3.54 0.955 0.090
X15 -- Fresh Food 2 161 5.32 1.202 0.095
3 113 6.01 1.031 0.097
3 113 3.40 0.785 0.074
3 113 4.77 0.707 0.067
3 113 5.55 0.973 0.092
X19 -- Knowledgeable 2 161 4.68 0.998 0.079
Employees
3 113 4.88 1.148 0.108
X20 -- Proper Food 2 161 4.29 1.292 0.102
Temperature
3 113 4.93 0.842 0.079
3 113 5.30 0.885 0.083

X12 -- Friendly Employees Equal variances assumed 1.025 0.312 -0.033 272 0.974 -0.004 0.117 -0.235 0.227
X14 -- Large Size Portions Equal variances assumed 122.125 0.000 26.105 272 0.000 2.224 0.085 2.056 2.392
X15 -- Fresh Food Equal variances assumed 4.878 0.028 -4.925 272 0.000 -0.686 0.139 -0.960 -0.412
X16 -- Reasonable Prices Equal variances assumed 5.257 0.023 23.860 272 0.000 2.080 0.087 1.908 2.252
X18 -- Excellent Food Taste Equal variances assumed 0.042 0.838 -5.212 272 0.000 -0.660 0.127 -0.910 -0.411
X19 -- Knowledgeable Equal variances assumed 0.672 0.413 -1.596 272 0.112 -0.208 0.130 -0.464 0.049
Employees
X20 -- Proper Food Equal variances assumed 36.469 0.000 -4.599 272 0.000 -0.637 0.139 -0.910 -0.365
Temperature
X21 -- Speed of Service Equal variances assumed 1.315 0.253 -0.437 272 0.663 -0.046 0.106 -0.255 0.162
Cluster 2 and 3 have different opinions on X14 – Large Size Portions and X16 – Reasonable Prices. They both
mean difference of 2.224 and X16 having a mean difference of 2.080, hence we identify that respondents in
Cluster 2 are more value conscious and places more significance on portion size and food pricing in their
restaurant patronage decision as compared to Cluster 3.
7
Cluster 2 and 3 have different opinions on X15 – Fresh Food, X18 – Excellent food taste and X20 – Proper food
temperature in their restaurant patronage decision. These 3 variables have sig(2-tailed) <0.05, hence we
reject the null hypothesis H0 that these 3 variables are not significantly different. Based on the mean
differences of X15 (-0.686), X18 (-0.660), X20 (-0.637), we can identify that respondents in Cluster 3 places
more value in food quality in their restaurant patronage decision as compared to Cluster 2.
Cluster 2 and 3 have different opinions on X13 – Fun place to eat and X17 – Attractive interior. They both
different. With X13 having a mean difference of -0.371 and X17 having a mean difference of -0.540, hence
we identify that Cluster 3 values restaurant atmosphere more than Cluster 2 with regards to their restaurant
patronage decision.
Q1C) Profiling of Clusters 1,2,3

From the crosstabulation results with regards to demographics and comparing means within the 10 variables
chosen to determine consumer restaurant patronage behavior, we are able to combine both results to
provide a profiling of each cluster.
Cluster 1 – Women aged 35 and above who highly values food quality
Cluster 2 – Men aged 35 and above who are value conscious (portion size and pricing)
Cluster 3 – Young Adults mainly from aged 18-25, loves fun atmosphere
2A) Acquisition costs of foodies and non-foodies

Variable Costs / person
Foodie $ 1.50
Non Foodie $ -
production cost / catalog $ 0.40
mailing & production cost / month $ 0.65
mailing & production cost / year $ 7.80
Total cost per person / year
Foodie $ 9.30
Non Foodie $ 7.80
Probability of purchase / person
Foodie 7.5%
Non Foodie 5%
Acquisition cost per person / year
Foodie $ 124.00
Non Foodie $ 156.00
Given the assumption of zero discount rate within a year, non-foodies have a higher acquisition cost per
person per year of $156 vs $124 per foodie, thus they are more expensive to acquire. Hence ABC should look
into pursuing foodies as they have a lower yearly acquisition cost.
8
2B) Length of time required to recoup acquisition cost for Foodies
compute CLV in finite horizon
Inputs
average spend per purchase: $ 50 Average Gross Margin 50%
average number of purchases per year: 3 Average Customer Retention Rate 70%
direct marketing costs per customer per year $ 7.80 Annual Discount Rate 0%
Average Contribution per Purchase $ 25

One-time acquisition cost per customer $ $ 124.00
Average Contribution before mailing costs per customer per year $ 75
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
0 1 2 3 4 5 6 7 8 9 10
Gross contribution per customer $75.0 $75.0 $75.0 $75.0 $75.0 $75.0 $75.0 $75.0 $75.0 $75.0
One-time Acquisition cost -$124.0
Mailing cost -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8
Profit per Customer in Year -$124.0 $67.2 $67.2 $67.2 $67.2 $67.2 $67.2 $67.2 $67.2 $67.2 $67.2
Cumulative Retention Rate 100% 100.0% 70.0% 49.0% 34.3% 24.0% 16.8% 11.8% 8.2% 5.8% 4.0%
Cumulative Discount Rate 100% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Expected Present Value in Year -$124.0 $67.2 $47.0 $32.9 $23.0 $16.1 $11.3 $7.9 $5.5 $3.9 $2.7
Cumulative Net Present Value -$124.0 -$56.8 -$9.8 $23.2 $46.2 $62.4 $73.6 $81.6 $87.1 $91.0 $93.7
For foodies, based on the cumulative net present value, it takes 3 years to recoup acquisition costs.
Cumulative NPV when t=3 is $23.20
9
2B) Length of time required to recoup acquisition cost for Non-Foodies
Inputs

0 1 2 3 4 5 6 7 8 9 10
Mailing cost -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8
Expected Present Value in Year -$156.0 $67.2 $40.3 $24.2 $14.5 $8.7 $5.2 $3.1 $1.9 $1.1 $.7
Cumulative Net Present Value -$156.0 -$88.8 -$48.5 -$24.3 -$9.8 -$1.1 $4.2 $7.3 $9.2 $10.3 $11.0
For non-foodies, based on the cumulative net present value, it will 6 years to recoup acquisition costs. When
t=6, cumulative NPV = $4.2
10
2C) CLV – Foodies
Inputs

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11
0 1 2 3 4 5 6 7 8 9 10 11
Gross contribution per customer $75.0 $75.0 $75.0 $75.0 $75.0 $75.0 $75.0 $75.0 $75.0 $75.0 $75.0
Mailing cost -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8
Profit per Customer in Year -$124.0 $67.2 $67.2 $67.2 $67.2 $67.2 $67.2 $67.2 $67.2 $67.2 $67.2 $67.2
Cumulative Retention Rate 100% 100.0% 70.0% 49.0% 34.3% 24.0% 16.8% 11.8% 8.2% 5.8% 4.0% 2.8%
Cumulative Discount Rate 100% 90.9% 82.6% 75.1% 68.3% 62.1% 56.4% 51.3% 46.7% 42.4% 38.6% 35.0%
Expected Present Value in Year -$124.0 $61.1 $38.9 $24.7 $15.7 $10.0 $6.4 $4.1 $2.6 $1.6 $1.0 $.7
Cumulative Net Present Value -$124.0 -$62.9 -$24.0 $.7 $16.4 $26.5 $32.8 $36.9 $39.5 $41.1 $42.2 $42.8
From the CLV table, customer attrition will occur after t=12, as expected present value is $0.7 which is less
than $1. Hence by taking the cumulative NPV, we can obtain the CLV for foodies, which is $42.8.
2C) CLV – Non-Foodies

Inputs

0 1 2 3 4 5 6 7 8 9 10
Mailing cost -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8 -$7.8
Expected Present Value in Year -$156.0 $61.1 $33.3 $18.2 $9.9 $5.4 $2.9 $1.6 $.9 $.5 $.3
Cumulative Net Present Value -$156.0 -$94.9 -$61.6 -$43.4 -$33.5 -$28.1 -$25.1 -$23.5 -$22.7 -$22.2 -$21.9
From the CLV table, customer attrition will occur after t=8, as expected present value is $0.9 which is less
than $1. Hence by taking the cumulative NPV, we can obtain the CLV for non-foodies, which is -$22.7.
11

Profiling restaurant customers using cluster and factor analysis

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Profiling restaurant customers using cluster and factor analysis

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MKT3417 ASSIGNMENT 2

A0124956X Kevin Yeo

NUS BUSINESS SCHOOL

From the Rotated Component Matrix Table:

Initial Cluster Centers

REGR factor score 2 for 1.02263 -1.56175 0.69449

REGR factor score 3 for -0.81883 1.06065 -1.49181

REGR factor score 4 for -2.72435 -0.19220 2.49479

Final Cluster Centers

REGR factor score 2 for 0.20978 -0.08537 -0.11229

REGR factor score 3 for -0.40983 0.94856 -0.89452

REGR factor score 4 for -0.95853 0.12751 0.88713

Number of Cases in each Cluster

2 Count 131 30 161

Total Count 236 164 400

Cluster Number of Case * X34 -- Age Crosstabulation

2 Count 13 12 100 30 6 161

Total Count 39 37 207 100 17 400

Cluster Number of Case N Mean Std. Deviation Std. Error Mean

Independent Samples Test

Levene's Test for Equality of Variances t-test for Equality of Means

Cluster Number of Case N Mean Std. Deviation Std. Error Mean

Levene's Test for Equality of Variances t-test for Equality of Means

Cluster Number of Case N Mean Std. Deviation Std. Error Mean

Independent Samples Test

Levene's Test for Equality of Variances t-test for Equality of Means

Q1C) Profiling of Clusters 1,2,3

2A) Acquisition costs of foodies and non-foodies

Average Contribution per Purchase $ 25

Average Contribution per Purchase $ 75

Average Contribution per Purchase $ 25

2C) CLV – Non-Foodies

Average Contribution per Purchase $ 75

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