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The document outlines a project focused on predicting customer behavior in a retail setting using Markov Chains, modeling transitions between states such as browsing, adding to cart, purchasing, and abandoning. It includes a transition matrix to analyze customer pathways, compute steady-state probabilities, and visualize the Markov model. Insights derived from this analysis can inform strategies for customer retention, marketing optimization, and web design improvements to enhance conversion rates.

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13 views5 pages

RFGF

The document outlines a project focused on predicting customer behavior in a retail setting using Markov Chains, modeling transitions between states such as browsing, adding to cart, purchasing, and abandoning. It includes a transition matrix to analyze customer pathways, compute steady-state probabilities, and visualize the Markov model. Insights derived from this analysis can inform strategies for customer retention, marketing optimization, and web design improvements to enhance conversion rates.

Uploaded by

3logkaemail
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Department of Information Technology

Experiment 05
Number

Problem
Predicting Customer Behavior Using Markov Chains
Statement
A retail company aims to predict customer behavior based on past
interactions. Customers transition between different states such as browsing
products, adding items to the cart, making a purchase, or abandoning the
site.

To achieve this, we model customer behavior as a Markov Chain with the


following states:

●​ Browsing (B): The customer is viewing products.​

●​ Adding to Cart (C): The customer adds items to the cart.​

●​ Purchase (P): The customer completes a purchase.​

●​ Abandon (A): The customer leaves without purchasing.​

A transition matrix defines the probabilities of moving between these states.


The goal is to analyze customer pathways, compute long-term behavior
using steady-state probabilities, and visualize the transitions using a Markov
model.

This analysis can help businesses optimize marketing strategies, improve


customer retention, and increase conversions.

Resources Hardware: Desktop/Laptop Software:Google Collab


/
Apparatus
Required
Code: import numpy as np
import networkx as nx
import matplotlib.pyplot as plt

def compute_steady_state(T):
"""
Computes the steady-state probability vector for a
given transition matrix T.
"""
# Number of states
n = T.shape[0]

# Solve the equation πT = π, subject to sum(π) = 1


A = np.vstack([T.T - np.eye(n), np.ones(n)])
b = np.zeros(n+1)
b[-1] = 1 # Ensuring sum of probabilities is 1

steady_state = np.linalg.lstsq(A, b, rcond=None)[0]

return steady_state

# Transition matrix from the problem statement


T = np.array([
[0.6, 0.3, 0.05, 0.05], # Browsing (B)
[0.2, 0.5, 0.3, 0.0], # Add to Cart (C)
[0.0, 0.0, 1.0, 0.0], # Purchase (P) (Absorbing
state)
[0.0, 0.0, 0.0, 1.0] # Abandon (A) (Absorbing
state)
])

steady_state = compute_steady_state(T)

# Print the steady-state probabilities


states = ["Browsing (B)", "Add to Cart (C)", "Purchase
(P)", "Abandon (A)"]
print("Steady-State Probabilities:")
for state, prob in zip(states, steady_state):
print(f"{state}: {prob:.4f}")

# Visualization of the Markov Chain


def draw_markov_chain(T, states):
G = nx.DiGraph()

for i in range(len(states)):
for j in range(len(states)):
if T[i, j] > 0: # Only show transitions
with probability > 0
G.add_edge(states[i], states[j],
weight=T[i, j])

pos = nx.spring_layout(G)
labels = {(states[i], states[j]): f"{T[i, j]:.2f}"
for i in range(len(states)) for j in range(len(states))
if T[i, j] > 0}

plt.figure(figsize=(8, 6))
nx.draw(G, pos, with_labels=True,
node_color='lightblue', edge_color='gray',
node_size=3000, font_size=10)
nx.draw_networkx_edge_labels(G, pos,
edge_labels=labels)
plt.title("Markov State Transition Diagram")
plt.show()

draw_markov_chain(T, states)

Output

`
Business Insights & Applications

Using the Markov model, we can extract insights and apply strategies
to improve customer behavior:

1.​ Customer Retention Strategies​

○​ If the probability of abandonment is high, introduce


discounts or reminders to retain customers.​

2.​ Marketing Optimization​

○​ Identify the best way to transition customers from


Browsing → Purchase efficiently.​

○​ Use targeted ads, promotions, or recommendations to


increase conversion rates.​

3.​ A/B Testing for Web Design​

○​ Experiment with UI/UX changes to observe their impact


` on Markov transition probabilities.​

○​ Improve design elements that encourage purchases and


reduce abandonment.

Conclusion The Markov model helps predict customer behavior, highlighting key
areas for improvement. High retention loss suggests many users drop
off before purchasing, requiring better engagement strategies. A low
conversion rate indicates the need for optimized marketing and UX
enhancements. Businesses can use targeted marketing, discounts,
and A/B testing to improve customer retention and sales.

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