Companies often are interested in segmenting their customers to better target specific product offerings to meet specific customer needs. The file CustomerData.xls on your data disk contains data on 198 customers for an online retailer. Specifically, this file lists demographic data for each customer’s income level (X1), number of dependents (X2), and buying behavior data, including the number of purchases made last year (X3) and the average value of each purchase (X4). Suppose you have been asked to cluster each of these customers to one of three groups. After your group assignments are made, you can compute the average values on each the four variables within each group. These four average values for each group would represent the typical (or average) customer found in each respective group. Obviously, you want to group similar customers together. To do so, you could generalize the straight-line distance measure to four dimensions to calculate each customer’s distance to his or her assigned group.

a. Use Solver to make group assignments that minimize the sum of the distance from each customer to his or her assigned group.

b. How would you describe the differences in the three groups or clusters you identify?