Smart Pricing Part 3: Unsupervised Learning Algorithms

August 21, 2018 Amir Meimand

Price management is no small task for B2B pricing owners. While machine learning can set smarter pricing strategies, understanding how it works in the context of B2B and knowing how to deploy highly-relevant price guidance, and ultimately, create a more strategic pricing approach isn’t as straightforward. In this four-part series, Zilliant Director of R&D, Pricing Science, Amir Meimand will share a summary of how predictive analytics, prescriptive analytics and machine learning contribute to a smart pricing strategy for B2B companies.

Amir will be speaking at the 6th Annual Global Big Data Conference on August 30; he will present on the topic “An Efficient ML-Based Algorithm for Mining Substitute Products for eCommerce.”

In my last post, we discussed problems addressed by machine learning (ML) and B2B applications that are well-suited to use cases for ML. Today, I'd like to give a primer on supervised and unsupervised learning algorithms before we dive into practical applications of these algorithms in B2B.

Supervised vs. Unsupervised Algorithms

Discovering hidden patterns and structures from data often leads to actionable insights that enable various trends to be predicted and helps businesses gain a competitive advantage. Unsupervised learning algorithms are the best tools for this purpose. In general terms, these algorithms seek to find the underlying structure or pattern of a data set without knowing the answer in advance. Unlike supervised learning algorithms, unsupervised learning algorithms do not learn from an existing structure, so they are left to their own devices to discover the structure in the data. 

 

Unsupervised learning problems can be grouped into two categories: Clustering problems and association learning.

Clustering problems are used to discover inherent groupings in the data. In other words, clustering algorithms attempt to classify data points into groups based on similar properties. For example, grouping customers based on their purchasing behavior. Several clustering algorithms in the literature can be employed for different purposes. These algorithms differ in terms of how they specify the number of clusters. For example, the k-mean, agglomerative and hierarchical clustering algorithms require the user to set the number of clusters, which requires the user to already have a good estimate of the number of clusters necessary. Others, such as affinity propagation and density-based clustering algorithms identify the number of clusters without user input.

Association learning problems are used to discover relationships between events in large dataset. An association rule extracts strong relationships; for example: “Customers that purchased X also tend to purchase Y.”

Model Evaluation

The major challenge for unsupervised learning models is evaluating its effectiveness. When evaluating them from a strictly theoretical perspective, it seems impossible for an unsupervised learning model to calculate accuracy, as there is no actual value that can be used as a comparison point. Nevertheless, a couple of approaches can be useful when evaluating the if a model is effective:

  • Robustness of solution: Generally speaking, a good model should remain stable despite slight perturbations or the exclusion or addition of some data points. The volatility of the model can be measured over different scenarios.
  • Benchmark: The model’s result can be compared to actual data from similar industries and areas. Zilliant customers benefit from over a decade of B2B data science expertize, and as a result, they leverage highly accurate and reliable models which are highly specialized for their own business.

In the next post, I will present a few significant applications for unsupervised learning algorithms in B2B that illustrate how unsupervised ML can help businesses grow smarter and faster.

Read Amir’s previous posts on smart pricing:

Smart Pricing: Machine Learning Applications in B2B Pricing

Smart Pricing Part 2: Problems Addressed by ML

 

About the Author

Amir Meimand

Amir Meimand is Zilliant Director of R&D, pricing science, where he designs and develops pricing solutions for customers and performs research in which he applies new methods to improve the current solutions as well as develop new tools. Prior to joining Zilliant, Amir helped design and develop a promotion planning and pricing platform for B2C retailers. Amir holds a dual Ph.D degree in industrial engineering and operations research from Pennsylvania State University. In his doctoral work, he applied operations research concepts to dynamic pricing and revenue management.

More Content by Amir Meimand
Previous Article
Smart Pricing Part 4: Application of Unsupervised ML in B2B Companies
Smart Pricing Part 4: Application of Unsupervised ML in B2B Companies

Zilliant Director of R&D, Pricing Science, Amir Meimand shares how unsupervised machine learning can be app...

Next Article
How to Deliver a Consumer-Like eCommerce Experience in B2B
How to Deliver a Consumer-Like eCommerce Experience in B2B

This four-step B2B eCommerce guide tells B2B manufacturers and distributors how to deliver a consumer-like ...

×

Get the latest industry news and trends straight to your inbox!

By checking this box you agree to our Privacy Policy Terms and Conditions.
Thank you!
Error - something went wrong!