A team is building a model to predict customer churn. They have 50 features, including categorical variables with high cardinality (e.g., zip code with 10,000 unique values). Which feature engineering technique is most appropriate?
Target encoding condenses high cardinality into one numeric feature.
Why this answer
Target encoding replaces each category with the mean of the target variable, which handles high cardinality well. Option A (binning) reduces cardinality but loses information. Option B is correct because target encoding is specifically designed for high-cardinality categorical features.
Option C (label encoding) implies ordinality and can introduce misleading relationships. Option D (one-hot encoding) would create 10,000 binary columns, causing high dimensionality.