Customer Analysis Using Machine Learning-Based Classification Algorithms for Effective Segmentation Using Recency, Frequency, Monetary, and Time

Abstract

Customer segmentation has been a hot topic for decades, and the competition among businesses makes it more challenging. The recently introduced Recency, Frequency, Monetary, and Time (RFMT) model used an agglomerative algorithm for segmentation and a dendrogram for clustering, which solved the problem. However, there is still room for a single algorithm to analyze the data's characteristics. The proposed novel approach model RFMT analyzed Pakistan's largest e-commerce dataset by introducing k-means, Gaussian, and Density-Based Spatial Clustering of Applications with Noise (DBSCAN) beside agglomerative algorithms for segmentation. The cluster is determined through different cluster factor analysis methods, i.e., elbow, dendrogram, silhouette, Calinsky-Harabasz, Davies-Bouldin, and Dunn index. They finally elected a stable and distinctive cluster using the state-of-the-art majority voting (mode version) technique, which resulted in three different clusters. Besides all the segmentation, i.e., product categories, year-wise, fiscal year-wise, and month-wise, the approach also includes the transaction status and seasons-wise segmentation. This segmentation will help the retailer improve customer relationships, implement good strategies, and improve targeted marketing.