An Exploration of Clustering Algorithms for Customer Segmentation in the UK Retail Market.

JOHN, Jeen Mary, SHOBAYO, Olamilekan and OGUNLEYE, Bayode (2023). An Exploration of Clustering Algorithms for Customer Segmentation in the UK Retail Market. Analytics, 2 (4), 809-823.

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Recently, peoples’ awareness of online purchases has significantly risen. This has given rise to online retail platforms and the need for a better understanding of customer purchasing behaviour. Retail companies are pressed with the need to deal with a high volume of customer purchases, which requires sophisticated approaches to perform more accurate and efficient customer segmentation. Customer segmentation is a marketing analytical tool that aids customer-centric service and thus enhances profitability. In this paper, we aim to develop a customer segmentation model to improve decision-making processes in the retail market industry. To achieve this, we employed a UK-based online retail dataset obtained from the UCI machine learning repository. The retail dataset consists of 541,909 customer records and eight features. Our study adopted the RFM (recency, frequency, and monetary) framework to quantify customer values. Thereafter, we compared several state-of-the-art (SOTA) clustering algorithms, namely, K-means clustering, the Gaussian mixture model (GMM), density-based spatial clustering of applications with noise (DBSCAN), agglomerative clustering, and balanced iterative reducing and clustering using hierarchies (BIRCH). The results showed the GMM outperformed other approaches, with a Silhouette Score of 0.80.

Item Type: Article
Identification Number:
Page Range: 809-823
SWORD Depositor: Symplectic Elements
Depositing User: Symplectic Elements
Date Deposited: 17 Oct 2023 08:55
Last Modified: 17 Oct 2023 09:00

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