Clustering Prediction Techniques in Defining and Predicting Customers Defection: The Case of E-Commerce Context

Abstract

With the growth of the e-commerce sector, customers have more choices, a fact which encourages them to divide their purchases amongst several e-commerce sites and compare their competitors’ products, yet this increases high risks of churning. A review of the literature on customer churning models reveals that no prior research had considered both partial and total defection in non-contractual online environments. Instead, they focused either on a total or partial defect. This study proposes a customer churn prediction model in an e-commerce context, wherein a clustering phase is based on the integration of the k-means method and the Length-Recency-Frequency-Monetary (LRFM) model. This phase is employed to define churn followed by a multi-class prediction phase based on three classification techniques: Simple decision tree, Artificial neural networks and Decision tree ensemble, in which the dependent variable classifies a particular customer into a customer continuing loyal buying patterns (Non-churned), a partial defector (Partially-churned), and a total defector (Totally-churned). Macro-averaging measures including average accuracy, macro-average of Precision, Recall, and F-1 are used to evaluate classifiers’ performance on 10-fold cross validation. Using real data from an online store, the results show the efficiency of decision tree ensemble model over the other models in identifying both future partial and total defection.