An Empirical Study on Customer Segmentation by Purchase Behaviors Using a RFM Model and K-Means Algorithm

Abstract

In this paper, we base our research by dealing with a real-world problem in an enterprise. A RFM (recency, frequency, and monetary) model and K-means clustering algorithm are utilized to conduct customer segmentation and value analysis by using online sales data. Customers are classified into four groups based on their purchase behaviors. On this basis, different CRM (customer relationship management) strategies are brought forward to gain a high level of customer satisfaction. The effectiveness of our method proposed in this paper is supported by improvement results of some key performance indices such as the growth of active customers, total purchase volume, and the total consumption amount.