Prediction of Customer Behavior Changing via a Hybrid Approach

Abstract

This study proposes a hybrid approach to predict customer churn by combining statistic approaches and machine learning models. Unlike traditional methods, where churn is defined by a fixed period of time, the proposed algorithm uses the probability of customer alive derived from the statistical model to dynamically determine the churn line. After observing customer churn through clustering over time, the proposed method segmented customers into four behaviors: new, short-term, high-value, and churn, and selected machine learning models to predict the churned customers. This combination reduces the risk to be misjudged as churn for customers with longer consumption cycles. Two public datasets were used to evaluate the hybrid approach, an online retail of U.K. gift sellers and the largest E-Commerce of Pakistan. Based on the top three learning models, the recall ranged from 0.56 to 0.72 in the former while that ranged from 0.91 to 0.95 in the latter. Results show that the proposed approach enables companies to retain important customers earlier by predicting customer churn. The proposed hybrid method requires less data than existing methods.