Customer Segmentation in Steel Sales : Optimizing Profitability with RFM Model and K-Means Algorithm

This paper is on customer segmentation in steel sales, whose objective is to improve profitability and customer relationship management. The current research categorizes customers based on purchasing behaviors by using the RFM model and the K-Means clustering algorithm. Due to this approach, the company will be able to formulate stratified marketing plans for the requirements and Preferences of various customer segments identified and hence ensure high retention and satisfaction. The RFM model assesses the three main customer behaviors of purchase recency, purchase frequency, and monetary value. This gives a set of metrics that provide the overall depth of customer engagement, which is important in segmentation. Then, K-Means is applied to cluster these similar patterns of customer purchasing, to precisely target market customers. The goodness of the segmentation strategy is measured through metrics such as the Elbow Method, Davies-Bouldin Index, and Silhouette Coefficient, which provide proper cluster selection and meaningful segmentation. This eventual outcome has proved that this combined approach will maximize the revenue potential and enhance customer satisfaction tremendously through personalized marketing efforts. Eventually, the embedding of the RFM model within K-Means clustering offers a robust framework for strategic decision-making and realizing competitive advantage within the steel industry.