Application of Formal Concept Analysis and Clustering Algorithms to Analyze Customer Segments

Business development cannot be separated from relationships with customers. Understanding customer characteristics is important both for maintaining sales and even for targeting new customers with appropriate strategies. The complexity of customer data makes manual analysis of the customer segments difficult, so applying machine learning to segment the customer can be the solution. This research implements K-Means and GMM algorithms for performing clustering based on the Transaction data transformed to the Recency, Frequency, and Monetary (RFM) data model, then implements Formal Concept Analysis (FCA) as an approach to analyzing the customer segment after the class labeling. Both K-Means and GMM algorithms recommended the optimal number of clusters as the customer segment is four. The FCA implementation in this study further analyzes customer segment characteristics by constructing a concept lattice that categorizes segments using combinations of High and Low values across the RFM attributes based on the median values, which are High Recency (HR), Low Recency (LR), High Frequency (HF), Low Frequency (LF), High Monetary (HM), and Low Monetary (LM). This characteristic can determine the customer category; for example, a customer that has HM and HR can be considered a loyal customer and can be the target for a specific marketing program. Overall, this study demonstrates that using the RFM data model, combined with clustering algorithms and FCA, is a potential approach for understanding MSME customer segment behavior. However, special consideration is necessary when determining the FCA concept lattice, as it forms the foundation of the core analytical insights.