Development of customer segmentation system using supervised and unsupervised machine learning algorithms

Customer segmentation is a crucial strategy in customer relationship management that enables businesses to tailor marketing strategies based on customer characteristics and behaviors. Traditionally, segmentation has been performed using rule-based heuristics such as Recency-Frequency-Monetary (RFM) analysis or demographic grouping. However, these methods often fail to capture complex patterns in large-scale, multidimensional customer data. This study presents the development of a hybrid customer segmentation system combining unsupervised learning (K-Means clustering) and supervised learning algorithms (Random Forest, Logistic Regression) for both discovering customer segments and predicting customer behaviors such as attrition and high-value targeting. To evaluate effectiveness, a real-world customer dataset was used, and the performance of traditional segmentation was compared with the machine learning-based approach. In terms of segmentation quality, Silhouette Score for RFM-based segmentation was 0.34, whereas K-Means clustering achieved a Silhouette Score of 0.62. For predicting attrition using supervised models, the Random Forest classifier achieved Accuracy = 87.3%, Precision = 84.6%, and F1-score = 85.1%, compared to 65.2% accuracy and 58.4% F1-score using rule-based classification. The results demonstrate a significant improvement in both segmentation precision and predictive capability using machine learning approaches over traditional methods. This system enables more data-driven, dynamic, and scalable customer targeting strategies for modern businesses.

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Publication Details

Journal
Science World Journal
Published
2025-08-20
DOI
https://doi.org/10.4314/swj.v20i2.16
Primary Topic
Customer churn and segmentation
Type
article
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article

Development of customer segmentation system using supervised and unsupervised machine learning algorithms

Ayoade Akeem Owoade
Science World Journal
Customer churn and segmentation
article

Development of customer segmentation system using supervised and unsupervised machine learning algorithms

Ayoade Akeem Owoade
article en

Abstract

Customer segmentation is a crucial strategy in customer relationship management that enables businesses to tailor marketing strategies based on customer characteristics and behaviors. Traditionally, segmentation has been performed using rule-based heuristics such as Recency-Frequency-Monetary (RFM) analysis or demographic grouping. However, these methods often fail to capture complex patterns in large-scale, multidimensional customer data. This study presents the development of a hybrid customer segmentation system combining unsupervised learning (K-Means clustering) and supervised learning algorithms (Random Forest, Logistic Regression) for both discovering customer segments and predicting customer behaviors such as attrition and high-value targeting. To evaluate effectiveness, a real-world customer dataset was used, and the performance of traditional segmentation was compared with the machine learning-based approach. In terms of segmentation quality, Silhouette Score for RFM-based segmentation was 0.34, whereas K-Means clustering achieved a Silhouette Score of 0.62. For predicting attrition using supervised models, the Random Forest classifier achieved Accuracy = 87.3%, Precision = 84.6%, and F1-score = 85.1%, compared to 65.2% accuracy and 58.4% F1-score using rule-based classification. The results demonstrate a significant improvement in both segmentation precision and predictive capability using machine learning approaches over traditional methods. This system enables more data-driven, dynamic, and scalable customer targeting strategies for modern businesses.

Science World JournalVol. 20(2)
Kaduna State University (NG), Tai Solarin University of Education (NG)
Openalex Percentile: Top 69%
Customer churn and segmentation
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Development of customer segmentation system using supervised and unsupervised machine learning algorithms — Ayoade Akeem Owoade · Science World Journal (2025) | TGRS Research Map | TGRS