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A new methodology for customer behavior analysis using time series clustering: A case study on a bank’s customers

Hossein Abbasimehr (Faculty of Information Technology and Computer Engineering, Azarbaijan Shahid Madani University, Tabriz, Islamic Republic of Iran)
Mostafa Shabani (Khajeh Nasir Toosi University of Technology, Tehran, Islamic Republic of Iran)

Kybernetes

ISSN: 0368-492X

Article publication date: 30 July 2019

Issue publication date: 27 March 2021

Abstract

Purpose

The purpose of this paper is to propose a new methodology that handles the issue of the dynamic behavior of customers over time.

Design/methodology/approach

A new methodology is presented based on time series clustering to extract dominant behavioral patterns of customers over time. This methodology is implemented using bank customers’ transactions data which are in the form of time series data. The data include the recency (R), frequency (F) and monetary (M) attributes of businesses that are using the point-of-sale (POS) data of a bank. This data were obtained from the data analysis department of the bank.

Findings

After carrying out an empirical study on the acquired transaction data of 2,531 business customers that are using POS devices of the bank, the dominant trends of behavior are discovered using the proposed methodology. The obtained trends were analyzed from the marketing viewpoint. Based on the analysis of the monetary attribute, customers were divided into four main segments, including high-value growing customers, middle-value growing customers, prone to churn and churners. For each resulted group of customers with a distinctive trend, effective and practical marketing recommendations were devised to improve the bank relationship with that group. The prone-to-churn segment contains most of the customers; therefore, the bank should conduct interesting promotions to retain this segment.

Practical implications

The discovered trends of customer behavior and proposed marketing recommendations can be helpful for banks in devising segment-specific marketing strategies as they illustrate the dynamic behavior of customers over time. The obtained trends are visualized so that they can be easily interpreted and used by banks. This paper contributes to the literature on customer relationship management (CRM) as the proposed methodology can be effectively applied to different businesses to reveal trends in customer behavior.

Originality/value

In the current business condition, customer behavior is changing continually over time and customers are churning due to the reduced switching costs. Therefore, choosing an effective customer segmentation methodology which can consider the dynamic behaviors of customers is essential for every business. This paper proposes a new methodology to capture customer dynamic behavior using time series clustering on time-ordered data. This is an improvement over previous studies, in which static segmentation approaches have often been adopted. To the best of the authors’ knowledge, this is the first study that combines the recency, frequency, and monetary model and time series clustering to reveal trends in customer behavior.

Keywords

Citation

Abbasimehr, H. and Shabani, M. (2021), "A new methodology for customer behavior analysis using time series clustering: A case study on a bank’s customers", Kybernetes, Vol. 50 No. 2, pp. 221-242. https://doi.org/10.1108/K-09-2018-0506

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited