A Soft Computing Approach to Customer Segmentation

Abstract

There are a number of traditional models designed to segment customers, however none of them have the ability to establish non-strict customer segments. One crucial area that can meet this requirement is known as soft computing. Although there have been studies related to the usage of soft computing techniques for segmentation, they are not based on the effective two-stage methodology. The aim of this study is to propose a two-stage segmentation model based on soft computing using the purchasing behaviours of customers in a data mining framework and to make a comparison of the proposed model with a traditional two-stage segmentation model. Segmentation was performed via neuro-fuzzy two stage-clustering approach for a secondary data set, which included more than 300,000 unique customer records, from a UK retail company. The findings indicated that the model provided stronger insights and has greater managerial implications in comparison with the traditional two-stage method with respect to six segmentation effectiveness indicators.