Clustering optimization in RFM analysis Based on k-Means

Abstract

RFM stands for Recency, Frequency, and Monetary. RFM is a simple but effective method that can be applied to market segmentation. RFM analysis is used to analyze customer’s behavior which consists of how recently the customers have purchased (recency), how often customer’s purchases (frequency), and how much money customers spend (monetary). In this study, RFM analysis has been used for product segmentation is to be arrayed in terms of recent sales (R), frequent sales (F), and the total money spent (M) using the data mining method. This study has proposed a new procedure for RFM analysis (in product segmentation) using the k-Means method and eight indexes of validity to determine the optimal number of clusters namely Elbow Method, Silhouette Index, Calinski-Harabasz Index, Davies-Bouldin Index, Ratkowski Index, Hubert Index, Ball-Hall Index, and Krzanowski-Lai Index, which can improve the objectivity and similarity of data in product segmentation so that it can improve the accuracy of the stock management process. The evaluation results showed that the optimal number of clusters for the k-Means method applied in the RFM analysis consists of three clusters (segmentation) with a variance value of 0.19113.