A Novel Telecom Customer Churn Analysis System Based on RFM Model and Feature Importance Ranking

Tianpei Xu, Ying Ma, Changyu Ao, Min Qu, XiangHong Meng
Interdisciplinary Journal of Information, Knowledge, and Management  •  Volume 18  •  2023  •  pp. 719-737

In this paper, we present an RFM model-based telecom customer churn system for better predicting and analyzing customer churn.

In the highly competitive telecom industry, customer churn is an important research topic in customer relationship management (CRM) for telecom companies that want to improve customer retention. Many researchers focus on a telecom customer churn analysis system to find out the customer churn factors for improving prediction accuracy.

The telecom customer churn analysis system consists of three main parts: customer segmentation, churn prediction, and churn factor identification. To segment the original dataset, we use the RFM model and K-means algorithm with an elbow method. We then use RFM-based feature construction for customer churn prediction, and the XGBoost algorithm with SHAP method to obtain a feature importance ranking. We chose an open-source customer churn dataset that contains 7,043 instances and 21 features.

We present a novel system for churn analysis in telecom companies, which encompasses customer churn prediction, customer segmentation, and churn factor analysis to enhance business strategies and services. In this system, we leverage customer segmentation techniques for feature construction, which enables the new features to improve the model performance significantly. Our experiments demonstrate that the proposed system outperforms current advanced customer churn prediction methods in the same dataset, with a higher prediction accuracy. The results further demonstrate that this churn analysis system can help telecom companies mine customer value from the features in a dataset, identify the primary factors contributing to customer churn, and propose suitable solution strategies.

Simulation results show that the K-means algorithm gets better results when the original dataset is divided into four groups, so the K value is selected as 4. The XGBoost algorithm achieves 79.3% and 81.05% accuracy on the original dataset and new data with RFM, respectively. Additionally, each cluster has a unique feature importance ranking, allowing for specialized strategies to be provided to each cluster. Overall, our system can help telecom companies implement effective CRM and marketing strategies to reduce customer churn.

More accurate churn prediction reduces misjudgment of customer churn. The acquisition of customer churn factors makes the company more convenient to analyze the reasons for churn and formulate relevant conservation strategies.

The research achieves 81.05% accuracy for customer churn prediction with the Xgboost and RFM algorithms. We believe that more enhancements algorithms can be attempted for data preprocessing for better prediction.

This study proposes a more accurate and competitive customer churn system to help telecom companies conserve the local markets and reduce capital outflows.

The research is also applicable to other fields, such as education, banking, and so forth. We will make more new attempts based on this system.

CRM, churn prediction, feature construction, RFM, K-means, XGBoost, SHAP method
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