Exploiting time-varying RFM measures for customer churn prediction with deep neural networks

Abstract

Deep neural network (DNN) architectures such as recurrent neural networks and transformers display outstanding performance in modeling sequential unstructured data. However, little is known about their merit to model customer churn with time-varying data. The paper provides a comprehensive evaluation of the ability of recurrent neural networks and transformers for customer churn prediction (CCP) using time-varying behavioral features in the form of recency, frequency, and monetary value (RFM). RFM variables are the backbone of CCP and, more generally, customer behavior forecasting. We examine alternative strategies for integrating time-varying and non-variant customer features in one network architecture. In this scope, we also assess hybrid approaches that incorporate the outputs of DNNs in conventional CCP models. Using a comprehensive panel data set from a large financial services company, we find recurrent neural networks to outperform transformer architectures when focusing on time-varying RFM features. This finding is confirmed when time-invariant customer features are included, independent of the specific form of feature integration. Finally, we find no statistical evidence that hybrid approaches (based on regularized logistic regression and extreme gradient boosting) improve predictive performance—highlighting that DNNs and especially recurrent neural networks are suitable standalone classifiers for CCP using time-varying RFM measures.

Machine learning based churn analysis for sellers on the e-commerce marketplace

“…In the last few years, numerous methods have been used for churn analysis. [1] presented a comprehensive evaluation of the capacity of Recurrent Neural Networks (RNN) and transducers for Customer Attrition Prediction (CCP) using time-varying behavioral characteristics such as novelty, frequency, and monetary value. Hybrid approaches combining DNN outputs from traditional CCP models were also evaluated in this context.…”