An empirical comparison of clustering approaches for recency, frequency, and monetary customer segmentation

Abstract

This study evaluates effectiveness of three clustering techniques—k-means, hierarchical clustering, and density-based spatial clustering of applications with noise (DBSCAN)—applied to the recency-frequency-monetary (RFM) model for customer segmentation in the retail sector. Using sales transaction data from a distributor of computer accessories and printing products. The results show that k-means achieved the best clustering validation scores and effectively identified high-value customers, hierarchical clustering generated less meaningful groupings than k-means, and DBSCAN misclassified key customers as noise. These findings highlight k-means as the most suitable technique for RFM-based segmentation in this retail business context. The study offers practical insights for retail and distribution businesses aiming to adopt data-driven customer strategies and suggests future research to enhance segmentation robustness and refine the RFM framework.