Customer churn is one of the most challenging problems for digital retailers. With significantly higher costs for acquiring new customers than retaining existing ones, knowledge about which customers are likely to churn becomes essential. This paper reports a case study where a data-driven approach to churn prediction is used for predicting churners and gaining insights about the problem domain. The real-world data set used contains approximately 200 000 customers, describing each customer using more than 50 features. In the pre-processing, exploration, modeling and analysis, attributes related to recency, frequency, and monetary concepts are identified and utilized. In addition, correlations and feature importance are used to discover and understand churn indicators. One important finding is that the churn rate highly depends on the number of previous purchases. In the segment consisting of customers with only one previous purchase, more than 75% will churn, i.e., not make another purchase in the coming year. For customers with at least four previous purchases, the corresponding churn rate is around 25%. Further analysis shows that churning customers in general, and as expected, make smaller purchases and visit the online store less often. In the experimentation, three modeling techniques are evaluated, and the results show that, in particular, Gradient Boosting models can predict churners with relatively high accuracy while obtaining a good balance between precision and recall.

Adding confidence measures to predictive models should increase the trustworthiness, but only if the models are well-calibrated. Historically, some algorithms like logistic regression, but also neural networks, have been considered to produce well-calibrated probability estimates off-the-shelf. Other techniques, like decision trees and Naive Bayes, on the other hand, are infamous for being significantly overconfident in their probabilistic predictions. In this paper, a large experimental study is conducted to investigate how well-calibrated models produced by a number of algorithms in the scikit-learn library are out-of-the-box, but also if either the built-in calibration techniques Platt scaling and isotonic regression, or Venn-Abers, can be used to improve the calibration. The results show that of the seven algorithms evaluated, the only one obtaining well-calibrated models without the external calibration is logistic regression. All other algorithms, i.e., decision trees, adaboost, gradient boosting, kNN, naive Bayes and random forest benefit from using any of the calibration techniques. In particular, decision trees, Naive Bayes and the boosted models are substantially improved using external calibration. From a practitioner’s perspective, the obvious recommendation becomes to incorporate calibration when using probabilistic prediction. Comparing the different calibration techniques, Platt scaling and VennAbers generally outperform isotonic regression, on these rather small datasets. Finally, the unique ability of Venn-Abers to output not only well-calibrated probability estimates, but also the confidence in these estimates is demonstrated.

Association rules are rules that define relationships between items in sales databases. They have been used primarily to organize relevant products in stores in a way to makes them more visible to consumers, which may increase sales and profits. On the other hand, it has been rarely used in recommender systems where algorithms provide instant recommendations by processing consumers’ interests that are gathered when browsing online. However, the vast amount of information collected from transaction data saved on backup servers is poorly taken advantage of, because it is not connected to the Internet, although interesting and personalized recommendations can be created after finding the collections of most frequent items, or most interesting rules in such databases. In this paper, we do a critique of the existing research on both recommender systems along with showing their drawbacks, and the association rules with detailed explanations on their advantages. Finally, draw up with several solutions for producing high quality as well as accurate recommendations by applying novel combinations of techniques observed in this research area including the association-rules-based recommender systems.

While consumers value a free and easy return process, the costs to e-tailers associated with returns are substantial and increasing. Consequently, merchants are now tempted to implement stricter policies, but must balance this against the risk of losing valuable customers. With this in mind, data-driven and algorithmic approaches have been introduced to predict if a certain order is likely to result in a return. In this application paper, a novel approach, combining information about the customer and the order, is suggested and evaluated on a real-world data set from a Swedish e-tailer in men’s fashion. The results show that while the predictive accuracy is rather low, a system utilizing the suggested approach could still be useful. Specifically, it is reasonable to assume that an e-tailer would only act on predicted returns where the confidence is very high, e.g., the top 1–5%. For such predictions, the obtained precision is 0.918–0.969, with an acceptable detection rate.