Applied Mathematics and Nonlinear Sciences (aop) (aop) 1–11

Applied Mathematics and Nonlinear Sciences

https://www.sciendo.com

Research on the construction of early warning model of customer churn on

e-commerce platform
Wei Fu†

School of Economics and Management, Anhui Sanlian University, Hefei, Anhui 230601, China

Submission Info
Communicated by Juan Luis García Guirao
Received April 12th 2022
Accepted April 24th 2022
Available online August 30th 2022

Abstract
The construction of early warning model of customer churn in e-commerce platform can help e-commerce enterprises in
China to strengthen the risk prevention of customer churn, improve efficiency of customer management and resolve the
crisis of customer churn. Therefore, this paper analyses the definition basis and evaluation method of customer churn, and
clarifies the function and content of early warning customer churn. By using the K-means clustering analysis of sample
data, the early warning level of customer churn risk is categorized. By taking the established index system data as the input
layer data of neural network, the early warning model of customer churn risk of e-commerce platform based on neural
network is constructed. The test results show that the accuracy of the model is 100%, which can provide reference for the
early warning research of customer churn risk in the e-commerce industry of China.

Keywords: Customer churn, early warning model, cluster analysis, neural network

1 Introduction

In recent years, with the rapid development of Internet information technology, we have entered the era of
big data. More and more Internet users begin to enjoy the convenient experience brought by online shopping
and mobile payment, and they choose to purchase the services or goods they need online [1]. Under such
a market background, how to win over high-quality and stable customer base is an important factor to ensure
the robust growth of enterprises, at the same time, stable and repeatable customers are the source power for
the continuous development of e-commerce enterprises [2, 3]. According to the survey results of China Internet
Network Information Development Center [4], nearly 10% of the users in the whole e-commerce market will
automatically terminate their contact with one e-commerce platform and switch to another in half a year, which
makes the customer mobility of the e-commerce platform appear to be greater. In addition, most customers have
† Corresponding author.
Email address: fw@slu.edu.cn

ISSN 2444-8656 doi:10.2478/amns.2022.1.00016

Open Access. © 2022 Fu, published by Sciendo.
This work is licensed under the Creative Commons Attribution alone 4.0 License.
2 Fu. Applied Mathematics and Nonlinear Sciences (aop) 1–11

less repeat purchase behaviour, which makes the customer churn rate of the e-commerce platform relatively
high. In this non-contractual environment, customer relationship is not constrained, which makes it difficult to
predict and define the loss.
In recent years, the research on prediction of customer churn through data mining technology has gradually
increased [5, 6]. Analysing a series of browsing behaviour data such as search, click, collection and evaluation
of users on the e-commerce platform can help enterprises to understand the purchase process, preference and
habits of users, as well as the content of interest, etc., and combining with the dimensional subdivision of data
can provide more targeted services to customers and provide support for enterprise personalised service strategy,
so as to meet the needs of different levels of customers, and improve their satisfaction [7,8]. However, the above-
mentioned researches mainly focus on the algorithm accuracy or model fusion optimisation, while the research
on more comprehensive customer feature description is less. Meanwhile, the definition of customer churn in the
model is dualistic, and the description of process dynamics is slightly insufficient [9, 10]. Therefore, by fully
considering the characteristics of the e-commerce industry, and combining with the current situation of customer
churn of e-commerce enterprises, we can deeply understand the substantive problems behind the customer churn,
so as to build an early warning model of customer churn on e-commerce platform. It can effectively predict and
judge the possible risk of customer churn for enterprises in the future.

2 Analysis of customer churn on e-commerce platform

Customer churn in e-commerce enterprises refers to the phenomenon that users temporarily or permanently
terminate the transaction relationship with e-commerce enterprises and no longer accept the products or services
provided by e-commerce enterprises [11]. As a kind of general customer churn, it is a kind of customer churn
under the non-contractual relationship situation.

2.1 Definition of customer churn

The loss of customers can be defined as shown in Figure 1.

(1) Based on result status
When individuals feel or think that the quality or benefits of an organisation are declining, there are three
choices: exit, voice and loyalty. Therefore, customer churn is defined as the user’s behaviour to terminate the
relationship with the enterprise/organisation, which can be summarised as: cancellation, transfer, suspension,
etc. If the customer gives up the cooperation with the original enterprise and turns to other enterprises for some
reasons, it is generally considered as the loss of the customer.
(2) Based on customer transaction
In the judgement based on the transaction behaviour of customers, customer churn is the process in which
the existing customers terminate the activities of enterprise products and services and purchase corresponding
products and services from other enterprises or competitors. All the indicators that can describe the customer’s

Fig. 1 Definition of customer churn on e-commerce platform.

 Construction of early warning model of customer churn in e-commerce 3

trading behaviour are used for the judgement basis. For example, customers in a certain period of time, there
will be a larger trading cycle.
(3) Changes in customer churn
In the actual transaction process, there is a kind of customers whose purchase frequency or frequency of
products and services provided by the enterprise is only slightly lower than before, but not completely turn to
zero. Therefore, customer churn should be classified into two categories: one is based on change of process and
the other is based on change of final state [12].
By comparing the above three types, it can be seen that the definition based on the customer result status
is a method that directly divides the loss status according to certain business relationship rules, which is easier
to identify and more obvious to distinguish customers. But it will make the partition result too one-sided, once
the rules are limited, thus the whole prediction judgement will become inflexible; The other method is based
on the judgement of the change of customer’s trading behaviour, and observes the change in the process of
user’s transaction behaviour from multiple dimensions, and can trace the cause of the loss based on the final
state result.
This paper adopts the definition method based on transaction behaviour; once the value of the observation
dimension exceeds or is lower than the preset threshold, then the customer status is determined as churn.

2.2 Evaluation method of customer churn

2.2.1 Customer value

In order to more accurately define and describe customers, understand the behaviour characteristics and
preferences of customers, and then provide targeted marketing for them. Managers often choose to construct
user portrait features and behaviour characteristics, which can maintain long-term interactive relationship with
customers according to their own understanding of customers.
As shown in Figure 2, Recurrence, Frequency, Monetary (RFM) model can better measure customer value.
The model includes three indicators [13, 14]: R (recency), F (frequency) and M (monetary) reflecting the cus-
tomer’s latest consumption interval. They represent respectively that during the observation period, the time
interval between the last consumption behaviour of users and the observation point, the total number of con-
sumption behaviours of users in the observation period, and the total consumption of customers in the observa-
tion period.
(1) Recurrence
It reflects the time interval between the customer’s last consumption behaviour and the observation point in
the observation period. The larger value of indicator R means that customers have not purchased anything on
the platform for a long time, and they are in the decline period of life cycle and who are about to be lost, and the
customer value of such customers will be lower. On the contrary, the smaller the R value is, the closer the time
interval between the customer’s last shopping and the observation point, the higher the customer value.
(2) Frequency
Indicator F is a measure of the number of times customers spend in the inspection period. Generally
speaking, the higher the frequency of customers’ consumption, the higher the value. While the shorter the

Fig. 2 Customer value measurement indicators.

4 Fu. Applied Mathematics and Nonlinear Sciences (aop) 1–11

last consumption interval and the higher the consumption frequency in the observation period, the higher the
comprehensive value of such customers and the more economic benefits they can bring to enterprises, which
should be the focus of the enterprise.
(3) Monetary
This is the most important measurement index of customer value. The higher the consumption amount, the
higher the contribution, and the higher the customer value. By synthesising these three indicators, the value of
customers to the enterprise can be described in a multi-dimensional way, and according to the different combina-
tion performances of different customer groups with the three indicators, some of their behaviour characteristics
can be analysed.
2.2.2 Life cycle customer
Customer’s life cycle describes the transformation process of customer’s state from establishing contact to
ending contact between customer and enterprise, and reflects customer’s characteristic performance in each stage
of enterprise. In order to explore the key to customer churn, many researchers are committed to the study of
customer change characteristics in various stages of the life cycle [15, 16]. As shown in Figure 3, the whole life
cycle is divided into five stages as follows:
(1) Acquisition
In this period, enterprises explore potential customers from the market by means of marketing, and customers
also understand the actual situation of enterprises through various kinds of information, so as to preliminarily
understand each other and lay the foundation for the development of follow-up relations.
(2) Promotion
In this period, with each product or service linkage between the two sides, the satisfaction and cooperation
intention between the two sides will accelerate development, and the interdependence relationship will also
deepen.

Fig. 3 Life cycle of customer.

 Construction of early warning model of customer churn in e-commerce 5

(3) Mature
Due to the interaction in the first two stages, enterprises and customers will have more and more under-
standing in this period, so the relationship between them is further improved where all kinds of contact and
cooperation relations are gradually become stable and for enterprises, this is the golden period with customers.
(4) Recession
Due to poor communication, or competition from other companies, the established good customer relationship
before has deteriorated gradually and the customers showed various negative performances, and the transactions
gradually slowed down. However, it should be realised that the deterioration of the relationship may occur at
any stage of the whole customer cycle, which is not limited to the last stage of the life cycle.
(5) Loss
After the recession stage, customers lose their trust on the enterprise at last, which make them to end the
business contact with the enterprise. At this stage, the customers are completely lost.
With the theoretical study of the life cycle, we can intuitively understand the stage of customer churn,
and help enterprises to develop better customer retention strategies after the subsequent analysis of customer
churn.

3 Early warning model of customer churn risk on e-commerce platform

3.1 Function of early warning of customer churn

The early warning of customer churn management occurs before the real loss of customers, which can be
sensitive to the impact of customer churn dynamic factors; once there is movement, it will send a signal to
remind enterprises to take necessary measures to improve the status quo. The early warning management of
customer churn can not only help enterprises to achieve their goals, but also prevent them from falling into
severe difficulties, which is important to improve enterprise’s own value and realise excellent management. As
shown in Figure 4, it usually includes the following aspects [17, 18]:
(1) Monitoring the signs of customer churn
Detecting the signs of customer churn needs to be carried out under a comprehensive plan. It is the first step
for enterprises to predict customer churn in order to reduce the number of customers churn. The main job of
detecting the signs of customer churn is to detect the customers who are about to be lost in real time.
(2) Judgement of customer churn
Judgement of customer churn, that is, after detecting the signs of customer churn, scientific methods are used
to get the index data for in-depth analysis of the index data which exposed customer behaviour characteristics,
thus helps to judge the tendency of customer churn.

Fig. 4 Function of early warning of customer churn.

6 Fu. Applied Mathematics and Nonlinear Sciences (aop) 1–11

(4) Assessing customer churn

Evaluation of customer churn should be carried out after the completion of the previous links. After the
data of customer churn sign detection link is saved, these index data are analysed in depth, and the abnormal
indicators are scored and summarised, and then graded according to different severity. Finally, the enterprise for-
mulates a reasonable weight determination standard according to the actual situation; comprehensive evaluation
of the customer churn status of enterprises is made by comprehensive factors.
The concept of customer churn warning determines that the system can be used to monitor customers with
significant churn tendency. However, in order to effectively solve the problem of customer churn, it is necessary
to construct a comprehensive, scientific and reasonable customer churn early warning model on the premise of
deeply exploring the early warning mechanism and mode of customer churn.

3.2 Classification of customer churn risk levels

Cluster analysis is a multivariate statistical method, which refers to grouping abstract objects into sets of
similar elements. It is usually used to study the classification of samples or indicators [19]. The essence of
clustering analysis is to reasonably and fully replace unknown information with known information, classify
and identify the essential attributes of grey system, and obtain objective quantitative analysis results.
The sample data is clustered by K-means, and 100 samples are clustered into four types of churn risk states,
namely: safe (A), less safe (B), dangerous (C) and very dangerous (D). The cluster analysis and evaluation
description of each risk state are shown in Table 1.

3.3 Model construction

3.3.1 Index selection

The e-commerce transaction is divided into several links, such as registration and login, interface brows-
ing, payment, commodity purchase and after-sales service. Therefore, on the basis of previous research liter-
ature, considering the obvious characteristics of e-commerce enterprises and combining the actual situation of
e-commerce enterprises in China, the index system shown in Figure 5 is constructed.
Table 1 Classification of customer churn risk levels.
Proportion Customer description
Safety (A) 14% Most of these users think that the platform has fast response speed, beautiful
interface, convenient use, good customer service, payment method that can
meet the basic needs of users, fast delivery speed, satisfaction with the
service of delivery staff.
Less safe (B) 35% However, such users sometimes give up payment because they can’t find a
suitable way, and worry about whether their payment security and personal
privacy will be leaked from time to time. They have a high degree of
participation in product evaluation, high requirements for products and will
return and exchange products whose descriptions don’t match the real ones
for a long time.
Danger (C) 20% These users usually feel that the response speed of the platform is slow, their
satisfaction with the products recommended by the e-commerce platform is
low and their delivery speed and delivery staff service are often not
satisfied. There is no dependence on the exclusive sales of products, and
they think that the prices of most products are somewhat high, and the
participation in the evaluation of purchased products is also low.
Very dangerous (D) 31% Their satisfaction with the platform is very low, which is usually reflected in
the dissatisfaction with the aesthetics and convenience of the interface, the
quality of the goods and the service of the delivery staff.
 Construction of early warning model of customer churn in e-commerce 7

Fig. 5 Construction of early warning model index.

Fig. 6 Network structure of early warning model.

3.3.2 Structural design

In this paper, the early warning model based on neural network is adopted, and the three-layer network
topology is selected according to the data of training sample and prediction sample, as well as indicators of early
warning mentioned earlier. The network structure is shown in Figure 6.
(1) Input layer
It is located at the bottom of the neural network, where neurons in this layer receive pre-selected indicators
as input information from the external environment. In the neural network model of this paper, the number of
neurons in the input layer is determined by the input amount of index data and 15 normalised index data of early
warning of customer churn are respectively input as input samples, which are used to predict the crisis situation
of customer churn.
(2) The hidden layer, in which the hidden layer nodes find out the hidden rules from the sample data, and
then store the information in the form of connection weights. In summary, the following four formulas can be
used to calculate hidden nodes:
L = logm
2 (1)
8 Fu. Applied Mathematics and Nonlinear Sciences (aop) 1–11

L = (m × n)/2 (2)
L = m + 0.618(m − n) (3)
L = 2m + 1 (4)

Among them m is input layer node, n is the output layer node.

In this paper, the four empirical formulas are used to calculate the number of nodes in the four hidden layers,
and the different nodes are put into the neural network for training. Then, the sample data of test set is brought
into the neural network for fitting and the prediction accuracy of the output layer data obtained is compared with
the expected result of the test set sample. The number of hidden layer nodes with the highest prediction accuracy
8 is selected as the number of hidden layer nodes in the early warning model.
(3) Output layer
It is located at the highest level of the network. At this level, the neural network transmits the hidden layer
data to the output neuron, which in turn transmits the information to the external environment. The data category
of the output layer determines the number of neurons in the output layer.
In this paper, when the network output layer is defined, the alert levels are determined in four levels according
to different levels of customer churn risk. The result of the first-level warning level corresponding to the output
layer is [0001], the second-level warning level corresponding to the output layer is [1000], the third-level warning
level corresponding to the output layer is [0100] and the fourth-level warning level corresponding to the output
layer is [0010].
3.3.3 Selection of functions
The customer churn warning system of e-commerce platform based on neural network mainly processes
data through transfer function and training function, and tests the training effect of the model by learning rate
and expected error.
(1) Transfer function
Transfer function is usually selected from purelin, tansig and logsig. As there are negative values in the
input data, in order to prevent data compression from affecting the accuracy, the tansig function that can map
the neuron input range from (−∞, +∞) to (−1, 1) is selected as the transfer function of hidden layer, and its
expression is:
2
tan sig(m) = (5)
(1 + e−2m ) − 1
In addition, as the expected output data of the output layer are [1000], [0100], [0010] and [0001], this paper
determines that the transfer function from the hidden layer to the output layer is the logsig function, which maps
the input range of neurons from (−∞, +∞) to (0, 1), and its function is

1
log sig(m) = (6)
(1 + e−m )

(2) Training function

Trainlm is selected as the training function in this paper. When the number of network weights is small, it
can quickly converge, and has strong advantages in improving training speed, which avoids falling into local
minimum. It is suitable for the function fitting of small and medium-sized networks, with fast convergence and
small error.
(3) Learning rate
In order to ensure the stability of the network, we usually try to choose a small learning rate while ensuring
the training duration. The most scientific and reasonable method is to first determine the learning rate of several
different values, and then, after the training of neural network, select the most appropriate learning rate according
to the descending speed of the error function. Generally, the range of selection is between 0.01 and 0.8. Through
the test, the learning rate of 0.01 is chosen.
 Construction of early warning model of customer churn in e-commerce 9

(4) Expected error

Usually, the smaller the expected error value is, the more accurate the model. However, if the expected
error value is too small, the number of hidden layer nodes will be increased unintentionally, resulting in the
extension of the training time of neural network. Meanwhile, it will greatly increase the risk of ‘over-fitting’ of
the network in training, which directly leads to the reduction of the universality of the neural network. In this
paper, the following indicators are used for calculation:
Mean absolute error  
∑ e j 
MAE = (7)
N
Sum square error
2
SSE = ∑ (e j ) (8)
Mean square error
2
∑ (e j )
MSE = (9)
N
 
where e j represents prediction error e j = ykj − okj , y j represents the predicted value of output and o j represents
the actual value.
Generally, the expected error is between 0.0001 and 0.01. The expected error is set to 0.001 with the help
the test.

4 Model test

After the neural network model with good fitting degree is obtained, it is necessary to test the early warning
accuracy of the established, so as to verify whether the prediction accuracy of the model meets the requirements.
First, the early warning index data of customer churn risk of sample users collected in the above survey is used
as input layer data and input into the neural network, and after the processing of the hidden layer network, the
output layer data is obtained. By comparing the output results obtained by hidden layer processing with the
actual output results, the smaller the error value, the higher the fitting degree of the early warning model based
on neural network to the variables of output. In general, the high fitting degree represents the high applicability
and generalisation ability of the early warning model.
By further transforming the output results of neural network, the risk warning grades of ten test set samples
from the model constructed can be obtained. After transformation, we can get the output results of test set
samples, and the comparison between the customer churn risk warning grades and the expected output is shown
in Table 2.
By comparing the expected output of the test set sample with the output of the early warning model based
on neural network, it can be seen that the forecast of the risk warning is in the sequence of first-level warning,

Table 2 Test results of early warning model.

Actual output Expected output Prediction result Warning level
(0, 0, 0, 1) (0, 0, 0, 1) Correct A
(0, 0, 0, 1) (0, 0, 0, 1) Correct A
(0, 1, 0, 0) (0, 1, 0, 0) Correct C
(0, 0, 1, 0) (0, 0, 1, 0) Correct D
(0, 0, 1, 0) (0, 0, 1, 0) Correct D
(0, 1, 0, 0) (0, 1, 0, 0) Correct C
(0, 0, 1, 0) (0, 0, 1, 0) Correct D
(0, 1, 0, 0) (0, 1, 0, 0) Correct C
10 Fu. Applied Mathematics and Nonlinear Sciences (aop) 1–11

first-level warning, third-level warning, fourth-level warning, fourth-level warning, third-level warning, fourth-
level warning and third-level warning. The result of actual output is completely consistent with the expected
output and so the accuracy rate has reached 100%, which means that the prediction data obtained by this early
warning model is not far from the real data, and the prediction accuracy rate of it is high.

5 Conclusion

Based on the phenomenon of customer churn in e-commerce enterprises, this study puts forward the early
warning of risk for enterprises. By summarising the related research results of customer churn theory and
risk early warning of enterprise, this paper extracts 15 risk early warning indicators about customer churn of
e-commerce, constructs the risk early warning model of e-commerce customer churn by using neural network,
and tests this model. The results show that the early warning index system of customer churn risk in China’s
e-commerce enterprises designed in this paper is scientific and reasonable. The early warning system of cus-
tomer churn risk of e-commerce platform based on neural network has excellent generality, and its prediction
accuracy is 100%, which can provide important reference value for the early warning research of customer churn
risk in the whole e-commerce industry.

Declarations

Conflict of interest

The authors declare that there are no conflicts of interest.

Funding

This work was supported by Major Educational Reform Project of Anhui Provincial Department of
Education ‘Research and Practice on the Cultivation Model of Innovative Talents Majoring in E-commerce
in Applied Undergraduate Universities’, the project number is 2017jyxm0868.

Data availability

The dataset can be accessed upon request.

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