A machine learning framework for uplift modeling through customer segmentation

Abstract

In uplift modeling, the goal is to identify high-value customers based on persuadable customers, those who make a purchase only if contacted. To achieve this, uplift modeling combines machine learning techniques with causal inference, allowing businesses to refine their customer targeting strategies and focus efforts where they are most profitable. This study proposes a practical and reproducible two-phase procedure for identifying high-value customers. In the first phase, customers are segmented using decision trees, which offer a transparent and data-driven approach to grouping individuals with similar characteristics. This segmentation lays the groundwork for a meaningful interpretation of customer behavior. In the second phase, uplift is calculated for each customer segment by comparing the outcomes of the treatment and control groups. This enables the identification of customer groups with the highest uplift. A real-world use case further illustrates the value and applicability of the proposed method. To validate model performance, the procedure employs established metrics such as the Qini index and Cohen’s kappa, which provide insights into both the effectiveness and reliability of the uplift estimates. This work presents a decoupled procedure for uplift modeling that leverages well-established libraries, fostering transparency and a clear understanding of the analytical process. A key contribution to uplift modeling and causal inference is the use of decision trees for stratification, which enables the creation of meaningful segments and their evaluation through the average treatment effect. By integrating theory with practical implementation, this work offers a comprehensive framework for uplift modeling that bridges academic rigor and business usability.