Customer-Centric Decision-Making with XAI and Counterfactual Explanations for Churn Mitigation

Abstract

In this paper, we propose a methodology designed to deliver actionable insights that help businesses retain customers. While Machine Learning (ML) techniques predict whether a customer is likely to churn, this alone is not enough. Explainable Artificial Intelligence (XAI) methods, such as SHapley Additive Explanations (SHAP) and Local Interpretable Model-agnostic Explanations (LIME), highlight the features influencing the prediction, but businesses need strategies to prevent churn. Counterfactual (CF) explanations bridge this gap by identifying the minimal changes in the business–customer relationship that could shift an outcome from churn to retention, offering steps to enhance customer loyalty and reduce losses to competitors. These explanations might not fully align with business constraints; however, alternative scenarios can be developed to achieve the same objective. Among the six classifiers used to detect churn cases, the Balanced Random Forest classifier was selected for its superior performance, achieving the highest recall score of 0.72. After classification, Diverse Counterfactual Explanations with ML (DiCEML) through Mixed-Integer Linear Programming (MILP) is applied to obtain the required changes in the features, as well as in the range permitted by the business itself. We further apply DiCEML to uncover potential biases within the model, calculating the disparate impact of some features.