What is cluster analysis in marketing research?
The purpose of cluster analysis is to classify objects or people into several mutually exclusive and exhaustive groups in such a way that those included in a group are as similar as possible to each other (this is true in general, but techniques such as fuzzy clustering calculate probabilities of membership rather than assigning records exclusively to a single group).
Cluster Analysis has been used in marketing for various purposes
Segmentation of consumers in cluster analysis is used on the basis of benefits sought from the purchase of the product. It can be used to identify homogeneous groups of buyers.
Marketers commonly use cluster analysis to develop market segments, which allow for better positioning of products and messaging. company to better position itself, explore new markets and develop products that specific clusters find relevant and valuable. Additionally, some market research firms use cluster analysis to analyze customer perception.
The benefits of Cluster Analysis
1) Clustering allows researchers to identify and define patterns between data elements.
2) Revealing these patterns between data points helps to distinguish and outline structures that might not have been apparent before, but which give significant meaning to the data once they are discovered.
3) Once a clearly defined structure emerges from the dataset at hand, informed decision-making becomes much easier.
Cluster analysis is being used in order to solve the following marketing issues:
Market segmentation – segmentation of the consumer market (products and services), as well as industrial market segmentation.
Identification of relatively homogeneous consumer groups in order to understand their behavior.
Product positioning on the market in the view of competition.
Identification of market structure.
Recognition of relatively homogeneous markets for product testing.
Cluster analysis has many useful applications. In the field of marketing, it is widely used for market segmentation and positioning, and to identify test markets for new product development. In social networking and social media, cluster analysis is used to identify smaller communities within larger groups.
Insurance companies use it to identify groups of policyholders with the highest average claim costs. While there are various software programs to assist with the analysis portion, it is best to partner with a skilled researcher to ensure the study is designed to collect relevant data from representative and adequate sample sizes.