How to Research a Market Using Cluster Analysis

by Linda Ray

Cluster analysis is a tool used by marketers to analyze their customers. Buyers are grouped into various demographic segments based on areas such as age, income and gender. Clusters also may involve promotions and special events, time of the year, products purchased and buyers' purchasing histories. The data you collect can be helpful in creating new marketing strategies.

Define your need so that you or your marketing team can gather information vital to your operations. For example, if you want to spend a limited amount of money on television advertising, you need to decide which audiences will most likely respond to your ads and what shows they are most likely to watch. You may be releasing a new product and want to know which audience will be most receptive to your offerings.

Decide which demographics affect your product or service the most. For example, while male and female buyers may provide interesting data, it may not be as useful as knowing the age group of your primary clients. According to market consultants at CAMO, most software programs only allow you to choose about six clusters to run an effective analytical program.

Devise a plan to collect information from your customers and potential buyers. You may rely on surveys, point-of-purchase information gathering or general demographic information gleaned from publicly available data such as the census or county school district records.

Purchase a software-marketing platform that can run the cluster analyses programs. Once you input the data and define the parameters of your desired outcomes, the computer applies the definitions to your groups and provides you with points at which the groups cross.

Assess the validity of the data as opposed to your own assumptions. There is a vast range of possibilities that could result from the program and you may need to adjust clusters and the way they are grouped to provide a clearer picture of the common points among your demographics. At the same time, you may find that your initial intuitive thoughts about where they all intersect were correct and the cluster analysis can confirm your suspicions.

Tip

  • The more diverse kinds of data you input into the program, the greater chance you'll have of finding commonality in the clusters. While each cluster may hold significant similarities, you are looking for the common intersection of interests among the different clusters.

Warning

  • Cluster analysis is best applied in the beginning stages of your market research activities, according to Quick MBA. The purpose should be to find the commonalities among your clusters that you already know share certain characteristics. Cluster analysis does not provide you with definitive statistics, but works better as a stepping off point for further market investigation.

Items you will need

  • Data
  • Software program

About the Author

Linda Ray is an award-winning journalist with more than 20 years reporting experience. She's covered business for newspapers and magazines, including the "Greenville News," "Success Magazine" and "American City Business Journals." Ray holds a journalism degree and teaches writing, career development and an FDIC course called "Money Smart."

Photo Credits

  • Jupiterimages/Photos.com/Getty Images