Cluster analysis is a market segmentation process that identifies potential customers by various characteristics. Customers who share similar characteristics are grouped together forming clusters of customers. When you are researching a particular market for the introduction of a new product, for example, you have a reasonable expectation that customers in a particular cluster will react to your marketing efforts in a similar way.
Data collected for a cluster analysis can be described as a set of points or members that is collected into groups of similar data. For this discussion, the data points are customers with similar buying habits. If the research questions have been developed correctly, there should be little overlap between clusters of data. When collecting data for market research, you will find that there will be a group in the center of each cluster that has strong affinity for each other, and there will be potential customers that are on the outer edge of each cluster. Your goal is to gather sufficient data to accurately develop marketing that will reach potential customers.
Finding the data you need to develop your cluster analysis can be a daunting task. If you go out on the street with a clipboard and some questionnaires, you will spend a lot of time researching without gaining a true picture of the market you are seeking to enter. Through the resources of the Small Business Administration, you can find research that has already been accomplished on leading economic indicators such as employment statistics, income and household data. If you have money available to pay for market research, there are market research groups that can help you conduct your market research. There are also many organizations that post data on the Internet that may be helpful.
After you have gathered all of the your data from your market research, it is time to begin a market segmentation. Market segmentation is the grouping of potential customers by their willingness or potential interest in buying the product you are planning to sell. You must remember that customers must have not only the need or willingness to purchase your product; they also need sufficient income to become a customer. Variables that are important to your market segmentation include age, gender, home ownership or loyalty to a particular brand that you must overcome.
Once you have an accurate data set in hand, it is time to do your final market analysis. At this point, you should be looking at a specific customer base that you will target with your marketing dollars. As you look at each group of customers that you have segmented into separate clusters, are you able to see groups of potential customers that are large enough to justify targeted marketing? If you can identify a group of customers that meet the criteria you need to begin your marketing campaign, there are some specific questions your need to ask. What type of advertising would have the greatest impact on my customers? Is the customer base stable, or will people be moving away from the area? What is the potential for expanding my customer base?
Kenneth Oster's leadership experience includes an Air Force career, pastoral leadership, and business ownership in the automotive repair industry. He has a MBA from Western Governors University, and is working toward a DBA degree from Northcentral University. Oster authored the book, "The Complete Guide to Preserving Meat, Fish and Game: Step-by-Step Instructions to Freezing, Canning, Curing and Smoking."