Cluster Analysis

PRESENTED BY:
AMIT SACHDEVA
ROLL NO.-43
MBA (PREV.)(GEN.)

Cluster Analysis
Cluster analysis is a class of techniques used to

classify objects or cases into relatively homogeneous

groups called clusters.
Objects in each cluster tend to be similar to each

other and dissimilar to objects in the other clusters

The diagram below illustrates the results of a survey that studied drinkers perceptions of spirits (alcohol). Each
point represents the results from one respondent. The research indicates there are four clusters in this market.

Purpose for cluster analysis

Segmenting the market
Understanding buyers behavior
Identify new market opportunities
Selecting test markets
Reducing data

Procedure

Formulate the problem

Select the variables that you wish to apply the

clustering technique to.

The set of variables should show some similarity or
difference between themselves.
Variables should be selected on the basis of past
research theory.
The sample size should be taken as large as possible.

Select a distance measure

The selected data should have either some

similarity or difference.
There

are various ways of computing distances:

Euclidean distance - the square root of the sum of
the squared differences in value for each variable
Manhattan distance - the sum of the absolute
differences in value for any variable
Chebyshev distance - the maximum absolute
difference in values for any variable

Select a clustering procedure

Sources : Marketing Research/Naresh Malhotra/Cluster Analysis/P-643

Sources : Marketing Research/Naresh Malhotra/Cluster Analysis/P-644

Decide on number of clusters

Theoretical, practical or conceptual consideration

may suggest a certain no. of clusters.

The distance at which clusters are combined can be
used as the criteria. (Hierarchical)
The relative size of the clusters should be
meaningful.

Interpret and profile the clusters

Interpreting and profiling clusters involves

examining the cluster centroids. The centroids

enable us to describe each cluster by assigning it a
name or label.
It is often helpful to profile the clusters in terms of

variables that were not used for clustering. These

may include demographic, psychographic, product
usage, media usage, or other variables.

Assess Reliability and Validity

repeat analysis but use different clustering technique

split the data randomly into two halves and analyze each part
separately
repeat analysis several times, deleting one variable each time
repeat analysis several times, using a different order each time

Thank You