Cluster analysis is a statistical method that processes data by organizing items into clusters based on similarities. In marketing, cluster analysis is useful to segment users by needs or traits. Therefore it allows us to better message and motivate customers to purchase our products or services.

During this post, I will explain how to do cluster analysis, interpret its results, and how marketers use it.

Getting data for our cluster analysis

To pick up data, you could survey or interview customers to measure their interests or perceptions. For example, price sensibility, how much do they use your products, how loyal are they too specific brands, among other questions of interest.

It’s important to use continuous variables and not discrete variables as they could skew your data analysis.

How to interpret results in your cluster analysis

After you run your data on a statistical program, you must take a look and the different possible solutions. For example, in the picture, you will see a 4-cluster solution with segments A, B, C, and D.

4 segments generated from cluster analysis
4 segments generated from cluster analysis

When looking closely into each segment, you will notice the SSE and the average results per cluster. In this case, we see data from a pet shop like age, the importance of price, purchase frequency, and pet relationship.

Output for cluster analysis segments
Output for cluster analysis segments

From here, we can build four segments and interpret the data. For example, Segment 3 are parents (around their 40s) that have considered pricing somewhat important and frequently go to purchase products for their pets as they consider them valued companions of their household.

Actionable marketing based on segmentation

Based on our pet shop case, as marketers with limited budgets, we could come up with a strategy to get the best possible ROI. For instance, we could go with an emotional messaging plan for segment 4. with that in mind our objective would be to relax their price sensibility base on their emotional relationship with their dogs, or we could focus on promotions for our segment 3 parents.

Having clear segments also helps us build customer personas and better understand the needs of our customers so we can do the best in giving them solutions.

I hope you enjoyed this week’s article. Want to learn about consumer behavior? See my last week’s post how to build a funnel strategy for a business. If you have any questions please leave a comment in the section below.

Finally, Photo by Ryoji Iwata on Unsplash