CLUSTER ANALYSIS

Cluster Analysis is a technique that assigns individuals to different groups. For e.g. assigning customers to similar groups based on their profile on different variables like age, income, geographic location, gender, family size and education. This is useful in identifying similar groups that can be targeted separately in advertising and promotions. These groups are called clusters and individuals are assigned to a cluster based on their how close their values on different profiling variables are to the cluster average or ‘center’.

The graph below demonstrates how stores, outlets, dealerships or hotel locations can be clustered based on demographic structure and performance.