Do I need to use cluster analysis to develop market segments?

Alternate ways to conduct market segmentation

The simple answer is no – there are alternative methods to forming market segments, as listed below.

  1. Using cluster analysis (discussed below and throughout this website)
  2. Using visual means to interpret a scatter chart (discussed on this website)
  3. Using a segmentation tree
  4. Based on management/marketing experience
  5. Copying/modeling competitor’s approaches to forming market segments
  6. Market research firm segments (VALS example)
  7. Arbitrarily using segmentation bases

Depends upon your marketing and data situation

Cluster analysis is simply another tool in the marketing toolbox. It may or may not be suitable for use for your firm/brand depending upon certain factors.

When cluster analysis would NOT be overly useful
  • If you do not have access to customer database information or some form of market research survey – then you simply do not have the data to run cluster analysis
  • If you have a long-standing market segmentation approach with an ongoing successful marketing strategy, then you probably do not need to run clustering as you already satisfied with your market segmentation approach – why change it if it is working well?
  • If your firm has access to consultants and market research firms, then it is likely that they will run some form of cluster analysis on your behalf
When cluster analysis would be helpful
  • If you need to come up with a revised marketing strategy – then having a re-look at your market segmentation structure will probably prove helpful
  • If you now have access to more relevant or new market research survey data
  • If you have access to a consumer database for the first time (or have added significant data)
  • If you are new to a firm and want to get an understanding of their markets and consumers – then it is probably well worthwhile using cluster analysis for your own information and knowledge development
  • If you are marketing analyst charged with identifying marketing insights
  • If your firm is looking for a new or niche market segments to enter
  • If your competitor/s appear to have adopted a different marketing approach – then cluster analysis may help you to see what they can see