Cluster analysis
In business, cluster analysis is used to segment customers, audiences, products, and markets. It’s also used to identify psychotypes, compress images, find anomalies, group objects in directories, on maps and more.
Segmentation can be based on geographic, demographic, psychographic, behavioral, and other characteristics. The key to effective segmentation is to divide customers into groups based on their perceived value to the business.
In qualitative dividing, the variation within groups should be minimal and the variation between groups should be maximal. The allocated groups should be stable and reproducible.
One of the popular clustering methods is RFM, which can divide customers into groups based on the time of their last visit, frequency, and number of purchases.
Inputs: we divide customers into several groups according to the distribution of values for recency, frequency, and monetary value.
The chart is interactive, so you can set the R, F, M values to evaluate the new clusters.
A very important step is to manage customers of different segments and within each.
Segmentation of the customer base by LTV (lifetime value) helps to determine the value of each segment and the priority for work with them. In addition, different types of clients require different approaches to maximise value from both high- and low-margin clients.
For example, customers who buy only once may become regular customers in the future, but a separate tactic is required to attract them to make repeat purchases.
It allows you to create separate marketing messages for each segment.
Learning about your customers and their expectations allows you to optimize your offers and increase customer’s satisfaction.
Segmentation of existing and potential customers enables the development of new products and services relevant to their target audiences.
Identifying customers who are generating the most revenue allows you to develop more effective customer retention strategies.
Determining the social and financial situation of your customers allows you to price your products in a way that is acceptable to them.
By optimizing expenditure on less profitable segments and focusing on the most profitable ones, you can increase profitability and reduce selling costs.
