Practical Predictive Analytics

Cluster analysis

Cluster analysis has many uses. At its very basic level, a cluster is a group of people or objects that share similar characteristics. In the marketing and sales industries, clustering is important, since customers (or potential customers) can be grouped by characteristics such as average spending, frequency of purchase, and recency of purchases, and assigned a cluster that represents one single measure of the different levels contained in all of the attributes that make up that cluster. So, for our RFM example, cluster A might represent frequent purchasers who spend a lot of money, and spend often (every marketers dream). Cluster B could represent people who are just average consumers across all three of those RFM metrics, ...