Assignment for Puala Hogn only

Cluster analysis is a multivariate method where classification is designed to develop a particular group with the aim classify a sample of subjects (or objects) on the basis of a set of measured variables into a number of different groups. By doing this, similar items are placed in the same group. In marketing, it may be helpful to identify distinct groups of potential customers so that, for example, advertising can be appropriately targetted. One of the shortcomings of cluster analysis is that it has no mechanism for differentiating between relevant and irrelevant variables.

There are several steps in cluster analysis as listed below (E. Mooi, 2011)

i. Identification of appropriate variable – this is crucial since wrong assumptions and variables lead to wrong segmentation, therefore, wrong marketing strategies.

ii. Choosing the clustering method that brings about cluster group – This is a very crucial step since every method affects every decision prior the analysis. Methods can be either hierarchical and non-hierarchical.

iii. The third step is determining the number of steps requires – Few clusters means the easy it is to determine the marketing strategy. More clusters determine differences in segments, and this provides more marketing strategies

iv. The last step involves labeling of final clusters and results interpretation.This guarantees that the results are correct and therefore appropriate marketing strategies.

Uses of Cluster analysis

Cluster analysis can be used in the following areas: (Pawlicki, 2013)

· Market segmentation

· Examination of buying behavior on a collective rather than individual basis.

· Brands in the same cluster usually compete more fiercely with each other. A brand can use cluster analysis for strategic positioning and to identify threats and opportunities on the market.

· With a set of homogeneous geographic clusters marketers can test their strategy on one cluster, and if the strategy proves successful, it can be expanded to all other clusters of similar characteristics.

· Cluster analysis can be used as a general data reduction tool to manage individual observations.

If a company wants to increase their customer base through brand promotion and informed understanding of customer’s purchasing behavior factor analysis, provide a deep insight and effective demographic and buying behavior. In return helping in better marketing and higher sales.

There are numerous advantages of using Factor analysis in comparison to other statistical tools. First, it is cost friendly and easy to use and can be applied in different areas. Again, it can be applied to bring about dormant factors that other tools may not be able to highlight. Finally, it is possible to assign scores to various attributes in factor analysis.

Application of Multivariate in real life situation

SPSS Inc. specializes in writing software for analyzing and researching markets. It has implemented Multidimensional scaling in the soft drink Industry to show differences and similarities between various brands of soft drinks. (Babinec, 1989)

Blue Cross Blue Shield of Iowa implemented in developing groups of customers with different variations in insurance cover, and this enabled them to release products suitable for customers (Thomas, 1990)

Similarities and Differences in Multivariate Techniques

The objective of factor analysis and multidimensional scaling is to produce an ideal product for consumers which in turn increase the number of sales. They use specific groups to relate one product to the other to determine the best product. In addition, they use these results to determine the best product for a cost friendly way.

Both techniques differ by the way they analyze and achieve the response. The multidimensional analysis uses preferences from respondents. In contrast factor analysis uses presets attributes to gauge respondent’s response. The researcher’s judgment is used to analyze the data and results.

Both Factor Analysis and Multidimensional analysis results in production according to consumer’s taste. In contrast Cluster analysis segment consumers, production and retails based on specific characteristics including gender, age, ethnicity, income, frequency of usage, product price, product, types of products in a store, sale in the store and with this information generates advertising and marketing strategies while improving products for each customer base.

Cluster analysis is different from multi-dimensional scaling in that in divides data into groups or clusters and doesn’t involve using similarities or dissimilarities so as to develop a grid or configuration where they may be observed. These groups may be meaningful, useful or both. (Kumar, 2004)

Business Clustering

Clustering is not just categorizing customer base by different parameters since in industries, and business clusters are joined firms with related or unrelated industries. The relationship may be by complementary or by competition. They use the same supporting services as they are located in the same areas. They take advantage of the market opportunities by resources sharing which bring about the combined force of these businesses.

Business clustering benefits includes:

· Reduces transaction costs

· Promotes Specialization

· Enhances Exploitation one another’s specialties

· Increase rates of innovation

· Pursue joint solutions to common problems

· Build a common labor pool, technology, infrastructure

· Companies can learn jointly resulting them to become competitive

The chosen Multivariate technique

Cluster Analysis proved to be the most useful and the best technique to use in Widgecorp. This was motivated by the comparisons done out of the three techniques. Being the market leader in the snack industry, Widgecorp needs to know their consumer base, have full details of the products they are purchasing, ensure that advertisement campaigns and making are effective and identification of the market segment to ensure that they are cost-effective.

In case Factor Analysis and Multidimensional scaling are applied, there would be a slow progress since the main aim of the two techniques is to ensure design and production of perfect products. They require trends in data on markets, and the data is not available.

To increase exposure, Widgecorp has to enroll marketing and advertising campaigns for their products to encourage customers to try out the cold beverages. These two have the ability to bring profits and a good standing in the beverage and snacks industry, therefore, making them the leaders. Once this is done, the next step is concentrating all the efforts on improving the products in a cost friendly way.

Cluster analysis ensures that customers, stores and products are based on regions they are situated in and industry. The advantages are endless, and this technique makes an increase in sales, profits, supply chain, competition as well as alignment with the industry.

Below are the benefits of Cluster analysis in Widgecorp:

· Maximizes distribution and sales by segmenting customers base by the sold inventories.

· Groups consumer base in terms of age, gender, ethnicity, family status and income.

· Classified products purchase and instances with corresponding products.

· Develops marketing and advertising campaigns that target a particular customer base and in return improves sales.

· Existing and new customers are encouraged through advertisements sample Widgecorp’s products which result in more sales.

Widgecorp applies business clustering in the following ways:

· Productivity is enhanced by the sharing of research information relating to consumer’s tastes.

· Using purchasing agreements that create competitive edge rather than competition.

· Practicing competition to boost innovation and expanding product base.

· Tapping their business in other regions.

· Using their success stories to attract customers

To improve marketing in Widgecorp the following must be done:

· Doing activations in shopping malls and other public places to sensitize consumers about the existing and new products.

· Make advertisements campaigns on both printed media and television using women, children, men, and family setting to push the point home.

· Doing of promotions in retail stores.

· Make presence of advertisements on billboards on the streets

· Introduce advertisements on the internet as a campaign for publicity purpose to create positivity to new clients and drive sales.

Recommendations

First, to make it easy for the consumers, WidgeCorp may rebrand as a marketing strategy by repackaging a combination of a snack and a beverage. Secondly, by segmenting the customer base, WidgeCorp will be able to expand the production in a cost friendly way without spending so much on additional research.

Conclusion

All in all, the research concludes that cluster analysis is the best technique to use in Widgecorp. By employing the technique, the company will increase customers, production and more stores, be able to prioritize on product segmentation, enhance marketing and translate to promotions in the segments. The company will also be able to improve on meeting consumers needs and handle feedback from them. In short, this will help Widgecorp address marketing strategies which will in return increase sales and profits.

References