Clustering

Question 1

What is cluster analysis?

Answer 1

A statistical technique that can be applied to data that exhibit natural groupings

Question 2

Could you give some examples of some measures of similarity

Answer 2

Correlation coefficient, Distance measure, association coefficients

Question 3

What is one way of measuring distance?

Answer 3

Euclidean distance. Square difference between two variables

Question 4

What are the basic steps involved in cluster analysis?

Answer 4

1. Formulate the problem, select the variable you want to use as basis
2. Compute the distance between customers
3. apply the clustering procedure to distance measure
4. Decide on the number of clusters
5. Map and interpret clusters-draw conclusion-

Question 5

What is K-means clustering?

Answer 5

It is a popular algorithm used for clustering as it is simple and speedy. The user must specify the number of clusters required before starting the algorithm

Question 6

Can you go through the steps of the k-means clustering

Answer 6

1.Choose the number of clusters k
2.Generate k random points as cluster centroids
3.Assign each point to the nearest cluster centroid
4.Recompute the new cluster centroid (average of all the points in a cluster)
5.Repeat the two previous steps until some convergence criterion is met. Usually the convergence criterion is that the assignment of customers to clusters has not changed over multiple iterations

Question 7

What is the main issue with K-mean clustering?

Answer 7

It does not provide an estimate of number of clusters to use

Question 8

What is the elbow criterion?

Answer 8

It is a way of determining number of clusters to use. It states that you should choose a number of clusters so that adding another cluster does not add sufficient information

Question 9

What are the criteria frequently used to evaluate the effectiveness of the segmentation scheme?

Answer 9

Identifiability- extent to managers can recognize segments in the marketplace
Sustainability – satisfied is segments represent a large enough portion of the market to ensure profitable customization of the marketing program
Accessibility- extent to which managers can reach the identified segments through marketing campaigns
Actionability- needs of target segment are consistent with the goals and core competencies of the firm

Question 10

What is it called when you describe the clusters?

Answer 10

Profiling

Question 11

How would you categorize cluster analysis under source, methodology and objective?

Answer 11

Source: primary
Methodology: quantitative
Objectives: descriptive