Assignment

Research Methods of Business

In

Cluster Analysis

Submitted

by

K. Kathiresan

13MBA084

Group -1

Problem Statement:

An Indian FMCG company wants to make their profile to its target audience in terms of lifestyle, attitudes and perceptions. To measure this we are provided with the set of 15 statements which is surveyed with 20 respondents.

Objective:

The main objective of this study is to execute cluster analysis and to categorise the objects based upon the clusters.

Interpretation:

Stage 1:

Hierarchical cluster analysis is accomplished.

Purpose:

The purpose is to identify the number of clusters based on the respondents.

Agglomeration Schedule:

Thumb rule is to proceed from the bottom stage of the clusters’ coefficients.

In this the difference between the cluster combined of stage 19 and 18 is almost 3 The next stage of 18 and 17 where the difference is 2 and the next stage difference is 6

which shows the decision point to decide upon the number of possible clusters The next stage there exist a decline in the difference value of the coefficient i.e., from 6 to 3. Since we attained the cut off at stage 16, we could conclude that there are only 3 clusters.

Agglomeration Schedule

Stage Cluster Combined Coefficients Stage Cluster First Appears Next Stage

Cluster 1 Cluster 2 Cluster 1 Cluster 2

1 4 5 14.000 0 0 4

2 19 20 15.000 0 0 8

3 2 6 17.000 0 0 6

4 3 4 20.000 0 1 12

5 13 16 25.000 0 0 9

6 2 18 26.500 3 0 14

7 1 14 28.000 0 0 10

8 11 19 29.500 0 2 11

9 8 13 29.500 0 5 16

10 1 15 35.000 7 0 19

11 10 11 37.333 0 8 17

12 3 12 37.667 4 0 14

13 7 17 38.000 0 0 17

14 2 3 39.083 6 12 15

15 2 9 42.000 14 0 16

16 2 8 45.833 15 9 18

17 7 10 51.000 13 11 18

18 2 7 53.182 16 17 19

19 1 2 56.804 10 18 0

Stage 2:

K-Means cluster analysis is performed by the following steps,

Cluster Membership Distance between Final Cluster Centres ANOVA table

Cluster Membership:

Cluster Membership

Case Number Cluster Distance

1 1 4.058

2 1 3.197

3 1 3.036

4 1 4.819

5 1 3.496

6 3 3.255

7 2 4.724

8 3 3.876

9 1 4.660

10 2 4.441

11 2 3.784

12 3 4.056

13 3 3.097

14 1 3.771

15 1 4.997

16 3 4.693

17 3 4.959

18 3 5.157

19 2 2.706

20 2 3.274

In the above cluster membership table 8 respondents are grouped into

Cluster1, whereas 5 respondents are grouped to Cluster 2, and 7 respondents are grouped to Cluster 3.

The cases are grouped to corresponding clusters to do possess an ideal value of distance. From this we can conclude that the Cluster 1 has a larger number of respondents.

Final Cluster Centres - Interpretation of the Cluster Characteristics:

Final Cluster Centers

Cluster

1 2 3

I prefer to use email rather

than write a letter2 3 3

I feel that quality products

are always priced high2 2 3

I think twice before I buy

anything4 3 2

Television is a major source

of entertainment3 3 3

A car is a necessity rather

than a luxury3 3 4

I prefer fast food and ready-

to-use products5 3 3

People are more health-

conscious today3 1 4

Entry of foreign companies

has increased the efficiency

of Indian companies

3 5 2

Women are active

participants in purchase

decisions

4 2 2

I believe politicians can play

a positive role3 3 4

I enjoy watching movies 4 4 3

If I get a chance, I would like

to settle abroad3 4 3

I always buy branded

products3 2 4

I frequently go out on

weekends3 2 4

I prefer to pay by credit card

rather than in cash4 2 3

From the above table the respondents in the three clusters have a mixed characteristics towards the variables listed above. For Example,

The cluster 1, is indicated as 2 which states that this cluster agrees to the variable that they prefer email as a basis of communication rather than writing a letter.

For the same variable the clusters 2 & 3 are almost neutral to the statement. This shows that the respondents in the cluster 1 are more favoured to email than the other 2 clusters.

Similarly the entire 15 variable do hold an exclusive characteristics associate with the certain variable.

Based on these characteristics, the clusters can be differentiated in terms of their lifestyle, attitudes and perception.

Distance between Final Cluster Centres:

Distances between Final Cluster Centers

Cluster 1 2 3

1 4.188 4.304

2 4.188 5.215

3 4.304 5.215

From the above table it shows that the distance between the 2 clusters are relatively high, thus it proves that there exists a strong heterogeneity between the 3 clusters.

ANOVA:

ANOVA

Cluster Error F Sig.

Mean Square df Mean Square df

I prefer to use email rather

than write a letter3.843 2 1.324 17 2.902 .082

I feel that quality products

are always priced high3.268 2 1.177 17 2.776 .091

I think twice before I buy

anything2.705 2 1.670 17 1.620 .227

Television is a major source

of entertainment1.105 2 1.046 17 1.056 .369

A car is a necessity rather

than a luxury1.848 2 1.736 17 1.065 .367

I prefer fast food and ready-

to-use products3.286 2 1.331 17 2.468 .115

People are more health-

conscious today11.571 2 .709 17 16.315 .000

Entry of foreign companies

has increased the efficiency

of Indian companies

12.211 2 .713 17 17.115 .000

Women are active

participants in purchase

decisions

5.680 2 1.317 17 4.313 .031

I believe politicians can play

a positive role1.671 2 1.462 17 1.143 .342

I enjoy watching movies 1.223 2 1.300 17 .941 .410

If I get a chance, I would like

to settle abroad2.161 2 1.684 17 1.283 .303

I always buy branded

products3.696 2 1.621 17 2.280 .133

I frequently go out on

weekends3.696 2 1.621 17 2.280 .133

I prefer to pay by credit card

rather than in cash9.305 2 .788 17 11.815 .001

From the table it shows the significance of the variables listed above.

In this it clearly shows that the variables 7, 8, 9 and 15 are statistically significant based on the .sig value obtained.

This shows that these 4 variables are significantly involved in the responses of the objects and forms the major part for the clusters.

Business inference:

Based on the cluster analysis performed form the above-mentioned problem statement the following are inferred,

The 20 respondents are grouped into 3 clusters with a heterogeneity between the clusters.

Cluster 1:

They prefer email as a source of communication to write a letter, which means they have a fashionable lifestyle. They lead to the luxury style of living. They are highly unwilling to the consumption of fast foods and limit to disagree that women are active decision makers in purchasing the FMCG products. They have a strong idea that quality products are high in price.

Cluster 2:

The respondents neither come under the modernised lifestyle or under the traditional lifestyle. They will give much importance to the health and hygiene aspects. They also do purchase their branded products by using credit card rather than in cash. They have an idea that television is a major source of entertainment other than this they strongly disagree that the entry of foreign companies has increased. They have a perception that the quality products are priced high.

Cluster 3:

The respondents disagree that they are not the regular buyers of branded products. Also they are unwilling to the fact that officials have a positive role in the industry. They are not very much in health conscious. They shows that the consumption of fast food is neutral and they have neutral opinion towards the pricing in quality products. They agree that women play a lively role in decision making in purchase of products.