A Feature-Based Approach to Market Segmentation via Overlapping K-Centroids Clustering

The authors propose a general approach to market segmentation based on the concept of overlapping clusters, wherein each pattern of overlap can be interpreted as a distinct partition.

Abstract

Nonhierarchical partitioning techniques are used widely in many marketing applications, particularly in the clustering of consumers, as opposed to brands. These techniques can be extremely sensitive to the presence of outliers, which might result in misinterpretations of the segments, and subsequently to inferring incorrect relationships of segments to independently defined, actionable variables. The authors propose a general approach to market segmentation based on the concept of overlapping clusters (Shepard and Arabie 1979), wherein each pattern of overlap can be interpreted as a distinct partition. Both K-means and K-medians clustering procedures are special cases of the proposed approach. The suggested procedure can handle relatively large data sets (e.g., 2000 entities), is easily programmable, and hence can be gainfully employed in marketing research.