Although cluster analysis is the procedure most frequently used to define data-based market segments, it is not without problems. This research addresses one of its major problems: the selection of the "best" subset of variables on which to cluster. If this selection is not made carefully, "noisy" variables that contain little clustering information can cause misleading results. To help isolate potentially noisy variables prior to clustering, the authors discuss a new algorithm, the Heuristic Identification of Noisy Variables (HINoV). They demonstrate its robustness with artificial data. In addition, the authors illustrate the potential of HINoV to yield more managerially useful market segments (clusters) when applied to two real marketing data sets. Implementation of HINoV is straightforward and will help avoid a major problem in using K-means cluster analysis for market segment definition, as well as for other similar types of research.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.