How is cluster analysis useful in market segmentation?

The process of market segmentation is one in which a firm
breaks its market into segments and markets its products to each of those segments in
different ways.  In order to do this, the firm must first determine what segments exist
in its market.  This is where cluster analysis comes
in.

Cluster analysis is a statistical technique that is
used to determine what sort of clusters exist in a set of data.  It tries to determine
if there are groups within a population with members who are similar to one another in
important ways and whose members are different from those
of other groups.

A firm will use cluster analysis to
determine what segments exist in its market.  It can then practice market segmentation
and market its products differently to the members of the various
groups.