The Science and Art of Market Segmentation Using PROC FASTCLUS

Effective business development strategies often begin with market segmentation, which involves the grouping of customers and non-customers with similar characteristics. Segmentation is useful to the extent that customers within a segment have similar purchasing behavior and/or profitability that differs from customers in other segments. Many companies segment their markets and customers using a matrix approach that groups customers along two dimensions, sales and SIC code, for example. This paper describes the procedures for developing a multi-dimensional market segmentation strategy using the FASTCLUS procedure in SAS/STAT software. Data set development, data cleaning, user supplied parameters and cluster interpretation are examined using an example data set of over 60,000 businesses in California. Emphasis is placed on the blend of subjective decisions required with the development of market segments using statistical algorithms.