Cluster analysis is a method used to group consumers based on similarities in their characteristics. There are two main types of clustering methods: hierarchical and nonhierarchical. Hierarchical clustering groups similar consumers together in a tree structure called a dendrogram. Nonhierarchical clustering divides consumers into segments based on a set number and minimizes a specific criterion. Popular algorithms include K-means clustering and fuzzy clustering. Different clustering algorithms have varying performance levels, and deciding on the number of clusters and validating the clusters are important considerations.