The dendrogram is a tree diagram that displays the groups that are formed by clustering observations at each step and their similarity levels. The similarity level is measured along the vertical axis (alternately, you can display the distance level), and the different observations are listed along the horizontal axis.
Use the dendrogram to view how the clusters are formed at each step and to assess the similarity (or distance) levels of the clusters that are formed.
To view the similarity (or distance) levels, hold your pointer over a horizontal line in the dendrogram. The pattern of how similarity or distance values change from step to step can help you to choose the final grouping for your data. The step where the values change abruptly may identify a good point to define the final grouping.
The decision about final grouping is also called cutting the dendrogram. Cutting the dendrogram is similar to drawing a line across the dendrogram to specify the final grouping. You can also compare dendrograms for different final groupings to determine which final grouping makes the most sense for your data.
For some data sets, the average, centroid, median, and Ward's methods may not produce a hierarchical dendrogram. That is, the amalgamation distances do not always increase with each step. In the dendrogram, such a step produces a join that goes downward rather than upward.