Factor Analysis

Need of factor analysis

The difficulties in a having too many independent
variables in predicting the response variable are :
 Increased computational time to get solution .

 Increased time in data collection .

 Too much expenditure in data collection

 Presence of redundant independent variables.

 Difficulty in making inference .

These can be avoided
using Factor Analysis
What is Factor Analysis ?
Factor analysis aims at
grouping the original
input variables into
factors which underlie
the input variables
 Theoretically

The total no of factors = total no of input

variables
But after performing Factor
Analysis
The total no of factors in
the study can be reduced
by dropping the
insignificant factors
based on Certain Criteria
.
 objective of Factor
analysis
The main objective of Factor analysis is to
 summarize a large number of underlying factors into a
smaller number of variables or factors which represent
the basic factors underlying the data.
 Factor analysis is used to uncover the latent structure
(dimensions) of a set of variables.
 It reduces attribute space from a larger number

of variables to a smaller number of factors and as such is a

“nondependent" procedure (that is, it does not assume a
dependent variable is specified).
 Applications

The main applications of factor

analysis are in marketing research.
Some of the application are as follows:
 1.Developing perceptual
maps
Factor analysis is often used to
determine the dimensions or
criteria by which consumers
evaluate brands and how each
brand is seen on each dimension.
 2.Determining the
underlying dimensions of
the data
A factor analysis of data on TV viewing
indicates that there are seven different types
of programmers that are independent of
the network offering as perceived by the
viewers: movies, adult entertainment,
westerns, family entertainment, adventure
plots, unrealistic events ,songs .
 3. Identifying market
segments; and positioning
of products;
An example of this : In a study of consumer involvement
across a number of product categories, 19 items were reduced
to four factors of :
1. Perceived product importance/ perceived importance s of
negative consequences of a mispurchase
2. Subjective probability of a mispurchase
3. Pleasure of owing/using product. The value of the product
as a cue to the type of person who owns it Each of these
factors was independent and there was no multicollinearity.
4. Testing of hypotheses about the structure of a data set.
Confirmatory factor analysis can be used to test whether the
variables in a data set come from a specifies number of factors.
 Example
Customer feedback about a two wheeler – on
the basis of 6 variables are –
 Fuel efficiency
 Life of two wheeler
 Handling convenience
 Quality of original spare parts
 Breakdown rate
 Price
 Assigning variables
 Fuel efficiency -X1
 Life of two wheeler- X2
 Handling convenience –X3
 Quality of original spare parts-X4
 Breakdown rate-X5
 Price –X6
 Factor Analysis can group
these variables as
 X1,X2,X4 and X5 – Factor 1
(Technical factor)

 X6 -Factor 2(Price Factor )

 X3- Factor 3( Personal Factor)

 Essence
 In future while conducting a
detailed study ,it is sufficient to
get opinion of the customers on
the three factors which are
obtained through factor analysis.
 Factor Analysis-The Theory

Factor analysis is a complex statistical

technique which works on the basis of
consumer responses to identify
similarities or associations across
factors. It analyzes correlations
between
variables, reduces their numbers by
grouping them in to fewer factors.
 How it Works

Factor analysis applies an advanced form of

correlation analysis to a no. of factors /
statements or attributes. If several of the
statements are highly correlated, it is thought
that these statements measure some factor
common to all of them.
A typical study will throw up many such factors.
For each such the researchers have to use
their judgment to determine what a particular
factor represents. Factor analysis can only be
applied to continuous or intervally scaled
variables.
 Factor Analysis - The Process

We now take the case of a marketing research study where factor

analysis is most popularly used. We begin by administering a
questionnaire to all consumers. What factor analysis does is it
identifies two or more questions that result in responses that are
highly correlated. Thus it looks at interdependencies or
interrelationships among data. The analysis begins by observing
the correlation and determining whether there are significant
correlations between them.
 Terminology
1.Factor Loading –
 A set of correlation of the original
variable with the factor .
 A measure of the importance of a
variable in measuring a factor ,
 A means for interpreting and labeling
a factor .
 2.Factor Score
 A number that represents each
observations calculated value on each
factor in a factor analysis.
 At the initial stage ,the respondents
assign scores for the variables. After
performing factor analysis ,each
factor assigns a score for each
respondent .Such score are called
factor score.
 3.Communality
 In factor Analysis ,a measure of the
percentage of a variable’s variation
that is explained by the factors .
 A relative high communality
indicates that a variable has much in
common with the other variables
taken as a group.
 Cluster Analysis
 An Analysis that classifies individuals
or objects into a smaller number of
mutually exclusive groups ,ensuring
there will be as much likeness within
groups and as much difference
among groups as possible .
Multidimensional scaling
 A technique that measures attitudes
about objects in multidimensional
space on the basis of respondents
judgments of similarity of objects .
 MDS is the extension of multivariate
techniques for measuring human
perception & preference.
MDS is used to measure
human perception and
preferences towards
some stimuli (object ) ,
like product,
organizations ,places
,events and positioning
them in a perceptual
space .