Atiqah Ismail

Exploratory Factor Analysis

2011

MKT3004
ANALYTICAL TECHNIQUES FOR MARKETING
EXPLORATORY FACTOR ANALYSIS

NEWCASTLE UNIVERSITY
2011

BY: ATIQAH ISMAIL

NEWCASTLE UNIVERSITY BUSINESS SCHOOL

TUTOR: MITCHELL NESS

Atiqah Ismail

Exploratory Factor Analysis

2011

1. INTRODUCTION
Factor analysis provides a set of techniques aimed to condense the dimensionality of an
original set of metric variables into a new, smaller set of composite variables which can
explain the interrelationships between the original set of metric variables, with minimum loss
of information (Hair et al., 2010).

Social studies often involve multi-item scales or constructs consisting large number of
variables with complex, multidimensional relationships. Factor analysis helps to analyse the
structure of interrelationships among those large number of variables by identifying
dimensions or factors. The main aim of this paper is to apply and conduct exploratory factor
analysis (EFA) on a scale that measures students attitudes to the importance of supermarket
features, to identify the underlying dimensions of the scale, evaluate its goodness of fit, and
to interpret the derived factors.

The following section will introduce the theory of factor analysis. Subsequently, section three
will illustrate an application of factor analysis in establishing the dimensionality of a scale
based on a research by Mai and Ness (2006). Section four will explain and discuss the
research methodology for the attitudinal measures to the importance of supermarket features.
This is followed by the presentation of the empirical results. Section six will evaluate the
marketing implications of the results. Finally, section seven will conclude with summary,
evaluation of the study and research recommendations.

Atiqah Ismail

Exploratory Factor Analysis

2011

2. THEORY
2.1. Objective of Factor Analysis
Factor analysis identifies and allows interpretation of the underlying structure of the original
data. In particular it seeks to discover if the observed variables can be explained largely in
terms of a much smaller number of variables called factors.

The two main purpose of factor analysis is data reduction and theory development; data
reduction seeks to reduce the number of variables into a smaller number of factors, whereas,
theory development is concerned with identifying structures underlying the correlations
between variables in order to classify highly correlated variables into factors (Neill, 2010).

2.2. Data Requirement

Theory development is concerned with variance-covariance matrix (see Appendix A) which
represents the variances of variables and associations between pairs of variables.

The basis of factor analysis is the correlation matrix (see Appendix B), within which the
correlation of each variable with itself and other variables are represented. Therefore, data for
factor analysis must be suitable for correlation analysis. Firstly, the original data is required to
be metric or ratio data, or at least at an interval level. Secondly, data is required to be
correlated.

2.3. The Factor Analysis Model

Factor analysis is based on the Common Factor Model (Figure 1, Equation 1) which proposes
that each original observed variable (xs) is influenced by underlying non-observable
common factors (Fs) and non-observable unique factor (es) (DeCoster, 1998).

Atiqah Ismail

Exploratory Factor Analysis

2011

Figure 1 The Common factor Model

F1

F2

x1

e1

x2

e2

x3

e3

x4

e4

x5

e5

Adapted from: DeCoster (1998)

Hence, it assumes that each p original observed variables (xs) are the linear combinations of
k non-observable common factors (Fs) and the non-observable unique factors (es).
x p=b p 1 F 1+b p 2 F 2++ b p k F k +e p
Equation (1)

Therefore, the basic model assumes that:

The original observed variables and the common factors are standardised to have a

mean of zero and a variance of unity,

The covariances between common factors are zero so that they are uncorrelated,
Common and unique factors are not correlated,
Covariances between unique factors are zero so that pairs of unique factors are not
correlated.

Atiqah Ismail

Exploratory Factor Analysis

2011

3. APPLICATION TO MARKETING
In marketing research factor analysis can be applied to facilitate the identification of factors
or dimension of scales, to use factor input as variable for subsequent analysis, and to confirm
the dimensionality of existing scales.

This section will use a study by Mai and Ness (2006) to illustrate the application of EFA in
establishing the dimensionality of a scale.

Aim of the Study

Mai and Ness (2006) aims to investigate mail-order shoppers characteristics, attitudes,
preferences and behaviour. The survey was implemented as a national survey in the United
Kingdom (UK). The study employed a mail survey on customer contacts supplied by five
mail-order specialty food companies. The study employed a stratified random sampling
method based upon the relative sizes of the firms contact lists. The survey yielded 1,028
valid responses for factor analysis.

EFA was applied to establish the dimensionality of a scale to measure satisfaction with mailorder specialty food, based on 8 features of mail-order shopping, in the form of 8-item fivepoint satisfaction scale.

Description of Data and Measures

The original variable consisted of an 8-item five-point scale concerned with the levels of
transaction satisfaction (1 = Very satisfied, 5 = Very dissatisfied). The scale is assumed to be
a metric measure.

Mai and Ness (2006) applied EFA to the 8-item five-point scale of transaction satisfaction.
The analysis employed principal components with Varimax rotation, and the extraction
criterion was to derive factors with eigenvalues greater than unity.

Atiqah Ismail

Exploratory Factor Analysis

2011

Results
Two factors were derived from the analysis (see Appendix C). Both factors account for 59%
of total variance, while communalities are generally respectable, apart from those for
catalogue presentation (0.410) and price (0.411). The first factor is most associated with, in
descending order of magnitude, ordering process (0.819), payment terms (0.801), delivery
service (0.762) and catalogue presentation (0.537) and is defined as Service satisfaction.
The second factor is most associated with, in descending order of magnitude, product
selection (0.833), product quality (0.827), price (0.553), and enquiry service (0.520) and is
defined as Product satisfaction.

Implications
The two-dimensions of the scale indicate that customer satisfaction is associated with both
service and product features of mail-order specialty food, however, satisfaction with service
transaction appears to be more important. Hence, the implication for mail-order firms is that
they need to expand their vision beyond food delivered by post, and consider in-store
specialty food that it is the high-level of customer care and service which differentiate the
mail-order product from the in-store equivalent. Satisfaction and re-purchase likelihood are
dependent on integrated features of both product and service aspects of the mail order
business

3.1. Other Applications

Factor analysis can also be used to confirm or evaluate the suitability of an existing scale to a
new body of study. For example, Dobson and Ness (2009) adopted attitude to food shopping
scale from Chethamrongchai and Davies (2000) and attitudes to time scale from Davies and
Madran (1997) to be used in their study. Dobson and Ness employed factor analysis to
evaluate the suitability of the adopted scales to their current study of students attitudes to
food shopping and students attitudes to time. Factor analysis can therefore help researchers
in employing suitable scales in their study and hence produce a more reliable and accurate
output.

Atiqah Ismail

Exploratory Factor Analysis

2011

Factor analysis can establish factors for a basis for a further research, where, subsequently,
Dobson and Ness used the evaluated measure and the post hoc factor structure from factor
analysis to form the basis of cluster analysis in exploring the existence of student segments.

4. METHODOLOGY
Data Explanation
The study employed a questionnaire survey designed to include nominal measures of
shopping behaviour, a scale of students attitudes to the importance of supermarket features,
and nominal measures of students characteristics. The survey adopted face-to-face interviews
with full-time undergraduate Newcastle University students. A convenience quota sampling
method was used to approximate student representation by gender and faculty. Subsequently
the survey yielded 731 valid responses.

Measures
The scale consists of fourteen five-point scales concerned with measuring the importance of
supermarket store features to students (1 = Not at all important, 5 = Very important). Specific
measures are identified in Appendix D.

Confirmation that Data are Metric

The use of ordinal scale (Appendix E) with explicit numerical scores and equal intervals of
unity (1) between descriptors implies that the scale is assumed to be interval and thus a metric
measure.

Confirmation that Data are Correlated

The confirmation that data are inter-correlated is indicated by a KMO index of 0.697 (0.7
rounded), classified by Kaiser (1974, cited in Ness, 2011) as middling. Additionally, the
Bartletts test of sphericity results in the rejection of the null hypothesis, indicating that data
are inter-correlated at the 5% significance level (2 (91) = 1848.233, p<.000).
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Atiqah Ismail

Exploratory Factor Analysis

2011

Explanation of factor Method

The analysis employed principal components with Varimax rotation, and the extraction
criterion was to derive factors with eigenvalues greater than unity (1). The analysis yielded a
5-factor solution (Table 1). Factor scores were generated for each respondent for subsequent
analysis. The analysis was conducted IBM SPSS 19.0 (SPSS, 2008).

5. RESULTS
Table 1 Varimax Rotated Factor Matrix for Importance of Store Attributes
Store Feature
Convenient location
Parking facilities
Pleasant atmosphere
Well-known brands
Own label products
High quality products
Value for money
Low prices
Special offers
Friendly, helpful staff
Check-out speed
Methods of payment
Cash-back facilities
Other facilities
Eigenvalue
Variance %
Cumulative variance %

Factor Number
2
3
4
.156
.114
.069
.123
.132
.161
-.010
.594
.402
.173
.769
.020
.044
.132
-.255
.066
.734
.100
.078
.098
.084
-.067
-.097
.077
.054
-.017
.095
-.026
.201
.805
.555
.043
.531
.824
.162
.024
.846
.055
.006
.088
.087
.560

1
.181
-.013
.008
.010
.601
.047
.767
.833
.757
.103
.021
.077
.003
-.020
2.754
19.669
19.669

2.219
15.853
35.522

1.370
9.787
45.310

1.312
9.368
54.678

5
-.769
.781
-.187
.099
.211
.037
-.148
-.123
-.090
-.114
.074
-.013
-.027
.291

h2
.665
.668
.550
.632
.490
.557
.634
.729
.594
.714
.597
.711
.719
.414

1.019
7.278
61.956

Notes
1.

h2 refers to communality

Report and Evaluation: Goodness of Fit

Goodness of fit is evaluated using total variance explained and communalities (h2). The
minimum acceptable value for communalities was set at 0.5 (Hair et al., 2010), the minimum
threshold for the inclusion of factor loadings consistent with the sample size 731 was set at

Atiqah Ismail

Exploratory Factor Analysis

2011

0.300 (Hair et al., 2010). Total variance explained and communalities with values greater than
0.6 are considered to be respectable for social science data (Ness, 2011).

Goodness of fit resulted to acceptable total variance of 62% and a generally respectable
communalities, apart from variable other facilities (.414). The communality for other
facilities (.414) is very weak. It indicates that only 41% of the variance in other facilities is
explained by the 5 factors, and may indicate that this attribute do not fit well with the factor
solution. However this was retained because it loaded significantly on one factor.

All measures load uniquely and significantly on at least one factor, hence contribute to the
validity of the measure. Goodness of fit indicates an acceptable fit of 14 features consisting of
1 very weak, 3 weak, 6 respectable, and 4 strong communalities. Goodness of fit is also
supported by an acceptable total variance of 61.956 indicating that 62% of all original
variables are explained by the 5 factors. The 14 original variables are replaced by 5 factors in
which the degree of data reduction is 64% and information loss of 34%.

Interpretation of Results
Factor 1 is most strongly associated, in descending order of importance, with low prices
(.833), value for money (.767) and special offers (.757). It is therefore interpreted as
Economy factor.

Factor 2 is most strongly associated, in descending order of importance, with cash-back

facilities (.846) and method of payment (.824). It is therefore interpreted as Payment
facilities factor.
Factor 3 is most strongly associated, in descending order of importance, with wide range of
well-known brands (.769) and high quality products (.734). It is therefore interpreted as
Range in quality product factor.

Factor 4 is most strongly associated with friendly, helpful staff (.805) and therefore it is
interpreted as Friendly staff factor.

Atiqah Ismail

Exploratory Factor Analysis

2011

Factor 5 is most strongly associated, in descending order of importance, with car-parking

facilities (.781) and inconvenient location (.769). It is therefore interpreted as
Accessibility factor.

Hence, in descending order of magnitude factors are economy, payment facilities, range in
quality product, friendly staff, and accessibility. Therefore, these factors represent the relative
importance of supermarket features to students.

6. MARKETING IMPLICATIONS OF RESULTS

Factor analysis was conducted to develop a measure for students attitudes to the importance
of supermarket features. The factor structure could provide strategic direction to managerial
decision-making for supermarkets seeking to cater the student segments.

Managers could shape their promotional strategies based on the identified dimensions.
Promotional strategies can be adapted to effectively attract students by focusing its core
message on economy, such as discounts or availability of quality product-range in-store. An
example of a promotional campaign can be a buy 4 for the price of 3 on its quality product
range.

Identification of Accessibility factor may assist managerial decision-making in locating a

new supermarket branch. For example, strategically locating near public transport facilities or
selecting a location which provides abundant space for car-parking facilities. Economy
factor may assist operational decision-making in the strategic selection of suppliers, for
example, selecting suppliers which enable the supermarket to provide economy and range in
quality product in its offering, efficiently and effectively. Other managerial strategies may
also include staff motivation and human resource training, in contributing to reliable shopfloor staff.

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Atiqah Ismail

Exploratory Factor Analysis

2011

However, it is important to note that the resulting factors merely indicate the importance of
supermarket features. They do not indicate students preferences.

7. SUMMARY AND CONCLUSION

The purpose of this paper is to identify the dimensions underlying the measure of students
attitudes to the importance of supermarket features. The study employed a questionnaire
survey using face-to-face interviews with full-time undergraduate Newcastle University
students. Factor analysis was conducted on 14 original variables to identify the structure of
the measure using Varimax rotation with an extraction criterion to derive factors with
eigenvalues greater than unity. The analysis resulted in a five-factor solution defined as,
economy, payment facilities, range in quality product, friendly staff, and
accessibility. Goodness of fit resulted to acceptable total variance of 62% and a generally
respectable communalities.

However, the representativeness of the findings is limited to full-time undergraduate

Newcastle University students.

This does not represent the whole student population

students, hence suggests the need for further research to extend the sample frame to a more
representative student population. For example, inclusion of undergraduate and post graduate
university students from other regions of the UK in the sample frame. The potential
significance of a wider representativeness could enable an extension of the study to include
subsequent research, such as cluster analysis, to allow the identification of student segments
and potentially allows segment profiling. This can ultimately allow more refined marketing
strategies. Moreover, the study is an exploratory research, hence merits further research.

Nevertheless, the significance of the findings can contribute valuable implication to

marketers in strategic decision-making, in establishing promotional strategies and other
managerial decision. This finding is particularly valuable, to supermarkets in Newcastle city
centre where university campus (Newcastle University and Northumbria University) and
students residence are within proximity of the city.

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Atiqah Ismail

Exploratory Factor Analysis

2011

The study is also limited to the importance of supermarket features, it does not reflect
students preferences and the extent to which these features influence their supermarket
selection, and hence the scope for further research is indeed significant.

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