OPERATIONAL RESEARCH

Definition of operational research

Operational research is “the body of methods which makes possible a

rational determination of the most efficient or economical solution in policy-decision
problems concerning the management of an economic or human phenomenon ,
drawing upon statistical – mathematical procedures which sometimes requires the
use of high speed computers. These methods are based upon a prior analysis of the
relationships among the technical and psychological factors in the phenomenon’s
structure, which is achieved by resources to the various appropriate scientific
disciplines”.

ORIGIN AND DEVELOPMENT OF O.R.

The term ,operations research , was first coined in 1940by McClosky and Trefthen in a
small town Bowdsey , of the United Kingdom. This new science came to existence in military
context. During world war II, military management called on scientists from various
disciplines and organized them into teams to assist in solving strategic and tactical problems,
i.e., to discuss,evolveand suggest ways and means to improve the execution of various
military projects .By their joint efforts,experience and deliberations ,they suggested certain
approaches that showed remarkable progress. This new approach to systematic and scientific
study of the operations of the system was called the Operations Research or Operational
Research.(abbreviated as O.R.)

O.R. IN INDIA

In India, operations research came into existence in 1949 with the opening of an O.R.
unit at the regional research laboratory at Hyderabad. At the same time another group was set
up in defence science laboratory which devoted itself to the problems of store ,purchase and
planning .in 1953, an O.R. unit was established in the Indian statistical institute ,Calcutta ,for
the application of O.R. methods in national planning and survey .O.R. society of India was
formed in 1957. It became a member of international federation of O.R. societies in 1959. The
first conference of O.R. society of India was held in Delhi in 1959.it was also decided to start
journals of operations research, which took a practical shape in 1963 in form of
‘OPSEARCH’. In the same year, India along with Japan became a member of international
federation of operational research societies (IFORS)with headquarters in London .
 MODELS IN O.R.
A model in O.R. is a simplified representation of an operation or a process in which
only the basic aspects or the most important features of a typical problem under investigation
are considered . Constructing a model aids inputting the complexities and possible
uncertainties attending a decision making problem,into a logical framework amenable to
comprehensive analysis. Such a model clarifies the decision alternatives ,their anticipated
effects ,indicate the relevant data for analysis the alternatives ,and leads to informative
conclusions.

CLASSIFICATION OF MODEL
Although the classification of models is a subjective problem. They may be
distinguished as follows :

MODELS BY DEGREE OF ABSTRACTION

These models are based on the past data/information of the problems under
consideration and can be categorised into (a)language models (b) case studies.

MODELS BY FUNCTION

These models consist of (a) Discriptive Models (b)Predictive Models ,and

(c)Normative Models.

DISCRIPTIVE MODELS

These models describe ,explain ,predict facts and relationships among the various activities
of the problem. These are used to describe mathematically some particular aspects of the
system being modelled. These models do not have an objective the system being modeled.
These models do not have an objective function as apart of the model to evaluate decision
alternatives. Thus, in a descriptive model it is possible to get information as to how one or
more factors charge as a result of changes in other factors.

PREDICTIVE MODELS
 These model indicates that “if this occurs then that will follow ” .they relate
independent and dependent variables and permit trying out ,’what if ’ questions. In other
words ,these models are used to predict the outcomes due to a given set of the alternatives for
the problem. These models do not have an objective function as a part of the model to
evaluate decision alternatives.

NORMATIVE (OR OPTIMIZATION) MODELS

These models provide the “best” or “optimal” soloution to the problems subject to
limitation on the use of resources. These models provide recommended courses of action. For
example , in mathematical programming ,models are formulated for optimizing the given
objective function ,subject to certain restrictions and non negativity of the decision variables.

MODELS BY STRUCTURE
These models are represented (a) IconicModels, (b) Analogue Models, and
(c) Symbolic Models.

ICONIC MODELS

Iconic model retains some of the physical properties and characteristics of the system
they represent. An iconic model is either in an idealized form of or a scaled scale version of
the system . In the other words ,such models represent the system as it is by scaling it up or
down.
Examples of iconic models are blue prints of a home , globes ,photographs , drawing, atom
etc.
Iconic models are easy to observe , build and describe but difficult to manipulate and not
very useful for the predictions. Commonly these models represent a static event.

ANALOGUE MODELS

Analogue models are more abstract then iconic ones for there is no ‘look- alike’
correspondence between these models and real life items. They are built by utilizing one set of
properties to represent another set of properties. For instance a network of pipes through
which water is running could be used as a parallel for understanding a distribution of electric
current. Graphs and maps parallel in various colors are analogue models, in which different
color correspond to different characteristics. A floe process chart is analogue model which
represents the order of occurrence of various events to make a product .

MATHEMATICAL OR SYMBOLIC MODELS

These models are more abstract in nature. They employ asset of mathematical symbols
to represent the components of the real system. These models are more general and precise.

MODELS BASED ON DEGREE OF CERTAINITY

DETERMINISTIC MODELS:
If all the parameters, constants and functional relationships are assumed to be known with
certainity when decision is made ,then the model is said to be deterministic. Thus in such a
case ,the outcome associated with particular course of action is known. That is for a specific
set of input values there is uniquely determined output which represents the solution of the
model under conditions of certainity . linear programming models are example of
deterministic models.

PROBABLISTIC (STOCHASTIC) MODELS:

Models in which atleast one parameters or decision variables is a random variable are
called probabilistic models. These models reflect ,to some extent the complexity of the real
world and the uncertainty surrounding it.

MODELS BY EXTENT OF GENERALITY

These models can be categorised into (a) specific models (b) general models.

SPECIFIC MODELS:

When a model presents a system at some specific time, it is known as a specific

model. In these models if time factor is not considered, then they are termed as static model,
and dynamic model otherwise .

GENERAL MODELS:

Simulation and heuristic models fall under general models. These models are mainly
used to explore alternative strategies which have been overlooked previously. These models
do not yield any optimum solution to the problem , but give a solution to the problem
depending on the assumptions based on the past experience.

METHODOLOGY OF OPERATIONS RESEARCH

The systematic methodology developed for operations research study deals with
problems involving conflicting multiple objectives ,policies and alternatives. O.R. in the final
analysis is a scientific methodology which is applied to the study of operations of large
complex organisation and activities with a view to assessing the overall implications of
various alternative courses of action , thus providing an improved basis for managerial
decision.

Then O.R. approach to problem solving consists of the following six steps:
1. Formulation of the problem: It involves analysis of the physical system, setting up of
objectives, determination of restriction constraints against which decision should be
adopted,alternative courses of action and measurement of effectiveness.

2. Construction of a mathematical model: after formulation of the problem , the next step
is to express all the relevant variables of the problem into a mathematical model.a
generalized mathematical model might take the form:
E = f( xi , yj )

3. Deriving the solution from the model : once the mathematical model is formulated , the
next step is to determine the values of the decision variables that optimize the given
objective function. This deals with the mathematical calculations for obtaining the
solution to the model.

4. Validity of the model : the model should be validated to measure its accuracy. That is in
the order for a model to be useful , the degree to which it actually represents the system or
problem being modeled must be established. A model is valid or accurate if (a) it
contains all the objectives, constraints, and the decision variables relevant to the problem,
(b) the objectives , constraints, and the decision variables are all relevant to ,or the
actually part of the problem, and (c) the functional relationships are valid.

5. Establishing control over the solution : After testing the model and its solution, the next
step of the study is to establish control over the solution ,by proper feedback of the
information on the variables which deviated significantly. As soon as one or more of the
control variables change significantly , the solution goes out of the control in such as
situation the model may accordingly be modified.

6. Implementation of the final results: Finally, the tested result of the model are
implemented to work. This would basically involve a careful explanation of the solution to
be adopted and its relationship with the operating realities. This stage of O.R. investigation
 is executed primarily through the cooperation of both the O.R. experts and those who are
responsible for managing and operating the system.

SCIENTIFIC METHOD IN O.R.

The scientific method in operations research consists of the following three phases:

Judgement phase: This phase includes:

(I) Identification of the real life problem.
(II) Selection of an appropriate goal and the values of the various variables related to the
goals.
(III) Appropriate scale of measurement
(IV) Formulation of an appropriate model of the problem, abstracting the essential
formulation so that the solution at the decision maker’s can be sought.

Research phase: this phase is the largest and longest among the other two. However other
two also equally important as they provide basis for a scientific method. This phase utilizes
(i) observations and data collection for better understanding of what the problem is
(ii) formulation of hypothesis and models (iii) observation and experiment to test the
hypothesis on the basis of additional data (iv) analysis of the available information and
verification of the hypothesis using pre established measures of effectiveness (v) predictions
of the various results from the hypothesis , and (vi) generalization of the results and
consideration of alternative methods.

Action phase : This phase consist of making recommendations for decision process by those
who first posed the problem for consideration, or by anyone in a position to make a decision
influencing the operation in which the problem occurred .

APPLICATIONS OF OPERATIONS RESEARCH

Some of the industrial /government / business problems which can be analyzed by O.R.
approach have been functional area wise as follows :

Finance , budgeting and investment

(a) Cash flow analysis, long range capital requirement , dividend policies, investment
portfolios.
(b) Credit policies ,credit risks and delinquent account procedures .
(c) Claim and complaint procedures.

Marketing
(a) Product selection , timing ,competitive actions.
(b) Advertising media with respect to time and cost.
(c) Number of salesman, frequency of calling of accounts etc.
(d) Effectiveness of marketing research.

Physical distribution
(a) Location and size of warehouses, distribution centres, retail outlets etc.
(b) Distribution policy.

Purchasing procurement and exploration

(a) Rules for buying.
(b) Determining the quantity and time to purchase.
(c) Bidding policies and vendor analysis.
(d) Equipment replacement policies.

Personnel
(a) Forcasting the manpower requirement, recruitment policies and assignment jobs.
(b) Selection of suitable personnel with due consideration of age and skills, etc.
(c) Determination of optimum number of persons for each centre.

Production
(a) Scheduling and sequencing the production run by proper allocation of machines.
(b) Calculating the optimum product mix.
(c) Selection location and design of the sites for the production plant.

Research and development

(a) Reliability and evaluation of alternative designs.
(b) Control and developed projects.
(c) Co-ordination of multiple research projects.
(d) Determination of time and cost requirements.

USES OF OPERATIONAL REASEARCH

Formulation of industrial problems may be generalized into different groups of classical
problems, the package programme for which is available for mechanisation and manual
solutions.
Various problem of optimization can be brought to the model of linear programme for
which solution is available. While formulating the problem, the class of the problem is to be
decided and the parameters are to be defined accordingly.
Inventory control, production planning, product mix, transportation problem, etc.,are very
common to the industries. The cost reduction with the help of these tools is very much
powerful in comparison to any other conventional method. We can enumerate the
advantages of these techniques as :

(i) Optimum use of production factors: linear programming techniques indicate how a
manager can most effectively employ his production factors by more efficiently
selecting and distributing these elements.
(ii) Improved quality of decision : the computation table gives a clear picture of
happenings within the basic restriction and the possibilities of compound behaviour
of the elements involved in the problems. The effect on the profitability due to
changes in the production pattern will be clearly indicated in the table .e.g.,simplex
table.
(iii) Preparations of future managers: these methods substitute a means for improving a
knowledge and skills of your manager.
(iv) Modification of mathematical solution: O.R. presents a possible practical solution
when one exist, but it is always a responsibility of the manager to accept or modify
the solution before its use. The effects of these modifications may be evaluated from
the computational steps and tables.
(v) Alternative solution : O.R. techniques will suggest all the alternative solution
available for the same profit so that the management may decide on the basis of its
strategies.

LIMITATIONS OF OPERATIONS RESEARCH

O.R. has certain limitations. These limitations are as follows:

(a) Magnitude of computation: O.R. tries to find out the optimal solution taking all the
factors into account. In the modern society , these factors are numerous and expressing
them in quantity and establishing relationship among these , requires huge calculations.
All these calculations cannot be handled manually and require electronic computers
which bear a very heavy cost. Thus the use of O.R. is limited to only very large
organizations.

(b) Absence of qualification: O.R. provides solution only when all the elements related to a
problem can be quantified. The tangible factors such as product, price, etc., can be
expressed in terms of quantity , but intangible factors such as human relations etc.
 cannot be quantified. Thus these intangible elements of the problem are excluded from
the study, though these might be equal or more important than quantifiable intangible
factors as far as possible.

(c) Distance between managers and operations research: O.R. being specialist job,
requires a mathematician or a statistician, who might not be aware of business problems.
Similarly a manager may fail to understand the complex working of O.R. Thus, there is
a gap between one who provides the solution and one who uses a solution. Thus, the
manager who becomes suspicious about the optimal solution. This problem is mainly of
training. Both the persons should have a working knowledge of each others job to have
better understanding of insights of the problem and its optimal solution.

CHARACTERISTICS OF OPERATIONAL RESEARCH

(i) Such a team, when confronted with a problem, determines the solution of the
problem by following inter-disciplinary approach. Every expert of the team tries
to abstract the essence of the problem and determines if the same type of problem
has been previously undertaken or not. If a similar problem has been dealt
previously then it becomes quite easy to apply the same technique to determine
the solution of current problem as well. In this way, each member of the team, by
utilizing his experience and expertise may be in a position to suggest an approach
that otherwise may not be thought of. Thus, Operational Research makes use of
experience Interdisciplinary Team Approach. It is an important characteristic of
operational research. According to this characteristic, no single individual can be
an expert on all aspects of a problem under consideration. Thus, Operational
Research utilizes the inter-disciplinary approach i.e., an Operational Research
team comprises of experts from different disciplinesand expertise of people from
different disciplines for developing new methods and procedures.

(ii) Operational Research is a continuing process. It cannot stop on the application of

the model to one problem, for this may create new problems in other sectors and
in the implementation of the decision taken. Operational Research must also
specify the organizational changes required to implement decisions and control
the result thereof. Without this, the work of Operational Research practitioner is
incomplete.

(iii) Objective. Operational Research attempts to find the best or optimal solution to
the problem under consideration. To do this, it is necessary to define a measure of
effectiveness that takes into account the goals (objective) of the organization. In
other words “Operational Research is the scientific study of large systems with a
view to identify problem areas and provide the managers with a quantitative basis
 for decisions which will enhance their effectiveness in achieving the specified
objectives.”

(iv) Operational Research increases the creative ability of a decision-maker.

(v) Operational Research is a decision-making science.

(vi) Uncovers new problems for study methods.

(vii) Examine functional relationship from a systems overview.

(viii) Operational Research gives only bad answers to the problem where only worse
could be given i.e.; it cannot give perfect answers to the problems. Thus,
Operational Research improves only the quality of the solution.

(ix) Methodological Approach. Operational Research utilizes the scientific method.

Specifically, the process begins with the careful observation and formulation of
the problem. The next step is to construct a scientific (typically mathematical or
simulation) model that attempts to abstract the essence of the real problem. From
this model, conclusions or solutions are obtained which are also valid for the real
problem. In an iterative fashion, the model is then verified through appropriate
experimentation.

(x) Operational Research replaces management by personality.

(xi) Operational Research is for operations economy. Operational Research is a

problem solving and a decision-making science. Whenever we have conflicts,
uncertainty and complexity in a situation, Operational Research can help in the
end to reduce costs and improve profits and effect substantial “Operations
Economy.”

TECHNIQUES OF OPERATIONAL RESEARCH

The techniques discussed below can be freely used by a progressive manager in
the decision making process.
1. Probability. It is rarely possible to predict the future of the business world with
complete certainty. There is always an element of uncertainty as far as the future
courses of events are concerned. The probability concepts try to analyze the
uncertainties and bring out necessary data with reasonable accuracy for the purpose of
decision making. Probabilities are of two types:

(i) Objective probability, and (ii) Subjective probability. The objective probability is a
probability for which there is a definite historical evidence and common experience.

On the other hand, the subjective probability is a probability where historical evidence
is not available and the businessman has to rely on own estimation of a situation and the
likelihood of various outcomes.

The probability of any given action must be between 0 and 1 and the sum of all these
probabilities must be 1. If the probability is ‘0’ to an occurrence, it will not take place and in
the case the probability is 1 to an occurrence, it is certain that the occurrence will take place.

2. Decision theory. The basic elements in a decision theory are:

- Alternative course of action(strategies)
- Various states of nature.
- Knowledge about the likelihood of occurrence of each state of nature.
- Net value (pay-off) to decision-maker for each outcome.
- Decision maker’s objectives.

The basic premise of decision theory is that the behavior of the future is probabilistic
and not deterministic. Various probabilities are assigned to the state of nature on the basis of
available information or subjective judgement and the likely outcomes of the alternative
courses of action are evaluated accordingly before a particular alternative is selected.

This technique of decision making is based on expected monetary value and utility. By
analyzing the monetary value of utility from a given set of circumstances, a model is
constructed and accordingly decisions are taken. It is a well-known fact that the environment
within which decisions are taken can be logically divided into three parts: certainty, risk and
uncertainty. Certainty exists when one can specify exactly what will happen when during the
period for which the decision is being made. Risk refers to a situation where one can specify a
probability distribution for the possible outcomes. Uncertainty refers to the condition when
one cannot specify the relative likelihood of the outcomes. Although some business decision
can be made under condition nearing certainty, elements of risk and uncertainty underline
most of the decisions which mangers make.

3. Linear Programming. It is a method for selecting an optimum combination

of
 Factors from a series of inter-related alternatives, each subjective to limitation. It
involves the development of linear equations to obtain the best solution for the allocation
problem. An allocation problem “...arise whenever there are a number of activities to perform
but limitations on either the amount of resources or the way they can be spent prevent us from
performing each activity in the most effective way conceivable. In such situations we wish to
allot he available resources to the activities in a way that will optimize the effectiveness”.

Linear programming consists of:

(a) The Simplex Method. This aims at maximizing or minimizing a given function,
subject to constraints in respect of each variable.

(b) The Transportation Problem. This deals with problems of matching the origins
(stores, warehouse, and factories) with the outlets (process centre, market e.t.c.) at
a minimum cost of distribution and transportation.

(c) The Assignment Problem. It can handle the problems of assigning a given number
of agents each one to the same number of tasks so as to result in maximum
efficiency or minimum cost.

4. Dynamic Programming. This technique deals with the problems that arise
in connection with multiperiod analysis and decisions. In contrast to Linear
Programming there does not exist a standard mathematical formulation of Dynamic
Programming, rather it is a general type of approach to problem solving and particular
equation must be developed to fit each individual situation. However, the basic
approach used in Dynamic programming is to break down a problem into series of
problems in such a way that answer to the first sub problem can be used in deriving
the solution to the next sub-problem and so forth finally giving solution to the whole
problem.

5. Sequencing. This method solves problem where effectiveness measure( in terms

of cost, time, mileage, e.t.c.), depends upon the sequence of performing given jobs.
This helps to determine a sequence in which given jobs should be performed if the
objective is to minimize the total efforts.

6. Game Theory. Developed by Jon Von Neumann and Morgenson, this is a

mathematical theory applicable to competitive business problems. This technique
deals with situations where two or more (finite) individuals are making decisions
involving conflicting interests. However the final decision depends upon the
decisions of the parties concerned.
7. Inventory Control and Management. Inventory problems(models) are
mainly concerned with inventory decisions, the basic inventory decisions are:

- How much to order at one time, and

- When to order this quantity.

The first decision namely – how much to order at one time, is to be balanced between
two pressures – the first pressure is to order huge lots so as to minimize ordering costs and the
other pressure is order small lots so as to minimize carrying costs. The optimum course of
action is a compromise between the two extremes. Arriving at a model for deriving the
economic order quantity (E.O.Q) can do this.

The second decision namely – when to order this quantity, is decided by ascertaining
the re-ordering level. The re-ordering level is the point lying between the maximum and the
minimum levels at which time it is essential to intimate the purchase department for fresh
supplies of the material. This point will usually be slightly higher than the minimum stock, to
cover such emergencies as abnormal usage of material or unexpected delay in delivery of
fresh supplies. Re-ordering level depends upon lead-time, rate of consumption and economic
ordering quantity.

8. Queueing Theory. Waiting lines at any service centre are common

phenomena and Queuing theory is devoted to mathematical study of waiting lines.
Various alternative models have been used to describe such situations, but they
basically share the following common features: (i) Units requiring services are
generated from an input source from different kinds of queues for service, (ii) a
service discipline by which the queue members are selected for receiving service, (iii)
a service mechanism which defines the type of service, after the completion of which
unit leaves the system or rejoins it for further processing. Many alternative
assumptions can be made about these common elements, and these give rise to the
different queuing problems.

9. Network Analysis (PERT/CPM). PERT or Program Evaluation and

Review technique and CPM or Critical Path Method are powerful management tools
for planning and control of complex jobs involving a large number of activities. A
project consists of well-defined collection of jobs or activities, some of which can be
started independently of others and all the jobs, have to be carried out in
technological sequence. The objective of PERT/CPM technique is to establish time
duration for each activity and to shorten the total duration acquired for the completion
of the project incurring the optimum cost. CPM introduces the concept of critical
path, i.e., the longest time required to complete a project and emphasizes the
reduction of the duration of the activities by the application of more resources by
obtaining a trade-off between cost and time completion.
10. Simulation. It is highly versatile technique of operational research. It has a wide-
ranging application in business situations. Simulation is particularly appropriate
where it is difficult to build a model for the real life situation mathematically or if at
all it is modeled, it is difficult to solve the model analytically. It may be noted hat
simulation is a manipulation of a model constructed from the formal statements of
mathematical representation in respect of logical relations between the elements in a
structure or a system expressed in measurable terms. Thus, simulation is a process of
designing an experiment, which will duplicate or present as nearly as possible the real
situation and then watching what does happen. In every walk of life, the test of
adequacy of our decisions is the test of our reality. However, in practical life, modern
business cannot afford the luxury of testing the consequences of the major decisions
in the real-life world. Instead of finding out the characteristics of an aircraft or a
skyscraper, by actually building or constructing it, we can simulate its performance
on the basis of its characteristics. In this way we can experiment without incurring the
cost of failure. The simulation techniques allow the modern managers to examine the
probable consequences of his decisions without the risk of real life experimentation.

11. Replacement Theory. This theory suggested the determination of the time
when items of plant should be replaced. The replacement of items is necessary
because the efficiency of an item deteriorates with time, or sometimes the item may
fail completely. Replacement, on the one hand, requires investment, on the other,
saves operating cost which otherwise is more while using old parts. Thus, a problem
arises when the part should be replaced so that cost is minimum. The replacement
problems arises in three conditions:

(i) Replacements of item that fail completely and are expensive to be replaced.
(ii) Replacement of items whose efficiency deteriorates with time: and
(iii) Replacement of items because of obsolescence.

12. Reliability. Reliability theory is concerned with quantifying the frequency of

failures and developing an indicator of quality and dependability of a product. It is
closely associated with probability theory and therefore facilitates statistical analysis
and measurement.
The assessment of reliability of equipment is most useful to the designer in improving
the quality of critical parts as well as in deciding how much to provide by way of standby.

13. Some Advance O.R. Techniques.

 (i) Non-linear programming is that form of programming in which some or all of
the variables are curvilinear. In other words, this means that either the
objective functions or the constraints or both are not in liner form. In most of
the practical situations, we encounter with non-linear programming problems.

(ii) Integer programming. Integer programming applies when the values of

decision variables are restricted to integers. Applications include Financial
Management and Plant Location.

(iii) Goal programming. Goal programming deals with the problems having
multiple objectives. It is a technique quite similar to linear programming.
Applications include production scheduling, transportation problems, portfolio
analysis and crop selection in agriculture.

(iv) Heuristic programming also known as discovery method refers to step by step
search towards an optimal when a problem cannot be expressed in
mathematical programming form. The search procedure examines
successively a series of combinations that lead to stepwise improvement in the
solution and the search stops when near optimal has been found.

(v) Algorithmic programming is just the opposite of Heuristic programming. It

may also be termed as mathematical programming. This programming refers
to a thorough and exhaustive mathematical approach to investigate all aspects
of given variables in order to obtain optimal solution.

(vi) Quadratic programming refers to a modification of linear programming in

which the objective function and constraint equations appear in quadratic
form, i.e., they contain squared terms.

(vii) Probabilistic programming also known as stochastic programming refers to

linear programming that includes an evaluation of relative risks and
uncertainties in various alternatives of choice for management decision.

14. Markov Analysis. The Markov analysis is a method of analyzing the current
movement of some variables in an effort to predict the future movement of the same
variable. Russian mathematician, A. Markov developed this analysis, early in the 20th
century. As a management tool, the Markov analysis has been used in the last few
years mainly as a marketing aid for examining and predicting the behavior of the
consumer in terms of their brand loyalty and their switching from one brand to
another. A full treatment of the application of Markov analysis to managerial decision
making would require an extensive background in mathematics. This technique,
however, can be most favorably applie
 MARKETING

THE NATURE OF MARKETING

What is Marketing? Perhaps the best way to understand the multifaceted and wide ranging field of Marketing is
to look at its various aspects.
i) Marketing requires an understanding of consumers needs and wants.
ii) Understanding consumers needs and wants requires a constant analysis and knowledge of the
market.
iii) Marketing involves matching a product to a specific market.
iv) Marketers must understand what consumers are buying.
v) Marketers must be aware of how well the needs of consumers are or can be satisfied by the
competition.
vi) Marketing recognizes the overall objectives of the firm and develops strategies that meet
those objectives within the capabilities of the firm.

An understanding of what consumers need is useless unless it is connected to what company

provides. The more specifically a given product matches the needs of its intended market, the more likely it
is to succeed, having a great technology or product is not enough to guarantee success. Knowledge of the
market and skillful marketing efforts are critical. The commercial validity of a product is determined by its
ability to attract customers. A company must understand who those customers are and what their wants and
needs are, and then it can develop a product based on the technology to meet those needs. By presenting the
solution to consumer needs, a company can find a niche in the market.

The American Marketing Association(AMA) defines Marketing as:

The performance of business activities that direct the flow of goods and services from producer to
consumer or user.

These activities include the decisions and actions of buyers and sellers in a market, or a
situation in which there is a transfer of goods and services. In a broader terms, Marketing relates to business
activities through which human needs and wants are satisfied. The Marketing concept is considered the
satisfaction of customers needs while meeting the objectives of the organization. Marketing involves
gathering information from customers and potential customers to identify the wants and needs of specific
groups of customers, then developing the product to satisfy those needs. Other crucial aspect of Marketing
are creating a distribution system that effectively gets the company’s products to its customers and
developing strategies for communicating information to customers about what the company offers.

DECISIONS ABOUT THE ELEMENTS OF

MARKETING
For all decisions marketers must consider the overall environment in which
their business organization operates. Important factors include not only the legal, cultural,
political, and economic environments of the overall society but also the company’s
corporate environment and the financial constraints in which it operates.
Marketing research is the phase of Marketing concerned with obtaining usable
information, to make it more effective it is necessary to define carefully what information
is required to make a better decision. After defining the problem, the marketers specify
the source of information to be collected and analyzed. Consumer research is another
important aspect of Marketing research, concentrates on buyer behaviour.
Segmentation is also an important aspect of Marketing. The consumers who need product
category are diverse; not everybody will want the same thing from the product category,
will want to buy it in the same place, is interested in the same kinds of features or
services. On the other hand it is not realistic to offer a unique product for each customer.
There are group of customers with similar sets of needs, and the market can be divided
into such groups. This concept is known as Market Segmentation.
Once the needs of the market are understood, the marketer considers the details of what
the company might offer. It should try to develop the product that will satisfy the needs
of the consumer in the market segment that had been identified and selected; provide the
product at a price customers are willing to pay; create a distribution system that makes
the product available to the customer in the place where it can be purchased; and
communicate the appropriate information to promote the product, making customers
aware of and interested in the product, helping them understand what the product offers,
and reminding them that the product is available.

These four elements:- product, price, promotion and place constitute the
marketing mix. They are sometimes refered to as the “four P’s of Marketing”. The
appropriate Marketing mix varies with the market targeted.

MARKETING STRATEGY
All four elements of the Marketing mix are closely related in formulating
the Marketing strategy.
Marketing planning involves establishing objectives for marketing activity, determining
and scheduling the steps necessary to achieve the objectives, and then allocating the
necessary resources.
Marketing strategy includes the activities of finding a competitive advantage, planning
for the company’s growth, analyzing the company’s portfolio and allocating the
company’s resources.
Marketing control involves a careful monitoring of the results of the Marketing plan to
ensure that the plan is achieving the objectives that were set and that it is cost-effective.

FACTS OF MARKETING
These are diverse facts of Marketing, but the tasks of Marketing remain the
same: to understand the customer, know who is involved in making a purchase decision,
and then develop a Marketing mix- product, price, distribution system, and
communication- that will satisfy those customers.

CONSUMER BEHAVIOUR

WHAT IS CONSUMER BEHAVIOUR?

CONSUMER BEHAVIOR IS DEFINED AS
“The study of the buying units and the exchange processes involved in a acquiring, consuming, and
disposing of goods, services, experiences, and ideas”

This simple definition contains a number of important concepts. First, note the inclusion in the definition of the
word “exchange”. Consumer is inevitably at the one end of an exchange process in which resources are
transferred between two parties. For example, an exchange takes place between a doctor and a patient: the
physician trades medical services for money. Other resources- such as feelings, information, and status- may also
be exchanged between the parties. Exchange process as a fundamental element of Consumer Behavior.
Exchanges occur between Consumers and Firms. Again looking at the definition the term “buying units” rather
than consumers. This is because purchases may be made by groups as well as individuals. In fact, an important
study area for Consumer researchers is organizational buying behavior.

THE EXCHANGE PROCESS INVOLVES A SERIES OF

STEPS
i) Acquisition phase
ii) Consumption phase
iii) Disposition phase of the product or service.

ACQUISITION PHASE
Researchers analyze the factors that influence consumer’s product and service choices. Indeed, most of the
researchers has focused on the Acquisition phase. One factor associated with the search for and selection of
goods and services is product symbolism- i.e., people often acquire a product to express to others certain ideas
and meanings they have about themselves
.
CONSUMPTION PHASE
Consumption phase researchers analyze how Consumers actually use a product or service and the experience
they obtain from such use. The consumption experience is extremely important for service industry. In some
industries, such as restaurants, amusement parks, and rock concert promotions, the consumption experience is the
reason for purchase.
DISPOSITION PHASE
Disposition phase refers to what Consumers do with a product once they have finished using it. In addition, it
addresses Consumer satisfaction levels after purchasing a good or service. When Consumers have unrealistic
expectations of a product, they are unlikely to realize anticipated outcomes, and they will probably be highly
dissatisfied.
Consumer Behavior is a young discipline. It incorporates theories and concepts from all behavioral sciences, so
that when studying the Acquisition, Consumption, & Disposition of products, services, and ideas, one has to
explore the discipline of Marketing, Psychology, Sociology, Anthropology, Demography, and Economics.
 WHY STUDY CONSUMER BEHAVIOUR?
Understanding Consumers and consumption process brings a number of benefits, among them the
ability to assist managers in their decision making, provide marketing researchers with a knowledge base from
which to analyze Consumers, help legislators and regulators create laws and regulations concerning the purchase
and sale of goods and services, and assist the average Consumer in making better purchase decisions. Moreover,
studying Consumer Behavior will enhance your understanding of psychological, sociological, and economic
factors that influence all human behavior.

REASONS FOR STUDYING CONSUMER BEHAVIOR

 Consumer analysis should be the foundation of marketing management. It assist
managers to:
o Design the Marketing mix.
o Segment the market place.
o Position and differentiate products.
o Perform an environmental analysis.
o Develop market research studies.
 Consumer Behavior should play an important role in the development of public
policy.
 The study of Consumer Behavior will enable one to be a more effective
Consumer.
 Consumer analysis provides knowledge of overall human Behavior.
 The study of Consumer Behavior provides three types of information:
o A Consumer orientation.
o Facts about human Behavior.
o Theories to guide the thinking process.

THREE RESEARCH PERSPECTIVES ON CONSUMER

BEHAVIOR
A key feature of the field is its research base. As a social science, Consumer Behavior employs research methods
and procedures from psychology, sociology, economics, and anthropology. To generalize, research in Consumer
Behavior is organized according to three research perspectives that act as guides in thinking about and
identifying the factors that influence consumer acquisition behavior. These three perspectives are:-
o The Decision-Making Perspective
o The Experimental Perspective
o The Behavioral Influence Perspective

TYPES OF BUYERS
Buyer Behavior is a complex topic precisely because it deals with people. People are complex, unpredictable,
and at times even irrational. They are also unique. No two buying situations are exactly alike because the buyers
are not exactly alike. Yet all buyer behavior is goal oriented; people are trying to satisfy particular needs when
they purchase and consume products and services. It is marketers task to recognize the needs of the particular
buyer and attempt to satisfy them. In every buying situation, the actual decision to buy is made by a decision-
making-unit(DMU). There are three basic DMUs, this classification is based on the process of buyer behavior,
not on the products consumed:
Individual consumers:- The decision to buy is made by the individual, and the purchase is used to satisfy a
personal need. Many buying decisions are made, and many products are consumed by an individual consumer.
Households:- Many times, a product is used by, and perhaps purchased by, a group of consumers who form a
Household. Example is a family meal.
Organizations:- Businesses, Governments, and Nonprofit Organizations are all formal Organizations. DMUs in
organizations are composed of a number of members with different roles to play.

ROLES OF BUYERS
While individual consumers make buying decisions for themselves, the purchase of households and
organizations are the results of group decision-making-processes by DMU. The role of buyers is that of :-
o Initiator
o Purchaser
o Decision maker
o Influencer
o Gatekeeper
The initiator recognizes the need for a purchase and puts the rest of the buying process in motion. Someone
actually performs the activities of purchasing the product. However the question comes “Is the purchaser also the
decision maker?” often they are not the same, in the decision making the entire DMU may be involved while the
purchase is done by only one person. Also the purchaser may have been requested by another household member
to make a purchase so there may be influencer for the purchase. A gatekeeper is a person who controls a flow of
information, there by controlling whether or not a potential customer hears about a product. This role can be
especially critical in the organizational setting.
The buyer decision
The understanding buyer behavior is the keystone to developing successful Marketing strategies; marketing
managers must have a clear understanding of the process by which buying decisions are made, whether by
individual consumers, by households, or by organizations. The steps in the buyer decision process:-

Problem recognition, information search, evaluation of alternatives, purchase decision, and postpurchase
evaluation.
Problem Recognition

Information Search

Evaluation of Alternatives

Purchase Decision
 Post purchase Evaluation

The steps in the buyer decision process

PROBLEM RECOGNITION
Consumer Behavior is rarely aimless. It is goal-oriented Behavior, even though the goals may not
be explicit to the buyer. Its objective is to contribute to the maintenance or improvement of the Consumer’s
quality of life. Consequently, there must be some stimulus that initiates the buyer decision process. The most
productive way for a marketer to look at this stimulus is as a “Consumer Problem”. A problem is Consumer’s
need or want. In broader terms, it is anything that makes it more difficult or impossible for a buyer to achieve
some objective. Consumers recognize a problem in a number of ways. Some of the common ways are:
o A currently used product or brand isn’t performing properly.
o A buyer wants to do something but can’t find a product that will do it.
o A buyer hears about or sees a product that seems to have features superior to the one
currently used.
o It is hard to find or purchase a preferred product.
o The buyer is running out of a product that is generally kept on hand.
It is important to look at Consumer problems from the standpoint of the marketer. Can the company make a
product that will solve this problem for a sizeable segment of Consumers? Even if there is no perceived need for
a new product, can it produce one that solves the problem better.

INFORMATION SEARCH
If the problem is a stimulus that leads the buyer to engage in the decision process, the next step the
buyer is likely to take is to begin to search for and accumulate information. It is easy for marketers to assume that
Consumers want to acquire a great deal of information. After all, marketers reason, Consumers will make better
decision if they have all relevant information. In fact, buyers may not make better decisions when they have large
amounts of information. Usually, however, Consumer does not seem to acquire enough information to cause
confusion. In some cases, little or no information search took place even though the purchase seemed
“important”-it was being purchased for the first time, it was expensive, or a lot of choices were available. These
characteristics suggest when the purchase is somewhat risky; information is obtained to reduce risk. when little
risk is present, it is not surprising that buyers do not spend large amounts of time acquiring product-related
information. Other factors that affect the amount of information search include the availability of information
and such variables as experience, time and financial resources available, education, occupation, age, and beliefs
about market place.
Sources of information
There are two major sources of information available to buyers- the mass media, and personal sources.
The mass media:- the mass media are all around us-from billboards to magazines to radio and television-and
carry advertising. The “average” American has the opportunity to be exposed to hundreds, if not thousands, of
ads on any given day. The mass media provide the greater quantity of information. The sheer volume of mass
media advertising has produced “clutter”, or the existence of large numbers of commercial messages, which
makes it difficult for any one communication to receive significant attention that would lead consumers to recall
it and to take intended action.
Personal sources:- Buyers perceive information from personal sources as being credible. Persons whose opinions
are highly valued and frequently sought out are called opinion leaders or influentials. They tend to be outgoing
individuals who are knowledgeable about the product and who like to try new things. The personal sources
generally provide the higher quality, or more credible, information.
Methods of information search
Buyers have a variety of ways they can go about acquiring information. The search can be internal versus
external or active versus passive.
Internal search versus External search:- Internal search involves retrieving information from the individual’s own
memory. This is obviously a quick and easy way to search for information and is usually the first kind of search.
If it is satisfactory, the search may stop there. The less the buyer knows about the product, the more he or she
may use External search. The External search covers the mass media or personal sources discussed.
Active search versus Passive search:- Active search is undertaken when the buyer has inadequate or conflicting
information or when the buyer is nearing a decision and wishes to confirm the correctness of decision. Exposure
to information not actively sought is passive search. Most mass media advertising fits into this category. The
issue for marketers is how to make passively received information, such as television commercials, compelling
enough to the passive recipient, such as television viewer, that he or she will remember the information.

EVALUATION OF ALTERNATIVES
Once the buyer feels that adequate information has been obtained, he or she can begin the process
of choosing which product or service to purchase. This choice process takes place on two levels- the product
category level and the brand choice level. Several types of product may appear to have the potential to solve the
buyer’s problem when it is first recognized. Once the product category has been chosen, the buyer evaluates the
brand within the category and chooses a specific one to buy. It is difficult to find out how buyers make the choice
between product categories, as question often does not get at the criteria buyers use to choose among such a
diverse set of alternatives. The researcher looked at two types of values-terminal, or states of being, and
instrumental, or doing- in relation to appliance purchases. Terminal values included “ being the kind of person
who wishes to have a beautiful home; being the kind of person who wishes to have a high level of physical
comfort at home”. Instrumental values included persons who go by appearance and usability. Whether the choice
be product category or brand level, buyers do not ordinarily consider all available alternatives. They seriously
evaluate only a subset of available alternatives, called evoked set this group of alternatives is made up of those of
which the buyer is aware and has sufficient positive information willing and able to evaluate.
The multiattribute model:- buyers have choice rule: “ I will consider all brands below a certain price.” “ The suit
must be conservative in style, made of high-quality materials, and a good value for the money.” The choice rules
establish the criteria by which the buyer will make the choice. Buyers also apply weights to each of the
attributes, based on the importance of the attribute to the buyer. The result is to develop an overall preference for
one of the brands in the evoked set. Buyers go through the process of weighting attributes in every buying
situation, but the intensity of the process varies. In routine purchases, the process is almost subconscious. The
riskier and more unfamiliar the buying situation, the more important and deliberate the process becomes.

PURCHASE DECISION
The purchase decision is not a simple yes or no decision. Even if the buyer
has decided to make a purchase, there are a number of sub decisions that must be made
before the product is actually bought. These includes the following:-
1. Timing:- A purchase can be made immediately or it can be deferred until some
future time.
2. Situation:- Some purchase are affected by the situation that exists when the
purchase is made.
3. Place of purchase:- The choice may be between a department store or a discount
outlet; in the suburbs or in the city; in a store with a prestige image or one with
low prices.
The marketer has two jobs in this step : presenting the buyer with the type of information
that is most relevant and presenting the information in such a way that the buyer
positively evaluates the brand.

POST PURCHASE EVALUATION

The marketer’s interest in the product and the buyer does not end with the
purchase of the product. The marketer must determine whether the buyer was satisfied or
not with the product. Buyer satisfaction increases the probability of a repeat purchase and
affects the amount and type of information the buyer informally passes along to others
about the product. The product performance is an important component of the buyer’s
satisfaction, but it is not only the component. If the buyer’s expectations are confirmed-
high expectations / satisfactory performance or low expectations / unsatisfactory
performance- existing beliefs are reinforced, and the buyer’s overall reaction is not
strong. When expectations are disconfirmed, however, buyers do tend to react strongly.
The high expectations / unsatisfactory performance situation results in an evaluation of
the product.

TYPES OF BUYING SITUATIONS

While the steps I the buyer decision process give us a way of thinking
about any buying situations can vary widely. The decision can be a difficult and complex
one-the purchase of a multimillion-dollar or so routine it can hardly be described as a
decision. In between there is a whole spectrum of decisions that require more or less of
the buyer’s attention. Three basic types of buying situations have been identified as:
o Automatic response buying,
o Limited problem solving,
o Extensive problem solving.

THREE BASIC TYPES OF BUYING SITUATIONS

Automatic Response
Behavior
Problem Recognition
Information Search
(limited internal)
Purchase Decision
Post purchase
Evaluation (very
limited)
Limited Problem
Solving
Problem Recognition
Information Search
(internal; limited external)
Evaluation of alternatives
(limited)
Purchase Decision
Post purchase
Evaluation(limited)
Extensive Problem
Solving
Problem Recognition
Information Search
(internal; external)
Evaluation of alternatives
(extensive)
Purchase Decision
Post purchase
Evaluation(extensive)

FACTORS THAT INFLUENCE CONSUMER BEHAVIOR

The factors that influence Consumer Behavior are divided into two categories-
o Internal Factors
o External Factors

INTERNAL FACTORS
At the care of any individual’s Consumer Behavior is his or her own psychological
makeup. There are number of concepts from fields of psychology and social psychology
that are critical to an understanding of Consumer Behavior. The Internal Factors include
the psychological factors as
o Needs and Motives
o Personality
o Perception
o Learning
o Attitudes
o Involvement

Now we have a brief discussion on all of them

Needs and Motives:- In psychology, needs and motives are distinct concepts. Needs
are more basic than motives and can be defined as a discrepancy between an actual and a
desired state of being. Motives are the forces that activate behaviour aimed at fulfilling
those needs. Maintaining a clear distinction between these two concepts in attempting to
understand consumer behavior, however, is difficult and impractical. The implementation
of marketing concept involves understanding Consumer’s needs and how a particular
product can meet them.
The number of specific motives that can be identified is almost unlimited. One theory
categorizes motives as either cognitive or affective. Cognitive implies knowledge and
deliberation; affective suggests an emotional response.
The same theory states that motives can be either active or passive. Active motive imply
a self-initiated action. Passive motive represents a reaction to some stimulus. According
to this classification, motives can also have as their focus either preservation or growth.
Motives that preserve cause individuals to seek to maintain the status quo. Growth, on the
other hand, implies self-development. The final category for motives is internal or
external. Internal states of being or external relationships with environment

Personality:- In general, “a few studies indicate a strong relationship between theories

of personality and Consumer Behavior, a few indicate no relationship, and great majority
indicate that if correlations do exist they are so weak as to questionable or perhaps
meaningless. Two concept related to personality- self-concept and lifestyle- have been
useful to marketers in understanding Consumer Behavior.
Self-concept:- Self-concept consists of the attitudes a person holds about himself or
herself. The products are not desired for their tangible attributes but for the need-
satisfying benefits they provide. Another way of saying this is that many products,
especially those that are visibly consumed, serve as social symbols. Consumption of
those products communicates a message, or conveys an image, to the person consuming
the product and to others around the consumer. The Consumer therefore often choose a
product that maintain or enhance his or her self-concept.
Lifestyle:- A person’s self-concept serves as the basis for his or her preferred lifestyle.
The term psychographics is sometimes used in place of lifestyle. The product and brand
choices that reflect self-concept create a lifestyle within the constraints of everyday
living.

Perception:- Perception refers to the manner in which a person selects, organizes, and
interprets the stimuli to which he or she is exposed to. In other words, perception is the
process by which a person gives meaning to the things he or she sees, hears, touches,
tastes, and smells. The perceptions developed through exposure to a stimulus are the
result of more than just the stimulus itself. They are affected by person’s mood, motives,
personality, and the social and physical context of the exposure, among other variables.
Two aspects of perception have been identified as being of particular importance to
marketers. They are perceptions of price and perceived risk.

Learning:- Learning is an essential element of Consumer Behavior; virtually all

consumer behavior is learned behavior. Psychological definitions of learning, and
theories that support them, are quite complex. For our purposes it is adequate to consider
learning as “a relatively permanent change in behavior occurring as a result of
experience. The three buying situations have learning theory as their basis. When the
Consumer have little or no relevant experience on which to draw in making a purchase
decision, he or she will generally engage in extensive problem solving unless the
purchase is trivial and unworthy of the effort involved in complex decision making. The
description of the learning process in Consumer Behavior makes one crucial assumption:
that the product purchase and use experience is a satisfactory one.

Attitudes:- An attitude is “a learned predisposition to respond in consistently favorable

or unfavorable manner with respect to a given object.” Attitudes are formed or adjusted
by what is learned from families and other social groups, from information received, and
from behavior. Attitudes are affected by the personality of the individual, and they differ
in their intensity and importance to the individual. Attitudes are generally thought to be
made up of three components- cognitive (knowledge and beliefs), affective (feelings and
emotions), and conative (behavioral intentions).

Involvement :- Involvement is the intensity of interest with which Consumers

approach the market place. It is a characteristic of the Consumer, not the products.
Consumer react to Marketing stimuli very differently, depending on whether they are
highly involved or not. The higher the degree of involvement, greater the time, attention
and activity the Consumer will give to each step in the buyer decision process.

EXTERNAL FACTORS
The overall society in which a Consumer lives has considerable effect on Consumer
Behavior. The beliefs and values and indeed, the world view that an individual holds are
learned and transmitted within the societal framework. The effect of those values is often
difficult to assess because they are deeply, almost unconsciously, held. They are also
enduring, changing slowly, even in the face of major technological and social change.
The various sociocultural factors, then have a tremendous effect on people’s behavior as
consumers. The external factors can be categorized as
o Sociocultural factors
 Societal values
 Economic factors
 The media
 Reference groups
o Demographic characteristics
 Age
 Gender
 Income
 Educational level
  Occupation
 Social class
 Ethnic group
 Place of residence

Now we have a brief discussion on all of them

Sociocultural Factors

Societal Values :- Values are desired end-states, or the states of being individuals
desire to achieve. As such, they describe the goals of society and of sub-groups within
that society. Values also play an important role in defining what we as individuals and as
a society should do. Types and Levels of values can be described as
Cultural values-“ Enduring beliefs concerning desired modes of behavior.”
Consumption-specific values- “ Beliefs relevant to specific social, personal, and other
activities.”
Product-specific values-“ Evaluative beliefs about product attributes.”

Economic Factors :- Demand for a product or service is created by two economic

factors: ability to buy and willingness to buy. Ability to buy is affected by Consumer
income, which, in turn, is affected by the level of economic activity. The attitudes that
Consumers hold toward current and future economic conditions play a major role in their
willingness and intentions to spend, to save, or even to dis-save. These Consumer
intentions are so important that they have been identified as a leading indicator of
national economic well-being. The economic factors that have a direct impact on
Consumer plans to spend or save include:-income, prices, cost of credit.

Media :- Marshal McLuchan says that “ the medium is the message.” While that may be
an overstatement, it makes an important point: the media vehicle chosen by advertisers
conveys a message to the consumer that goes beyond the actual advertising content.
Media is categorized as either “hot” or “cool”. A hot medium like television provides a
great deal of both auditory and visual sensory data. Movies, another hot medium can be
produced in 3-D, adding an even greater impact to visual stimuli. Cool media like a
newspaper or the telephone convey less data, because they usually involve only one
sense. The medium itself is not the only factor that influences a consumer’s reception of
the message the advertiser wishes to convey.

Reference Group :- A reference group is “ that group whose presumed perspectives or

values are being used by an individual as the basis for his or her current behavior.” While
we often think reference group as consisting of persons who have face-to-face interaction
with one another, this definition correctly implies that an individual need not have
personal contact with a group used as a reference point. Any group whose existence
affects the way the individual thinks and behaves is a reference group. Three types of
reference groups are especially important to an understanding of Consumer Behavior-
Membership groups, Aspirational groups, Avoidance groups.
Demographic Characteristics

Age :- Age is directly related to a variety of biological and sociological processes, it

strongly affects the consumption of a wide variety of products and services. Age is
assuming increasing importance to marketers at present because the age consumption of
our population is changing. There are many ways in which the marketers are reacting to
an ageing population. Many are recognizing this factor as an opportunity and are creating
products for older consumers.

Gender :- Biological gender also has a great impact on consumer behavior. Beyond
products serving the obvious physiological differences in males and females, it exerts
influence in two ways: by prescribing certain culturally ingrained ways of thinking and
behaving, and by its effect on an individual’s sense of self, or self-concept.

Income :- The income for an individual or a household clearly determines ability to

spend for Consumer goods and services. Those in the lower income categories spend a
large portion of their earnings on subsistence items, such as food, housing, and clothing.
Those in higher income categories have greater amounts available for discretionary
spending and are a prime target for marketers of a wide variety of goods and services.
People in lower income categories are disproportionately less well educated, older, and
single heads of household.

Educational level :- A Consumer’s education level has both direct and indirect effects
on his or her buying behavior. Some products and services, such as personal computers
and opera tickets, are more heavily consumed by better-educated Consumer. In general,
the educational level influences tastes, lifestyle preferences, and the ability to search for
and process information.

Occupation :- Occupation is strongly related to level of education. It too has direct and
indirect effects on Consumer Behavior. Clothing appropriate for a particular work
situation is one direct effect. The indirect effects are probably an outcome of both the
types of people and situations experienced at work and the ability to communicate on the
job.

Social class :- Income, Educational level, and Occupation are combined to create a
measure of social class. It does not seem to be as influential in other product categories.
Some study found that income alone, unconnected with such factors as social class and
education level provide a better explanation for expenditures on major appliances that
were not considered status symbols.

Ethnic group :- Differences in Consumer Behavior that are related to ethnicity may go
far beyond product preferences. Ethnicity has also been linked to exposure to
information, innovativeness, and patterns of information transfer. It may also be related
to the importance and meaning Consumers attach to various products. In addition the
foreign-language media, both national and local, give marketers the ability to reach ethnic
groups with culturally appropriate appeals for mass-market or specialized products. In
this light ethnic groups will be an important consideration in forming strategy for a wide
variety of products long into future.

Place of residence :- It designates a region of the country, or it can refer to the urban/
suburban/rural concentration in an area. The population in different geographical regions
are growing at different rates, since the lifestyle of the people is based to a considerable
extent on outdoor living and a generally slower pace, the implications for Consumer
Behavior are enormous. So the marketers must be aware of lifestyle trends in the region
tom provide the products that consumers want.
 MODEL OF CONSUMER BUYING BEHAVIOR

Field 1
Field 2
Message Attitude
Firm’s Consumer’s
Attribute Attributes
Search
Exposure
s Evaluati
Motivation

Feo
Decision or Action Field 3

Purchasing Behavior

Consumption Field 4

A model of Consumer Buying Behavior is based on four Postulates

POSTULATES

1. the rate of change of the level of buying (B) of a brand X at time t is a function of
the level of Consumer’s Motivation (M) towards that brand and the level of
buying (B) at time to.

2. The level of a Consumer’s Motivation (M) towards brand X at time t is a function

of the level of a Consumers Attitude (A) towards that brand X at time t.

3. The rate of change of the level of Consumer’s Attitude (A) towards brand X at
time t is a function of his level of buying (B) of that brand, of the level his attitude
(A) towards that brand & of the level of communication (C) all at time t.

4. The level of Communication (C) at time t is not a variable of the consumer

decision process but is rather an exogenous variable (determined by the firm
selling brand X).

Equations of postulates
1) Motivation has no units whereas buying has no unit
 dB(t)  [M(t)-  B(t)]
dt
B(t) has dimension ,  is a constant
dB(t) = b * [M(t)-  B(t)]
dt
2) M(t) =m *A(t)
m is a constant (fraction of people will be motivated )

3) dA(t) α [B(t)-  A(t)] +C1’(T)

dt
Attitude has no dimension  makes it dimension
Attitude in future will be as dA(t) = a* [B(t)-  A(t)] +cC1’(T)
dt
4) C(t) = Ĉ

Coefficient a, b, , , c, Ĉ are constant and independent of time

If 1/ <0 the level of buying will decrease as the motivation towards it increases. M is
dimension less b is in Rs. Therefore  in expression has dimension as 1/Rs. This
coefficient  summarizes the social, psychological mechanism described in field 3 of the
diagram. The coeff. B in equation (1) determines how rapidly the consumer will resolve
the conflict b/w the level of buying (B) times  & the level of motivation (M). if B is in
Rs. Then b is in Rs./t & is taken as +ve. The analogous meaning & interpret coeff. &a.
however the coeff. C in eqution (3) determines the impact of advertising (C) on the rate
of change in the level of attitude towards the advertised brand. This coeff. Summarizes
the psychological mechanism of subfeild 2 of field 1. since C is measured in Rs. The
dimension of c is 1/ t*Rs. In equation (6) the absence of external influence such as
advertising C is equal to 0 or when its impact is 0 then the coeff.  is establishes the
relation B =  * A or A = B/ thus the coeff. 1/ measures the level of attitude that will
be generated by a purchase. We may call it the behavior coeff. Since B in Rs. A is
dimension less  is expressed in Rs.
 COMPANY PROFILE

With its presence virtually in all the important centres of the country, Punjab
National Bank offers a wide variety of banking services which include
corporate and personal banking, industrial finance, agricultural finance,
financing of trade and international banking. Among the clients of the Bank
are Indian conglomerates, medium and small industrial units, exporters,
non-resident Indians and multinational companies. The large presence and
vast resource base have helped the Bank to build strong links with trade and
industry.

Punjab National Bank is serving over 3.5 crore customers through 4525
Offices including 432 extension counters - largest amongst Nationalized
Banks. The Bank was recently ranked 21st amongst top 500 companies by
the leading financial daily, Economic Times. PNB's attempts at providing
best customer service has earned it 9th place among Indias Most Trusted
top 50 service brands in Economic Times- A.C Nielson Survey. PNB is also
ranked 248th amongst the top 1000 banks in the world according to "The
Banker" London.

At the same time, the bank has been conscious of its social responsibilities
by financing agriculture and allied activities and small scale industries (SSI).
Considering the importance of small scale industries bank has established 31
specialised branches to finance exclusively such industries.

Strong correspondent banking relationship which Punjab National Bank

maintains with over 200 leading international banks all over the world
enhances its capabilities to handle transactions world-wide. Besides, bank
has Rupee Drawing Arrangements with 15 exchange companies in the Gulf
and one in Singapore. Bank is a member of the SWIFT and over 150
branches of the bank are connected through its computer-based terminal at
Mumbai. With its state-of-art dealing rooms and well-trained dealers, the
bank offers efficient forex dealing operations in India.

The bank has been focussing on expanding its operations outside India and
has identified some of the emerging economies which offer large business
potential. Bank has set up representative offices at Almaty: Kazakhistan,
Shanghai: China and in London. Besides, Bank has opened a full fledged
Branch in Kabul, Afghanistan.

Keeping in tune with changing times and to provide its customers more
efficient and speedy service, the Bank has taken major initiative in the field
of computerization. All the Branches of the Bank have been computerized.
The Bank has also launched aggressively the concept of "Any Time, Any
Where Banking" through the introduction of Centralized Banking Solution
(CBS) and over 2409 offices have already been brought under its ambit.

PNB also offers Internet Banking services in the country for Corporates as
well as individuals. Internet Banking services are available through all
Branches of the Bank networked under CBS. Providing 24 hours, 365 days
banking right from the PC of the user, Internet Banking offers world class
banking facilities like anytime, anywhere access to account, complete details
of transactions, and statement of account, online information of deposits,
loans overdraft account etc. PNB has recently introduced Online Payment
Facility for railway reservation through IRCTC Payment Gateway Project and
Online Utility Bill Payment Services which allows Internet Banking account
holders to pay their telephone, mobile, electricity, insurance and other bills
anytime from anywhere from their desktop.

Another step taken by PNB in meeting the changing aspirations of its

clientele is the launch of its Debit card, which is also an ATM card. It enables
the card holder to buy goods and services at over 99270 merchant
establishments across the country. Besides, the card can be used to
withdraw cash at more than 25000 ATMs, where the 'Maestro' logo is
displayed, apart from the PNB's over 898 ATMs and tie up arrangements
with other Banks.

 
 Housing Loan
EMI Calculator  

PNB reaches out to you with fast, friendly and most convenient home loans for:
 Construction or purchase of house/ flat.
Purchase of house/ flat on First Power of Attorney basis from the original
allottee.

Carrying out repairs/ renovations/ additions/ alterations to existing house/

flat.
Special Feature- To cover the loan outstanding, life Insurance cover is
  also available on payment of one time premium which can also be
financed by the Bank.

   Extent of loan

Individual

For construction/purchase of house/ flat: 80% of the cost of construction of

house or purchase of house/ flat .
For carrying out repairs/ renovation/ additions/ alterations: 80% of the
estimated cost subject to maximum of Rs. 20lacs.
Loan upto Rs.10 Lacs for purchase of Land/Plot.
Loan is available maximum upto Rs.2 Lacs for furnishing.

   Security

Mortgage of property for which finance is being given.

In case of purchase of house/ flat from housing board/ society where
mortgage cannot be created immediately, a tripartite agreement shall be
executed amongst the housing board/ society, borrower and the Bank.

In case of purchase of house/ flat on first power of attorney, additional

security equal to 125% of the loan amount by way of mortgage of some
other property or pledge of bank's FDR/ LIC policy/ Govt. Securities, NSCs,
KVPs, IVPs, / PSU Bonds etc. has to be provided.

  Rate of Interest  

RATE OF INTEREST UNDER FIXED OPTION :

Rate of Interest @
percent p.a.
TENOR
For loans repayable in/upto Effective from
08.01.2007
 10.25
i) Upto 5 years
ii) Above 5 & upto 10 years 11.00
iii) Above 10 years & upto 20 11.25
years
iv) Above 20 years & upto 25 11.75
years

RATE OF INTEREST UNDER FLOATING OPTION :

Rate of Interest @
percent p.a.
TENOR
For loans repayable in/upto Revised w.e.f
08.01.2007
09.00
i) Upto 5 years
ii) Above 5 & upto 10 years 09.25
iii) Above 10 years & upto 20 09.50
years
iv) Above 20 years & upto 25 10.00
years

* Lower Rate of Interest under Housing Finance Scheme in respect

of employees of identified 23 Public Sector Undertakings listed
below:

1  Gas Authority of India Ltd. (GAIL)

2  Bharat Heavy Electrical Ltd. (BHEL)
3  National Thermal Power Corporation (NTPC)
4  Oil & Natural Gas Commission (ONGC)
5  Oil India Ltd. (OIL)
6  Container Corporation of India
7  Bharat Electronics Ltd. (BEL)
8  Mahanagar Telephone Nigam Ltd. (MTNL)
9  Bharat Sanchar Nigam Ltd. (BSNL)
10   Bharat Earth Movers
11   Indo Burma Petroleum (IBP)
12   Dredging Corporation of India Ltd.
13   Neyveli Lignite Ltd.
14   Air India
15   Indian Airlines
16   MRPL
17   Kudermukh Iron Ore Ltd.
 18   Coal india Ltd.
19   Inderprastha Gas Ltd. (JV of BPCL / GAIL)
20   Maruti Udyog Ltd.
21   Indian Oil Corporation
22   Engineers India Ltd.
23   Shipping Corporation of India

Option for Fixed or Floating Rate of Interest exercised by the

borrower will not be allowed to be changed for a minimum period of
3 years, whereafter any change would be at the discretion of the
Sanctioning Authority.

  Repayment

Loan is to be repaid in equated monthly installments within a period of 25 years or

before the borrower attains the age of 65 years.

  Disbursemen
t

For outright purchase of house/ flat, the loan amount will be paid in
lumpsum to the vendor.
For house/ flat under construction, the loan amount will be disbursed in
stages as per progress of construction/ demand by selling agency.
http://www.pnbindia.com/r_housing.htm

Personal Loan Scheme For Public

EMI Calculator
  Eligibility

i) All permanent Defence Personnel including officials of Military Station Headquarters,

BSF, CRPF, CISF, ITBP

ii) Confirmed/permanent employees of Central/State Govt/PSUs and all reputed

companies/Institutions, who are drawing their salary through accounts maintained with
our branches.

Employees of above categories under ‘check-off facility’ OR having minimum annual

income of Rs.3.00 lac.

iii) Professionally qualified Doctors viz. MBBS, BDS & above having annual income of
Rs.3.00 lac & above.

  Purpose

To meet all types of personal needs.

  Minimum Net Monthly Income

- Rs.8500 per month for eligible customers at Metro Centres;

- Rs.7000 per month for eligible customers at Urban Centres; and
- Rs.5000 per month for eligible customers at Semi-Urban and Rural Centres.

However, for Teachers, Army Jawans, other permanent employees of Military Station
Headquarters and Para Military Personnel whose salary is being credited and disbursed
through our branches the minimum Net Monthly Income criteria shall be Rs.5000/- at all
Centres viz. Metro, Urban, Semi-Urban and Rural.

  Nature & Amount

Term Loan/ Overdraft – Minimum amount of loan will be Rs.10,000/- and maximum
amount of loan Rs.3,00,000/- or 30 times monthly net salary, whichever is lower,
depending upon the repaying capacity.

 Margin

Nil

 Repayment Period

60 Equated Monthly Instalments (EMIs) OR remaining period of service, whichever is

earlier. Instalment to commence one month after disbursement of loan.

However, loan allowed to Army Jawans, other permanent employees of Military Station
Headquarters and Para Military Personnel shall be Repayable in maximum 36 Equated
Monthly Instalments or remaining period of stay at the particular posting, whichever is
lower.

  Rate of Interest
For employees whose salary is being
12% p.a.
disbursed through our branches and employees under check-off facility
For others having annual income of
13% p.a.
Minimum Rs.3.00 lac

  Security

Suitable guarantee acceptable to the Bank.

 CHECKLIS
T

While applying for the loan, the borrower is required to furnish the following
information/papers:

1. Loan application form, duly completed, on Bank’s format with photograph

2. Proof of Income:
Salaried Class : Salary Certificate issued by employer (indicating gross and net salary) /
Income Tax Return; Statement of Bank account for last six months.
For Professionally Qualified Doctors: Income Tax Return for the last 2 years
3. Age proof
4. Address Proof / ID Proof
5. Any other information which may be necessary, as per the requirement of each case

Professional Loan Schemes

EMI Calculator
PNB extends assistance to self-employed persons, firms and joint ventures of such
professional persons engaged in professions such as:

Medical practitioners including dentists, chartered accountants, cost accountants,

practicing company secretaries, who are not in regular employment of any employer,
accredited journalists or cameramen who are free lancers, i.e. not employed by a
particular newspaper/magazine, lawyers or solicitors, engineers, architects, surveyors,
construction contractors or management consultants or to a person trained in any other
art or craft who holds either degree or diploma from any institution established, aided or
recognised by Government or to a person who is considered by the bank as technically
qualified or skilled in the field in which he is engaged. Loans under this scheme may be
granted for the purpose of financing purchase of equipment used by the borrowers,
business premises, construction, making alterations or renovation of business
premises/nursing homes or for working capital requirements, in their professions.

  Eligibility

Persons already practicing or new entrants in various professions, having

licenses issued under Central or State Legislations;
Associations of persons engaged in a single profession provided that each
member of such an association is qualified and duly licensed to practice in
the profession; and
The qualified professionals will be required to produce a certified copy of the
license for the record at the bank.

  Amount of
Loan

Need based on merits within the overall permissible limits as under:

                                     Metro/ Urban                            S.Urban/Rural Area

1. Medical practitioners    Rs 5.00 lac                                   Rs 10.0 lac

2. Other professionals      Rs 5.00 lac                                   Rs    5.00 lac

Margin: Nil up to Rs.25000/-.  25% Above Rs. 25000/-.

  Security

Hypothecation/Mortgage of the goods purchased/created with the amount of

 loan till the final adjustment of bank's loan and interest thereon.
Collateral security by way of immovable properties or acceptable third party
guarantee in case of advances above Rs. 25000/-.

  Rate of
Interest

For loans granted on or after 01.06.2003

Loans up to Rs. 2 lac: (PLR/PTLR)% p.a.*

Loans above Rs. 2 lac:
           Working Capital (PLR+2.00)% p.a.*
            Term Loans (PTLR+2.00)% p.a.*

* Subject to change.

  Repayment

Term Loan

Loans up to Rs.50000/- 48 months

Loans beyond Rs.50000/- 60 months

Working Capital loans are renewable every year.

  Disbursemen
t

Payments will be made direct to the suppliers/ dealers. In case of construction of the
premises, the loan may be disbursed in phases after verifying the end use in terms of
the plan as also at the spot.

Personal Loan Scheme for Pensioners

ELIGIBILITY

All types of pensioners who are drawing their pension through our branches are
eligible. This includes pensioners and Ex-employees of our Bank. PNB’s pre
1986 retirees who are getting ex-gratia are also eligible.

Further, pensioners whose pension is being received by the Bank through

Department of Pension Disbursing Office (DPDOs) may also be allowed loan
under the Scheme.

PURPOSE

To meet personal needs including medical expenses.

LOAN AMOUNT

- Maximum Rs.1,00,000/- (Rupees one lac only) or amount equivalent to 18

months' net pension, whichever is lower.

- For Pensioners above the age of 75 years, the maximum amount of loan would
be Rs.60,000/-.

MARGIN

Nil

RATE OF INTEREST (as on 01/01/07)

Repayable in less than 03 years

BPLR minus 0.25 (presently 11.50%).

Repayable in 03 years and above

BPLR minus 0.75 + Term Premia 0.50 (presently 11.50%).

PROCESSING FEE

Nil

SECURITY

Guarantee of spouse eligible for family pension to be obtained or of any other

family member of means OR a third party guarantee acceptable to the Bank.

Scheme For Finance Against Mortgage of Immovable Property

PNB has introduced a new scheme for providing finance against mortgage of
immoveable property situated in Metro/Urban/semi Urban centres, which is designed to
offer instant solutions relating to business needs or for personal needs such as,
children’s higher education, travel, daughter’s marriage, medical emergencies etc. Loan
is, however, not available for speculative purposes

  Eligibility & purpose  

 Employees of Central/State Govt./Schools/Colleges/Public Sector

Undertakings (PSUs)/Reputed Corporates for meeting their
personal/business needs.
 Business Enterprises for meeting their business needs.
 Schools/Educational Institutions

  Amount of
loan
 

Term Loan / Overdraft

Minimum Loan:- Rs. 2 Lacs

Maximum Loan:- Rs.100 Lacs
Income of spouses taken into consideration for determinating loan available.

  Security  

Equitable mortgage of non-encumbered residential house/flat, commercial or

industrial property, in the name and possession of the borrower. The property
should be of value equal o 150% of the loan amount.

  Rate of
interest
 

Nature of Loan Revised Rate of Interest

Overdraft BPLR + 1.50%
Term Loan BPLR + 1.50% *

* This is subject to change.

  Repayment
Period
 

 Loan amount together with interest is to be repaid in max. 72 equal monthly

instalments.
  Overdraft facility is to be renewed / reviewed annually

  Area of operation  

All the branches of PNB.

ACKNOWLEDGEMENT

I would like to thank all those people who contributed to this project from
the very beginning till its successful completion.
First of all I wish to express my gratitude to Mr. S.C Malik
(AGM-HRD ) for allowing me to undertake the project that has certainly
enriched my work experience.
I also thank Mr. Sanjiv Verma (Sr. Manager Organisation Study Cell) for his
enlightening guidance, and the keen interest shown in me throughout the
project.
I would like to thank Mr. P.K. Kapoor who gave me proper guidance and
helped me throughout my project.
I am also very thankful to all my faculty members and my friends who
helped me to do this project in efficient manner.

kavita
Msc. (Final) Operational Research
Department Of Operational Research
Faculty of Mathematical Sciences
University of Delhi
Delhi-110007

CERTIFICATE

This is to certify that the Project Report titled “ TO STUDY CONSUMER

BEHAVIOUR TOWARDS LOAN ” is my original work carried out at
“PUNJAB NATIONAL BANK.” in the year 2006-2007; and this has not
been submitted to any other University or Institution for the award of any
Degree or Diploma.
 KAVITA
MSc.(Final) Operational Research
Department Of Operational Research
Faculty of Mathematical Sciences
University of Delhi
Delhi-110007

Prof (Ms) Manju Lata Agarwal

Head,
Department Of Operational Research
Faculty of Mathematical Sciences
University of Delhi
Delhi-110007

FACTOR ANALYSIS

Overview
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 "non-dependent" procedure (that is, it does not assume a dependent
variable is specified). Factor analysis could be used for any of the following purposes:

* To reduce a large number of variables to a smaller number of factors for modeling

purposes, where the large number of variables precludes modeling all the measures
individually. As such, factor analysis is integrated in structural equation modeling (SEM),
helping create the latent variables modeled by SEM. However, factor analysis can be and
is often used on a stand-alone basis for similar purposes.

* To select a subset of variables from a larger set, based on which original variables
have the highest correlations with the principal component factors.

* To create a set of factors to be treated as uncorrelated variables as one approach to

handling multicollinearity in such procedures as multiple regression

* To validate a scale or index by demonstrating that its constituent items load on the
same factor, and to drop proposed scale items which cross-load on more than one factor.

* To establish that multiple tests measure the same factor, thereby giving justification
for administering fewer tests.

* To identify clusters of cases and/or outliers.

* To determine network groups by determining which sets of people cluster together

(using Q-mode factor analysis, discussed below)

A non-technical analogy: A mother sees various bumps and shapes under a blanket at the
bottom of a bed. When one shape moves toward the top of the bed, all the other bumps
and shapes move toward the top also, so the mother concludes that what is under the
blanket is a single thing, most likely her child. Similarly, factor analysis takes as input a
number of measures and tests, analogous to the bumps and shapes. Those that move
together are considered a single thing, which it labels a factor. That is, in factor analysis
the researcher is assuming that there is a "child" out there in the form of an underlying
factor, and he or she takes simultaneous movement (correlation) as evidence of its
existence. If correlation is spurious for some reason, this inference will be mistaken, of
course, so it is important when conducting factor analysis that possible variables which
might introduce spuriousness, such as anteceding causes, be included in the analysis.

Factor analysis is part of the multiple general linear hypothesis (MLGH) family of
procedures and makes many of the same assumptions as multiple regression: linear
relationships, interval or near-interval data, untruncated variables, proper specification
(relevant variables included, extraneous ones excluded), lack of high multicollinearity,
and multivariate normality for purposes of significance testing. Factor analysis generates
a table in which the rows are the observed raw indicator variables and the columns are the
factors or latent variables which explain as much of the variance in these variables as
possible. The cells in this table are factor loadings, and the meaning of the factors must
be induced from seeing which variables are most heavily loaded on which factors. This
inferential labeling process can be fraught with difficulty as diverse researchers impute
different labels.

There are several different types of factor analysis, with the most common being
principal components analysis (PCA). However, principal axis factoring (PAF), also
called common factor analysis, is preferred for purposes of confirmatory factory analysis
in structural equation modeling.

Key Concepts and Terms

* Exploratory factor analysis (EFA) seeks to uncover the underlying structure of a

relatively large set of variables. The researcher's à priori assumption is that any indicator
may be associated with any factor. This is the most common form of factor analysis.
There is no prior theory and one uses factor loadings to intuit the factor structure of the
data.

* Confirmatory factor analysis (CFA) seeks to determine if the number of factors and
the loadings of measured (indicator) variables on them conform to what is expected on
the basis of pre-established theory. Indicator variables are selected on the basis of prior
theory and factor analysis is used to see if they load as predicted on the expected number
of factors. The researcher's à priori assumption is that each factor (the number and labels
of which may be specified à priori ) is associated with a specified subset of indicator
variables. A minimum requirement of confirmatory factor analysis is that one
hypothesize beforehand the number of factors in the model, but usually also expectations
about which variables will load on which factors (Kim and Mueller, 1978b: 55). The
researcher seeks to determine, for instance, if measures created to represent a latent
variable really belong together.

* Factors and components: Both are the dimensions (or latent variables) identified
with clusters of variables, as computed using factor analysis. Technically speaking,
factors (as from PFA -- principal factor analysis, a.k.a. principal axis factoring, a.k.a.
common factor analysis) represent the common variance of variables, excluding unique
variance, and is thus a correlation-focused approach seeking to reproduce the
intercorrelation among the variables. By comparison, components (from PCA - principal
components analysis) reflect both common and unique variance of the variables and may
be seen as a variance-focused approach seeking to reproduce both the total variable
variance with all components and to reproduce the correlations. PCA is far more
common than PFA, however, and it is common to use "factors" interchangeably with
"components."
Types of Factoring

* Principal components analysis (PCA): By far the most common form of

factor analysis, PCA seeks a linear combination of variables such that the maximum
variance is extracted from the variables. It then removes this variance and seeks a second
linear combination which explains the maximum proportion of the remaining variance,
and so on. This is called the principal axis method and results in orthogonal
(uncorrelated) factors.
 * SPSS 11 procedure: Select Analyze - Data Reduction - Factor - Variables
(input variables) - Descriptives - Under Correlation Matrix, check KMO and Anti-image
to get overall and individual KMO statistics - Extraction - Method (principal
components) and Analyze (correlation matrix) and Display (Scree Plot) and Extract
(eigenvalues over 1.0) - Continue - Rotation - under Method, choose Varimax - Continue
- Scores - Save as variables - Continue - OK.

* Canonical factor analysis , also called Rao's canonical factoring , is a

different method of computing the same model as PCA, which uses the principal axis
method. CFA seeks factors which have the highest canonical correlation with the
observed variables. CFA is unaffected by arbitrary rescaling of the data.

* Principal factor analysis (PFA): Also called principal axis factoring, PAF, and
common factor analysis, PFA is a form of factor analysis which seeks the least number of
factors which can account for the common variance (correlation) of a set of variables,
whereas the more common principal components analysis (PCA) in its full form seeks the
set of factors which can account for all the common and unique (specific plus error)
variance in a set of variables. PFA uses a PCA strategy but applies it to a correlation
matrix in which the diagonal elements are not 1's, as in PCA, but iteratively-derived
estimates of the communalities (R2 of a variable using all factors as predictors; see
below).

* PFA and SEM: PFA is preferred for purposes of structural equation

modeling (SEM). PFA accounts for the covariation among variables, whereas PCA
accounts for the total variance of variables. Because of this difference, in theory it is
possible under PFA but not under PCA to add variables to a model without affecting the
factor loadings of the original variables in the model. Widaman (1993) notes, "principal
component analysis should not be used if a researcher wishes to obtain parameters
reflecting latent constructs or factors." However, when commonalities are similar under
PFA and PCA, then similar results will follow.

* Factor Analytic Data Modes

* R-mode factor analysis. R-mode is by far the most common, so much so that it
is normally assumed and not labeled as such. In R-mode, rows are cases, columns are
variables, and cell entries are scores of the cases on the variables. In R-mode, the factors
are clusters of variables on a set of people or other entities, at a given point of time.

* Q-mode factor analysis, also called inverse factor analysis , is factor analysis
which seeks to cluster the cases rather than the variables. That is, in Q-mode the rows are
variables and the columns are cases (ex., people), and the cell entries are scores of the
cases on the variables. In Q-mode the factors are clusters of people for a set of variables.
Q-mode is used to establish the factional composition of a group on a set of issues at a
given point in time.
 The Q-mode has the special problem of negative factor loadings. In conventional
factor analysis of variables, a negative loading indicates a negative relation of the
variable to the factor. In Q-mode factor analysis, a negative loading does not have a clear
meaning. One common approach is to consider all cases with negative loadings as being
in a cluster of their own.

* Factor loadings: The factor loadings, also called component loadings in PCA, are
the correlation coefficients between the variables (rows) and factors (columns).
Analogous to Pearson's r, the squared factor loading is the percent of variance in that
variable explained by the factor. To get the percent of variance in all the variables
accounted for by each factor, add the sum of the squared factor loadings for that factor
(column) and divide by the number of variables. (Note the number of variables equals the
sum of their variances as the variance of a standardized variable is 1.) This is the same as
dividing the factor's eigenvalue by the number of variables.

In SPSS, the factor loadings are found in a matrix labeled Factor Matrix if PFA is
requested, or in one labeled Component Matrix if PCA is requested, or one labeled
Pattern Matrix if an oblique rotation is requested.

The sum of the squared factor loadings for all factors for a given variable (row) is the
variance in that variable accounted for by all the factors, and this is called the
communality. In a complete PCA, with no factors dropped, this will be 1.0, or 100% of
the variance. The ratio of the squared factor loadings for a given variable (row in the
factor matrix) shows the relative importance of the different factors in explaining the
variance of the given variable. Factor loadings are the basis for imputing a label to the
different factors.

* Communality, h2, is the squared multiple correlation for the variable using
the factors as predictors. The communality measures the percent of variance in a given
variable explained by all the factors jointly and may be interpreted as the reliability of the
indicator.

When an indicator variable has a low communality, the factor model is not
working well for that indicator and possibly it should be removed from the model.
However, communalities must be interpreted in relation to the interpretability of the
factors. A communality of .75 seems high but is meaningless unless the factor on which
the variable is loaded is interpretable, though it usually will be. A communality of .25
seems low but may be meaningful if the item is contributing to a well-defined factor.
That is, what is critical is not the communality coefficient per se, but rather the extent to
which the item plays a role in the interpretation of the factor, though often this role is
greater when communality is high.

Communality for a variable is computed as the sum of squared factor loadings for
that variable (row). Recall r-squared is the percent of variance explained, and since
factors are uncorrelated, the squared loadings may be added to get the total percent
explained, which is what communality is. For full orthogonal PCA, the communality will
be 1.0 for all variables and all of the variance in the variables will be explained by all of
the factors, which will be as many as there are variables. In the communalities chart,
SPSS labels this column the "initial" communalities. The "extracted" communality is the
percent of variance in a given variable explained by the factors which are extracted,
which will usually be fewer than all the possible factors, resulting in coefficients less than
1.0. For PFA, however, the communalities for the various factors will be less than 1 even
initially. Communality does not change when rotation is carried out, hence in SPSS there
is only one communalities table.

* Eigenvalues: Also called characteristic roots . The eigenvalue for a given

factor measures the variance in all the variables which is accounted for by that factor. The
ratio of eigenvalues is the ratio of explanatory importance of the factors with respect to
the variables. If a factor has a low eigenvalue, then it is contributing little to the
explanation of variances in the variables and may be ignored as redundant with more
important factors.

Thus, eigenvalues measure the amount of variation in the total sample accounted
for by each factor. Note that the eigenvalue is not the percent of variance explained but
rather a measure of "amount," used for comparison with other eigenvalues. A factor's
eigenvalue may be computed as the sum of its squared factor loadings for all the
variables. Note that the eigenvalues associated with the unrotated and rotated solution
will differ, though their total will be the same.

* Trace is the sum of variances for all factors, which is equal to the number
of variables since the variance of a standardized variable is 1.0. A factor's eigenvalue
divided by the trace is the percent of variance it explains in all the variables, usually
labeled percent of trace in computer output. Computer output usually lists the factors in
descending order of eigenvalue, along with a cumulative percent of trace for as many
factors as are extracted.

* Factor scores: Also called component scores in PCA, factor scores are the scores
of each case (row) on each factor (column). To compute the factor score for a given case
for a given factor, one takes the case's standardized score on each variable, multiplies by
the corresponding factor loading of the variable for the given factor, and sums these
products. The SPSS FACTOR procedure saves standardized factor scores as variables in
your working data file. By default it will name them FAC1_1,FAC2_1, FAC3_1, etc., for
the corresponding factors (factor 1, 2 and 3) of analysis 1; and FAC1_2, FAC2_2,
FAC3_2 for a second set of factor scores, if any, within the same procedure, and so on.
Although SPSS adds these variables to the right of your working data set automatically,
they will be lost when you close the dataset unless you re-save your data.

* Criteria for determining the number of factors, roughly in the order of frequency of
use in social science (see Dunteman, 1989: 22-3).
 * Kaiser criterion: A common rule of thumb for dropping the least important
factors from the analysis. The Kaiser rule is to drop all components with eigenvalues
under 1.0. Kaiser criterion is the default in most computer programs.

* Scree plot: The Cattell scree test plots the components as the X axis and the
corresponding eigenvalues as the Y axis. As one moves to the right, toward later
components, the eigenvalues drop. When the drop ceases and the curve makes an elbow
toward less steep decline, Cattell's scree test says to drop all further components after the
one starting the elbow. Scree plot example

* Variance explained criteria: Some researchers simply use the rule of

keeping enough factors to account for 90% (sometimes 80%) of the variation.

* Rotation Methods. Rotation serves to make the output more understandable and
is usually necessary to facilitate the interpretation of factors. The sum of eigenvalues is
not affected by rotation, but rotation will alter the eigenvalues of particular factors.

* No rotation is the default in SPSS, but it is a good idea to select a rotation

method, usually varimax. The original, unrotated principal components solution
maximizes the sum of squared factor loadings, efficiently creating a set of factors which
explain as much of the variance in the original variables as possible. The amount
explained is reflected in the sum of the eigenvalues of all factors. However, unrotated
solutions are hard to interpret because variables tend to load on multiple factors.

* Varimax rotation is an orthogonal rotation of the factor axes to maximize the

variance of the squared loadings of a factor (column) on all the variables (rows) in a
factor matrix, which has the effect of differentiating the original variables by extracted
factor. That is, it minimizes the number of variables which have high loadings on any one
given factor. Each factor will tend to have either large or small loadings of particular
variables on it. A varimax solution yields results which make it as easy as possible to
identify each variable with a single factor. This is the most common rotation option.

* Quartimax rotation is an orthogonal alternative which minimizes the number

of factors needed to explain each variable.

* Equimax rotation is a compromise between Varimax and Quartimax criteria.

* Direct oblimin rotation is the standard method when one wishes a non-
orthogonal solution -- that is, one in which the factors are allowed to be correlated. This
will result in higher eigenvalues but diminished interpretability of the factors. See below.

* Promax rotation is an alternative non-orthogonal rotation method which is

computationally faster than the direct oblimin method and therefore is sometimes used
for very large datasets.

 PRINCALS: A computer program which adapts PCA for non-metric and non-
linear relationships. Its use is still rare.

Assumptions

* No selection bias/proper specification. The exclusion of relevant variables and the

inclusion of irrelevant variables in the correlation matrix being factored will affect, often
substantially, the factors which are uncovered. Although social scientists may be attracted
to factor analysis as a way of exploring data whose structure is unknown, knowing the
factorial structure in advance helps select the variables to be included and yields the best
analysis of factors. This dilemma creates a chicken-and-egg problem. Note this is not just
a matter of including all relevant variables. Also, if one deletes variables arbitrarily in
order to have a "cleaner" factorial solution, erroneous conclusions about the factor
structure will result. See Kim and Mueller, 1978a: 67-8.

* Interval data are assumed. However, Kim and Mueller (1978b 74-5) note that ordinal
data may be used if it is thought that the assignment of ordinal categories to the data do
not seriously distort the underlying metric scaling. Likewise, these authors allow use of
dichotomous data if the underlying metric correlations between the variables are thought
to be moderate (.7) or lower. The result of using ordinal data is that the factors may be
that much harder to interpret.

Note that categorical variables with similar splits will necessarily tend to correlate
with each other, regardless of their content (see Gorsuch, 1983). This is particularly apt to
occur when dichotomies are used. The correlation will reflect similarity of "difficulty" for
items in a testing context, hence such correlated variables are called difficulty factors.
The researcher should examine the factor loadings of categorical variables with care to
assess whether common loading reflects a difficulty factor or substantive correlation. See
the discussion of levels of data.

* Linearity. Principal components factor analysis is a linear procedure. Of course, as

with multiple linear regression, nonlinear transformation of selected variables may be a
pre-processing step, but this is not common. The smaller the sample size, the more
important it is to screen data for linearity.

* Multivariate normality of data is required for related significance tests. PCA and
PFA, significance testing apart, have no distributional assumptions. Note, however, that a
less-used variant of factor analysis, maximum likelihood factor analysis, does assume
multivariate normality. The smaller the sample size, the more important it is to screen
data for normality. Moreover, as factor analysis is based on correlation (or sometimes
covariance), both correlation and covariance will be attenuated when variables come
from different underlying distributions (ex., a normal vs. a bimodal variable will correlate
less than 1.0 even when both series are perfectly co-ordered).

* Orthogonality (for PFA but not PCA): the unique factors should be uncorrelated with
each other or with the common factors. Recall that PFA factors only the common
variance, ignoring the unique variance. This is not an issue for PCA, which factors the
total variance.

* Underlying dimensions shared by clusters of variables are assumed. If this

assumption is not met, the "garbage in, garbage out" (GIGO) principle applies. Factor
analysis cannot create valid dimensions (factors) if none exist in the input data. In such
cases, factors generated by the factor analysis algorithm will not be comprehensible.
Likewise, the inclusion of multiple definitionally-similar variables representing
essentially the same data will lead to tautological results.

* Moderate to moderate-high intercorrelations are not mathematically required, but

applying factor analysis to a correlation matrix with only low intercorrelations will require for
solution nearly as many principal components as there are original variables, thereby
defeating the data reduction purposes of factor analysis. On the other hand, too high
intercorrelations may indicate a multicollinearity problem and colinear terms should be
combined or otherwise eliminated prior to factor analysis. KMO statistics may be used to
address multicollinearity in a factor analysis, or data may first be screened using VIF or
tolerance in regression.

* Factor interpretations and labels must have face validity and/or be rooted in theory. It
is notoriously difficult to assign valid meanings to factors. A recommended practice is to
have a panel not otherwise part of the research project assign one's items to one's factor
labels. A rule of thumb is that at least 80% of the assignments should be correct.

RESEARCH OBJECTIVE AND

METHODOLOGY
I. OBJECTIVE OF THE STUDY

The main objectives of this study are as follow:

1. To study the consumer behavior while taking loan .
2. Factorization of parameters that have been collected from different profession
persons with the help of a questionnaire.

3. Suggestions and Recommendations to the company on the basis of analysis done and
consumers surveyed.

II. METHODOLOGY

The methodology adopted for collecting data and sample design is given below:

A. COLLECTION OF DATA

For collecting Primary Data from the users, a questionnaire was designed.
This questionnaire was administered to the consumers who already have
their Bank Account and who are willing to take loan . Sample
questionnaire is attached in annexure.

B. STRATIFIED RANDOM SAMPLING DESIGN

SAMPLE SIZE : 150

SURVEY AREA : DELHI.

MODE OF SURVEY : PERSONALISED INTERVIEWS.

C. TIME FRAME : 3rd October to 31st March

Roll No-

PROJECT REPORT

On

“TO STUDY CONSUMER BEHAVIOUR

 TOWARDS LOAN”

For

“PUNJAB NATIONAL BANK”

SUBMITTED BY:- KAVITA

SUBMITTED TO:-
THE DEPARTMENT OF OPERATIONAL RESEARCH
FACULTY OF MATHEMATICAL SCIENCES
UNIVERSITY OF DELHI, DELHI.

AS
PARTIAL FULFILLMENT OF THE REQUIREMENT
OF THE DEGREE OF MATHEMATICAL SCIENCES

IN

OPERATIONAL RESEARCH
UNIVERSITY OF DELHI, DELHI

SESSION 2006-2007

1. PLEASE SPECIFY YOUR AGE GROUP.

25-29 30-35 36-40 Above 41 Total

18 49 31 52 150
 Age

25-29, 18, 12%

Greater than 41, 52,

34%

25-29
30-35
36-40
30-35, 49, 33% Greater than 41

36-40, 31, 21%

conclusion :- In my survey, most of the respondents are of age group greater

than 41.

2. APPROXIMATE INCOME FROM ALL SOURCES PER ANNUM.

2-4 lacs 4-6 lacs Greater than 6 lacs Total

95 31 24 150
 Income

24, 16%

2-4 lacs
4-6 lacs
31, 21% Greater than 6 lacs

95, 63%

conclusion :- In my survey,most of the respondent have their income

between 2 to 4 lacs.

3. WHAT IS YOUR OCCUPATION?

Business man Govt.servant Private Showroom/shop Total

firm/office
18 106 14 12 150

Occupation

12, 8% 18, 12%

14, 9%

Business man
Govt.service
Privatefirm/office
Showroom/shop

106, 71%

conclusion :- Most of the people who have their bank account in Punjab
National bank are Govt. servant.

4. NATURE OF ACCOUNT MAINTANED.

A B A&B C D Total
112 18 12 7 1 150
 Nature of account

1, 1%
7, 5%
12, 8%

18, 12% A
B
AB
C
D

112, 74%

Where
A – Saving account
B – Fixed deposit
C – Current account
D – All of above

Conclusion :- Most of the customers have saving account in Punjab

National Bank.

5. HOW LONG YOU HAVE BEEN ASSOCIATED BANKING WITH PNB.

Less than 1 1-3 year 3-5 year More than 5 Total

year year
8 29 34 79 150
 Banking

Less than 1 year, 8,

5%

1-3 year, 29, 19%

Less than 1 year

1-3 year
More than 5 year, 79, 3-5 year
53% More than 5 year

3-5 year, 34, 23%

Conclusion :- Most of the respondent have their account in PNB

for more than 5 year.

6. MOTIVE FOR BANKING WITH PNB.

A B C D A&B B&C D&A Total

43 39 21 23 11 7 6 150
 Motive for banking

6, 4%
7, 5%

11, 7%
43, 29%

A
B
C
23, 15%
D
A&B
B&C
D&A

21, 14%
39, 26%

Where
A - Investment
B – Interest
C – B rand Reputation
D – Maturity Period

Conclusion :- 29% of the customer are satisfy with their investment in

PNB

7. ARE YOU AVAILING OF ANY LOAN FROM PUNJAB NATIONAL

BANK?

(a) YES
(b) NO
Yes No Total
55 95 150

55, 37%

YES
NO

95, 63%

Conclusion :- 63% of the customer say that they are not availing any
loan from PNB.

IF YES, WHICH KIND OF LOAN.

Home loan Vehicle loan Education loan Personnel loan Total

12 15 9 19 55
 Loan categorization

12, 22%

19, 35%

Home loan
Vehicle loan
Education loan
personnel loan

15, 27%

9, 16%

Conclusion :- Most of the people are availing Personnel Loan from

PNB.

8. HOW DID YOU COME TO KNOW ABOUT THIS LOAN.

Magazine Bank staff Friends & Newspaper Total

 relatives
0 30 25 0 55

Promotional Channels

Newspaper
0%
Magazine
0%

Friends and relatives Magazine

45% Bank staff
Friends and relatives
Bank staff
55% Newspaper

Conclusion :- Most of the People have been informed by Bank staff of

PNB.
9. IF NO, WHAT ARE THE REASONS FOR NOT TAKING LOAN FROM PNB ?

No Agent Rate of Maturity Advertisement Documentation Total

need presentation interest Period
56 12 7 4 16 0 95

Reason categorization

0, 0%
16, 17%

4, 4%
No need
Agent Presentation
Rate of interest
7, 7%
Maturity Period
Advertisement
56, 59% Documentation

12, 13%

conclusion :- 59% of the customer have no need. And remaining say

that there is lack of publicity or advertisement.
 10. ARE YOU AVAILING OF ANY LOAN FROM OTHER BANK?

(a) YES
(b) NO

YES NO Total
39 0 39

IF YES, FROM WHICH SECTOR?

Different sector

7, 18%
10, 26%

Public sector bank

Private bank
foreign bank

22, 56%

Conclusion :- 56% of the customer have their bank account in PNB,

but they are availing loan from private sector.
Factor Analysis
Correlation Matrix

Maturity Rate of Document Handling Cooperative W

Period interest ation Information charges staff
Correlation Maturity Period 1.000 .206 .244 .046 -.007 .102
Rate of interest .206 1.000 .193 .235 .109 .159
Documentation .244 .193 1.000 .272 .294 .402
Information .046 .235 .272 1.000 .252 .289
Handling
-.007 .109 .294 .252 1.000 .550
charges
Cooperative staff .102 .159 .402 .289 .550 1.000
Withdrawal
-.018 -.158 .065 .403 .124 .178
facility
Awareness about
the product .006 .015 .045 .558 .096 .072

Online servics .190 .144 .178 .063 .064 -.065

Sig. (1-tailed) Maturity Period .066 .036 .370 .480 .230
Rate of interest .066 .079 .042 .214 .124
Documentation .036 .079 .022 .015 .001
Information .370 .042 .022 .032 .016
Handling
.480 .214 .015 .032 .000
charges
Cooperative staff .230 .124 .001 .016 .000
Withdrawal
.447 .125 .318 .001 .184 .097
facility
Awareness about
the product .484 .456 .373 .000 .242 .300
Online servics .082 .146 .097 .325 .321 .318

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling

Adequacy. .614

Bartlett's Test of Approx. Chi-Square 93.005

Sphericity df 36
Sig. .000

Communalities

Initial Extraction
 Maturity Period 1.000 .383
Rate of interest 1.000 .402
Documentation 1.000 .528
Information 1.000 .707
Handling charges 1.000 .621
Cooperative staff 1.000 .758
Withdrawal facility 1.000 .672
Awareness about
the product 1.000 .791
Online servics 1.000 .547
Extraction Method: Principal Component Analysis.

Total Variance Explained

Initial Eigenvalues Extraction Sums of Squared Loadings

Component Total % of Variance Cumulative % Total % of Variance Cumulative %
1 2.460 27.330 27.330 2.460 27.330 27.330
2 1.639 18.214 45.544 1.639 18.214 45.544
3 1.309 14.550 60.094 1.309 14.550 60.094
4 .909 10.101 70.194
5 .877 9.741 79.936
6 .634 7.049 86.985
7 .433 4.806 91.791
8 .398 4.426 96.217
9 .340 3.783 100.000
Extraction Method: Principal Component Analysis.

Component Matrix(a)

Component
1 2 3
Maturity Period .228 .463 .341
Rate of interest .320 .494 .234
Documentation .588 .419 -.087
Information .757 -.275 .239
Handling charges .609 .168 -.470
Cooperative staff .671 .197 -.518
Withdrawal facility .481 -.663 -.016
Awareness about
the product .553 -.511 .474
Online servics .162 .402 .599
Extraction Method: Principal Component Analysis.
a 3 components extracted.

Component Score Coefficient Matrix

Component
 1 2 3
Maturity Period .093 .282 .260
Rate of interest .130 .302 .179
Documentation .239 .255 -.066
Information .308 -.168 .183
Handling charges .248 .103 -.359
Cooperative staff .273 .120 -.396
Withdrawal facility .196 -.404 -.012
Awareness about
the product .225 -.312 .362
Online servics .066 .246 .458
Extraction Method: Principal Component Analysis. Component Scores.

Component Score Covariance Matrix

Component 1 2 3
1 1.000 .000 .000
2 .000 1.000 .000
3 .000 .000 1.000
Extraction Method: Principal Component Analysis. Component Scores.

Rotated Component Matrix(a)

Component
1 2 3
Maturity Period -.018 .081 .613
Rate of interest -.021 .224 .592
Documentation .075 .595 .410
Information .765 .291 .191
Handling charges .100 .781 -.008
Cooperative staff .103 .865 -.002
Withdrawal facility .737 .144 -.328
Awareness about
the product .878 -.075 .120
Online servics .080 -.150 .720
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.
a Rotation converged in 5 iterations.

Component Transformation Matrix

Component 1 2 3
1 .649 .700 .299
2 -.650 .306 .695
 3 .395 -.645 .654
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.

Component Score Coefficient Matrix

Component
1 2 3
Maturity Period -.021 -.017 .394
Rate of interest -.041 .068 .365
Documentation -.037 .288 .206
Information .381 .046 .095
Handling charges -.048 .437 -.089
Cooperative staff -.057 .483 -.094
Withdrawal facility .385 .021 -.231
Awareness about
the product .491 -.172 .087
Online servics .064 -.174 .490
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.
Component Scores.

Component Score Covariance Matrix

Component 1 2 3
1 1.000 .000 .000
2 .000 1.000 .000
3 .000 .000 1.000
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.
Component Scores.

Correlations

Maturity Rate of Document Handling Cooperativ

Period interest ation Information charges staff
Maturity Period Pearson Correlation 1 .206 .244 .046 -.007 .1
Sig. (2-tailed) . .132 .073 .740 .960 .4
N 55 55 55 55 55
 Rate of interest Pearson Correlation .206 1 .193 .235 .109 .1
Sig. (2-tailed) .132 . .158 .084 .429 .2
N 55 55 55 55 55
Documentation Pearson Correlation .244 .193 1 .272(*) .294(*) .402(
Sig. (2-tailed) .073 .158 . .044 .029 .0
N 55 55 55 55 55
Information Pearson Correlation .046 .235 .272(*) 1 .252 .289
Sig. (2-tailed) .740 .084 .044 . .064 .0
N 55 55 55 55 55
Handling charges Pearson Correlation -.007 .109 .294(*) .252 1 .550(
Sig. (2-tailed) .960 .429 .029 .064 . .0
N 55 55 55 55 55
Cooperative staff Pearson Correlation .102 .159 .402(**) .289(*) .550(**)
Sig. (2-tailed) .460 .247 .002 .032 .000
N 55 55 55 55 55
Withdrawal facility Pearson Correlation -.018 -.158 .065 .403(**) .124 .1
Sig. (2-tailed) .894 .250 .636 .002 .369 .1
N 55 55 55 55 55
Awareness about Pearson Correlation .006 .015 .045 .558(**) .096 .0
the product Sig. (2-tailed) .967 .913 .747 .000 .484 .6
N 55 55 55 55 55
Online servics Pearson Correlation .190 .144 .178 .063 .064 -.0
Sig. (2-tailed) .164 .293 .194 .650 .643 .6
N 55 55 55 55 55
* Correlation is significant at the 0.05 level (2-tailed).
** Correlation is significant at the 0.01 level (2-tailed).

Descriptives

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Maturity Period 55 3 5 4.38 .680
 Valid N (listwise) 55

Frequencies

Statistics

Maturity Period
Valid 55
Missin
g 0
N

Maturity Period

Cumulative
Frequency Percent Valid Percent Percent
Valid Not so
6 10.9 10.9 10.9
imp
Imp 22 40.0 40.0 50.9
Most imp 27 49.1 49.1 100.0
Total
100.0 100.0
55
Conclusion:- 49.1% of the population says that maturity period provided
by PNB is most important.
Descriptives

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Rate of interest 55 3 5 4.85 .405
Valid N (listwise) 55

Frequencies

Statistics

Rate of interest
N Valid 55
Missin
0
g

Rate of interest

Cumulative
Frequency Percent Valid Percent Percent
Valid Not so
1 1.8 1.8 1.8
imp
imp 6 10.9 10.9 12.7
Most imp 48 87.3 87.3 100.0
Total 55 100.0 100.0
Conclusion :- 87% of the population who have their bank
account in PNB find attractive rate of interest.
Descriptives
Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Documentation 55 2 5 3.69 .836
Valid N (listwise) 55

Frequencies
Statistics

Documentation
N Valid 55
Missin
0
g

Documentation

Cumulative
Frequency Percent Valid Percent Percent
Valid Least imp 3 5.5 5.5 5.5
Not so
21 38.2 38.2 43.6
imp
imp 21 38.2 38.2 81.8
Most imp 10 18.2 18.2 100.0
Total 55 100.0 100.0
Conclusion:- Documentation is important for the customer.
Descriptives
Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Information 55 1 5 3.38 1.178
Valid N (listwise) 55

Frequencies
Statistics

Information
N Valid 55
Missin
0
g

Information

Cumulative
Frequency Percent Valid Percent Percent
Valid Not imp 3 5.5 5.5 5.5
Least imp 11 20.0 20.0 25.5
Not so
14 25.5 25.5 50.9
imp
imp 16 29.1 29.1 80.0
Most imp 11 20.0 20.0 100.0
Total 55 100.0 100.0
Conclusion :- Information is most important for the customer
while availing loan from PNB.
Descriptives

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Handling charges 55 1 5 2.49 1.230
Valid N (listwise) 55

Frequencies
Statistics

Handling charges
N Valid 55
Missin
0
g

Handling charges

Cumulative
Frequency Percent Valid Percent Percent
Valid Not imp 14 25.5 25.5 25.5
Least imp 17 30.9 30.9 56.4
Not so
10 18.2 18.2 74.5
imp
imp 11 20.0 20.0 94.5
Most imp 3 5.5 5.5 100.0
Total 55 100.0 100.0
Conclusion :- Handling charges are least important for
customer.
Descriptives
Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Cooperative staff 55 1 5 2.78 1.228
Valid N (listwise) 55

Frequencies
Statistics

Cooperative staff
N Valid 55
Missin
0
g

Cooperative staff

Cumulative
Frequency Percent Valid Percent Percent
Valid Not imp 10 18.2 18.2 18.2
Least imp 14 25.5 25.5 43.6
Not so
13 23.6 23.6 67.3
imp
imp 14 25.5 25.5 92.7
Most imp 4 7.3 7.3 100.0
Total 55 100.0 100.0
Conclusion :- People consider co-operative staff is important.
Descriptives
Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Withdrawal facility 55 2 5 3.98 .913
Valid N (listwise) 55

Frequencies
Statistics

Withdrawal facility
N Valid 55
Missin
0
g

Withdrawal facility

Cumulative
Frequency Percent Valid Percent Percent
Valid Least imp 4 7.3 7.3 7.3
Not so
11 20.0 20.0 27.3
imp
imp 22 40.0 40.0 67.3
Most imp 18 32.7 32.7 100.0
Total 55 100.0 100.0
Conclusion :- People consider withdrawal facility is important.
for them.
Descriptives
Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Awareness about
the product 55 1 5 3.42 1.049
Valid N (listwise) 55

Frequencies
Statistics

Awareness about the product

N Valid 55
Missin
0
g

Awareness about the product

Cumulative
Frequency Percent Valid Percent Percent
Valid Not imp 2 3.6 3.6 3.6
Least imp 9 16.4 16.4 20.0
Not so
16 29.1 29.1 49.1
imp
imp 20 36.4 36.4 85.5
Most imp 8 14.5 14.5 100.0
Total 55 100.0 100.0
Conclusion :- Awareness of the product is important for policy
taker when he is availing any loan.
 Mo s tim p
im p
L e
a sti m
p
Not so im p
Not im p
On
l n
i se rvic s
e

Conclusion :- People consider online service is important for

them.
Descriptives
Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Online servics 55 1 5 3.27 1.326
Valid N (listwise) 55

Frequencies
Statistics

Online servics
N Valid 55
Missin
0
g

Online servics

Cumulative
Frequency Percent Valid Percent Percent
Valid Not imp 7 12.7 12.7 12.7
Not so
9 16.4 16.4 29.1
imp
Least imp 13 23.6 23.6 52.7
imp 14 25.5 25.5 78.2
Most imp 12 21.8 21.8 100.0
Total 55 100.0 100.0
 QUESTIONNAIRE
I am Kavita, student of M.Sc Operational Research, Delhi University. Currently I am
doing a survey for my project "Studying Consumer Behaviour towards loan of “Punjab
National Bank”. This project is part of my curriculum and shall contribute to my
examination.
1. NAME OF THE RESPONDENT._____________________________
2. PLEASE SPECIFY YOUR AGE GROUP.
25-29 30-35
36-40 above 41

3. APPROXIMATE INCOME FROM ALL SOURCES PER ANNUM.

2-4 lacs
4-6 lacs
Greater than 6 lacs.
4. WHAT IS YOUR OCCUPATION?
Govt. service
Business man
Private firm/office
Showroom/shop
5. NATURE OF ACCOUNT MAINTANED.
Saving account.
Fixed deposit.
Current account
All of above

6. HOW LONG YOU HAVE BEEN ASSOCIATED BANKING WITH PNB.

Less than 1 year.
1-3 year.
3-5 year.
More than 5 year.
7. MOTIVE FOR BANKING WITH PNB.
Investment.
Interest.
Brand Reputation.
Maturity period.
8. ARE YOU AVAILING OF ANY LOAN FROM PNB?
Yes.
No.

IF YES, WHICH KIND OF LOAN.

Home Loan.
Vehicle Loan.
Education Loan.
Personnel Loan.
Other (Specify)_______________

9. HOW DID YOU COME TO KNOW ABOUT THIS LOAN.

Magazine.
Bank staff.
Friends & relatives.
Newspaper.
Others (Please Specify)___________________

10. KINDLY RATE THE FOLLOWING ATTRIBUTES ON A SCALE OF 5 WHILE

SELECTING YOUR BANK LOAN FORM PNB.

Rate: 5-(Most imp); 4-(imp) ; 3-( Not so imp); 2-(Least imp); 1-(Not imp)

ATTRIBUTES 5 4 3 2 1
Maturity Period
Rate of Interest
Documentation
Information
Handling charges
Co-operative staff
Withdrawal facility
Awareness about the product.
Online service
11. IF NO, WHAT ARE THE REASONS FOR NOT TAKING LOAN FROM PNB ?

No Need
Agent Presentation.
Rate of Interest.
Maturity Period.
Advertisment.
Documentation.

12. ARE YOU AVAILING ANY LOAN FROM OTHER BANK ?

Yes
No
IF YES, FROM WHICH SECTOR.

Pubilc sector bank..

Private bank.
Foreign bank.
Other( Specify) _______________
 SUGGESTION

From the study & analysis which I have done to study the
consumer behaviour towards bank loan I have found that
out of the total sample population, 63% of the population are
not availing any loan from PNB while they have their bank
account at PNB. So I have found that,

1) PNB’s weaker point is lack of publicity. Bacause the people who

have taken loan from PNB, got informed from bank staff or friends &
relatives. So the bank should do some promotional efforts to capture
the market. Since the advertisement draw strong and quick response
from the target population.

2) In Punjab National bank there is no agent presentation while other

bank such as Private bank have their agents. These agents spread the
awareness of the product and capture the market. So, PNB should also
have their agents so that they can spread the awareness of the product
in the market.

3) PNB should also consider their rate of interest and maturity period
Because some people consider that their rate of interest & maturity is
not suitable.
 TABLE OF CONTENTS 
 

                                   
 

1. Introduction to Operational
Research                                               
2. Approach, techniques & tools in Operational
Research                 
3. Problem definition      
4. Market & marketing research     
5. Company profile     
6. Designing & using questionnaires   
7. Interpretation and statistical analysis    
8. Conclusions & recommendations         
9. Bibliography

 
 
    BIBLIOGRAPHY
 

The following books and websites were referred to in the execution of this
project

1. Operational Research, Sultan Chand & Sons, Seventh Edition, 1999.

Kanti Swarup,

P.K.Gupta

Man Mohan.

2. Marketing Research, Pearson Education,Inc.

Fourth Editon, 2004.

N.K.Malhotra.

3.Operational Research,Macmilan India Ltd,

  Second Edition,2003.

   J.K.Sharma.

      4. Introduction To Operational Research,

       Tata McGraw-Hill Edition,

       Seventh Edition,2002.

      Hiller and Liberman

SITES :

www.delhitourism.nic.in

www.mktgresearch.com

www.google.com

www.punjab national bank.com 

 
 
 DESIGNING QUESTIONS TO BE GOOD MEASURES
A questionnaire consists of a set of questions presented to respondents for their answers.
     Questionnaires are an inexpensive way to gather data from a potentially large number of
respondents.A well designed questionnaire that is used effectively can gather information on
both the overall performance of the test system as well as information on specific components
of the system. Because of its flexibility, the questionnaire is by far the most common
instrument to collect the primary data. Constructing and implementing questionnaires is one
of the most interesting and challenging tasks of conducting marketing research
.Questionnaires need to be carefully developed, tested and debugged before they are
administered on a large scale.

In surveys, answers are of interest not intrinsically but because of their relationship to
something they are supposed to measure. Good questions are reliable, providing
consistent measures In comparable situations, and valid; answers correspond to what they
are Intended to measure.

It is always important to remember that designing a question for a survey instrument is

designing a measure, not a conversational inquiry. In general, an answer given to a
survey question is of no intrinsic interest. Rather the answer is valuable to the extent that
it can be shown to have a predictable relationship to facts or subjective states that are of
interest. Good questionnaires maximize the relationship between the answers recorded
and what the researcher is trying to measure.

Designing a reliable instrument

One step toward ensuring consistent measurement is that each respondent in a sample is
asked the same set of questions. Answers to these questions are recorded. The researcher
would like to be able to make the assumption that differences in answers stem from
differences among respondents rather than from differences in the stimuli to which
respondents are exposed.

A survey data collection is an interaction between a researcher and a respondent. In a

self-administered survey, the researcher speaks directly to the respondent through a
written questionnaire. In other surveys, an interviewer reads the researcher's words to the
respondent. In either case, the questionnaire is the protocol for one side of the interaction.
In order to provide a consistent data collection experience for all respondents, a good
questionnaire has the following properties:

1. The researcher's side of the question and answer process is fully scripted so that
the questions as written fully prepare a respondent to answer questions.
 2. The question means the same thing to every respondent.
3. The kinds of answers that constitute an appropriate response to the question are
communicated consistently to all respondents.

If all respondents are asked exactly the same questions, one step has been taken to ensure
that differences in answers can be attributed to differences in respondents. However,
there is a further consideration. The questions should all mean the same thing to all
respondents. If two respondents understand the question to mean different things, their
answers may be different for that reason alone.

One potential problem is using words that are not understood universally. In general
samples, it is important to remember that a range of educational experiences and cultural
backgrounds will be represented. Even with well-educated samples, using simple words
that are short and widely understood is a sound approach to questionnaire design.

Undoubtedly, a much more common error than using unfamiliar words is the use of terms
or concepts that can have multiple meanings. It is impossible to give an exhaustive list of
ambiguous terms used in surveys, but the prevalence of misunderstanding of common
terms has been well documented by those who have studied the problem (e.g., Belson,
1981).

The "Don't Know" Option

When respondents are being asked questions about their own lives, feelings, or
experiences, a "don't know" response is often a statement that they are unwilling to do the
work required to give an answer. On the other hand, sometimes we ask respondents
questions about things about which they legitimately do not know. As the object of the
questions gets further from their immediate lives, the more plausible and reasonable it is
that some respondents will not have adequate knowledge on which to base an answer or
will not have formed an opinion or feeling.

There are two approaches to dealing with such a possibility. One simply can ask the
questions of all respondents, relying on the respondent to volunteer a "don't know." The
alternative is to ask respondents whether or not they feel familiar enough with a topic to
have an opinion or feeling about it.

When a researcher is dealing with a topic about which familiarity is high, whether or not
a screening question for knowledge is asked is probably not important. However, when
there is reason to think that a notable number of respondents will not be familiar with
whatever the question is dealing with, it probably is best to ask a screening question
about familiarity with the topic. People differ in their willingness to volunteer a "don't
know". A screening question for familiarity helps to produce a kind of standardisation;
most people answering the question then will have at least some minimal familiarity with
what they are responding to (Schuman & Presser, 1981).

Types of measures / types of questions

Introduction

These procedures are designed to maximize reliability - the extent to which people in
comparable situations will answer questions in similar ways. However, one can measure
with perfect reliability and still not be measuring what one wants to measure. The extent
to which the answer given is a true measure and means what the researcher wants it to
mean or expects it to mean is called validity. In this section, we discuss other aspects of
the design of questionnaires, in addition to steps to maximize the reliability of questions,
that can increase the validity of survey measures.

For this discussion, it is necessary to differentiate questions designed to measure facts or

objectively measurable events from questions designed to measure subjective states such
as attitudes, opinions, and feelings. Even though there are questions that fall in a murky
area on the borders of these two categories, the idea of validity is somewhat different for
subjective and objective measures for several reasons. If it is possible to cheek the
accuracy of an answer by some independent observation, then the measure of validity
becomes the similarity of the survey report to the value of some "true" measure. In theory
one could obtain an independent, accurate count of the number of times that an individual
obtained medical services from a physician during a year. Although in practice it may be
very difficult to obtain such an independent measure (e.g., records also contain errors),
the understanding of validity can be consistent for objective situations.

In contrast, when people are asked about subjective states, feelings, attitudes, and
opinions, there is no objective way of validating the answers. Only the person has access
to his or her feelings and opinions. Thus the only way of assessing the "validity" of
reports of subjective states is the way in which they correlate either with other answers
that a person gives or with other facts about the person's life that one thinks should be
related to what is being measured. For such measures, there is no truly independent direct
measure possible; the meaning of answers must be inferred from patterns of association.
This fundamental difference in the meaning of validity requires sepa- rate discussions
regarding ways of maximizing validity.

Levels of Measurement

There are four different ways in which measurement is carried out in social sciences. This
produces four different kinds of tasks for respondents and four different kinds of data for
analysis:

1. Nominal - people or events are sorted into unordered categories. ("Are you male
or female?")
 2. Ordinal - people or events are ordered or placed in ordered categories along a
single dimension. ("How would you rate your health - very good, good, fair, or
poor?")
3. Interval data - numbers are attached that provide meaningful information about
the distance between ordered stimuli or classes. (In fact, interval data are very
rare. Fahrenheit temperature readings are among the few common examples.)
4. Ratio data - numbers are assigned that have absolute meaning such as a count or
measurement by an objective, physical scale such as distance, weight, or pressure.
("How old were you on your last birthday?")

Most often in surveys, when one is collecting factual data, respondents are asked to fit
themselves or their experiences into a category, creating nominal data, or they are asked
for a number, most often ratio data. "Are You employed?", "Are you married?". and 'Do
You have arthritis?" are examples of questions that provide nominal data. "How many
times have 'you seen a doctor?" "How old are you?", and 'What is your income?" are
examples of questions to which respondents are asked to provide real numbers for ratio
data.

When gathering factual data, respondents may be asked for ordinal answers. For
example, they may be asked to report their incomes in relatively large categories or to
describe their behavior in non numerical terms ("usually. occasionally, seldom, or
never"). When respondents are asked to report factual events in ordinal terms, it is
because great precision is not required by the researcher or because the task of reporting
an exact number was considered too difficult; ordinal classification seemed a more
realistic task for a respondent. However, there usually is a real numerical basis
underlying an ordinal answer to a factual question."

The situation is somewhat different with respect to reports of subjective data. Although
there have been efforts over the years, first in the work of a psychophysical psychologists
(eg., Thurstone, 1929), to have people assign numbers to subjective states that met the
assumptions of interval and ratio data, for the most part respondents are asked to provide
nominal and ordinal data about subjective states. The nominal question is, "Into which
category do your feelings, opinions, or perceptions fall?" The ordinal question is "Where
along this continuum do your feelings, opinions, or perceptions fall?"

When designing a questionnaire, a basic task of the researcher is to decide what kind of
measurement is desired. When that decision is made, there are some clear implications
for the form in which the question will be asked.

Types of Questions

Survey questions can be classified roughly into two groups: those for which a list of
acceptable responses is provided to the respondent (closed questions) and those for which
the acceptable responses are not provided exactly to the respondent (open questions).
When the goal is to put people in unordered categories (nominal data), the researcher has
a choice about whether to ask an open or closed question. Virtually identical questions
can be designed in either form.

Agree-Disagree Items: A Special Case

Agree-disagree items are very prevalent in the survey research field and therefore deserve
special attention. One can see that the task that respondents are given in such items is
different from that of placing themselves in an ordered category. The usual approach is to
read a statement to respondents and ask them if they agree or disagree with that
statement. The statement is located somewhere on a continuum such as that portrayed in
Figure 5.1. Respondents’ locations on that continuum are calculated by figuring out
whether they say they are very close to that statement (by agreeing) or saying their
feelings are very far from where that statement is located (by disagreeing).

The use of agree-disagree questions to order respondents has two main potential limits.

First, a statement, in order to he interpretable, must be located at the end of a continuum.

For example, if a statement was to be rated that said "The schools are fair," presumably a
point in the middle of a continuum, a respondent could disagree either because he rated
the schools as "good" or because he rated them as "poor". The similar limitation is that it
is very common for the statements used as stimuli for agree-disagree questions to have
more than one dimension, (i.e., to be double-barrelled), in which case the answer cannot
be interpreted. The two statements below provide examples of double- barrelled
statements.

5.15 In the next five years, this country will probably be strong and prosperous.

Problems. It obviously is possible for someone to have the view that the country will be
strong but not prosperous or vice-versa. Since prosperity and strength do not go together
necessarily, a respondent may have trouble knowing what to do.

5.16 With economic conditions the way they are these days, it really isn't fair to have
more than one or two children.

Problems. If a person does not happen to think that economic conditions are terrible
(which the question imposes as an assumption person does not believe that economic
conditions of whatever kind have any implications for family size, but if that person
happens to think one or two children is a good target for a family, it is not easy to answer
the question.                                                   

FEELING ABOUT SOMETHING

EXTREMELY POSITIVE EXTREMELY NEGATIVE

TWO-CATEGORY SCALE

GOOD NOT GOOD

THREE-CATEGORY SCALE

 GOOD                                                FAIR                                                 POOR

FOUR-CATEGORY SCALE

           VERY GOOD                  GOOD                 FAIR  POOR

                                         

FIVE-CATEGORY SCALE

          EXCELLENT              VERY GOOD             GOOD           AVERAGE   POOR

Figure 5.1 Subjective Continum Scale

The problem then is knowing what the respondent agreed to, if he or she agreed. Asking
two or three questions at once and having imbedded assumptions in questions are very
common problems with the agree-disagree format. The agree-disagree format appears to
he a rather simple way to construct questionnaires. In fact, to use this form to provide
reliable, useful measures is not easy and requires a great deal of care and attention. In
many cases, researchers would have more reliable and interpretable measures if they used
a different question form.

Increasing the validity of factual reporting

When a researcher asks a factual question of a respondent, the goal is to have the
respondent report with perfect accuracy, that is, give the same answer that the researcher
would have given if the researcher had access to the information needed to answer the
question. There is a rich methodological literature on the reporting of factual material.
Reporting has been compared against records in a variety of areas, in particular the
reporting of economic and health events (see Cannell et al., 1977a, for a good summary).

Respondents answer many questions accurately. For example, over 90 percent of

overnight hospital stays within six months of an interview are reported (Cannell &
Fowler, 1965). However, how well people report depends on both what they are being
asked and how the question is asked. There are four basic reasons why respondents report
events with less than perfect accuracy:

1. They do not know the information.

2. They cannot recall it, although they do know it.
3. They do not understand the question.
4. They do not want to report the answer in the interview context.

There are several steps that the researcher can take to combat each of these potential
problems.
 INTERPRETATION
Out of the sample population 33% of the population are of the age
group more than 41 year. In addition to this 53% of the population have
their bank account in Punjab National bank for more than 5 year.
106% of the population who have their bank account in Punjab
National bank are Govt. servant.112% of the population have saving
account in PNB. 29% of the customer are satisfy with their investment
in PNB which show a major part of the population. 63% of the
population are not availing loan from PNB. Most the customer are
availing personnel and vehicle loan. While only 16% of the customer are
availing education loan. Most of the people have been informed by bank
staff. Punjab National Bank provide a suitable rate of interest and
maturity period.
Interpretations of Q10.

Respondents were asked to rate the various attributes of Life Insurance Policy on the
scale of 5

The Scale was

1.Most important 2. Important 3. Not so important 4. Least important 5. Not
important.

Out of 9 variables we are able to reduce them to 3 factors which are free from
redundancy.

After the statistical computations of factoring have been completed, the next step is of
interpreting these factors. This is achieved by inspecting the pattern of high and low
loading of each of the factors on the variables.

Factor-1

Product information
Label Mean Factor Loading
1. Information 3.38 0.765
2. Withdrawal facility 3.98 0.737
3. Awareness of the product 3.42 0.878

As second factor has maximum mean. We can say that out of all variables this variable
influences most within the factor. All of the attributes within this factor have +ve loading
therefore we can say that these attributes affects the consumers decision significantly.

Factor – 2

Customer satisfication
Label Mean Factor Loading
1. Documentation 3.69 0.595
2. Handling charges 2.49 0.781
3. Co-operative staff 2.78 8.65

As first factor has maximum mean. We can say that out of all variables this variable
influences most within the factor. All of the attributes within this factor have +ve loading
therefore we can say that these attributes affects the consumers decision significantly
Factor – 3

Fexibility
Label Mean Factor loading
1. Maturity period 4.38 .613
2. Rate of interest 4.85 .592
3. Discounts & Free Gifts 3.27 .720

As Second factor has maximum mean. We can say that out of all variables this variable
influences most within the factor. All of the attributes within this factor have +ve loading
therefore we can say that these attributes affects the consumers decision significantly