Multivariate Data Analysis Assignment:

Discriminant Analysis (2 groups)

Group 5 | Section A |
Ashit Sharma (11) | Ayush Pandey (12) | Joshua Melwani (22) |
Niharika Mondal (31) | Pranitha Balasubramanian (34)
 Discriminant Analysis (2 Groups)
National Retail Chain Case

Q1. Build a Discriminant model to categorize existing customers into Normal and Loyal categories.

A1.
Canonical Discriminant
Function Coefficients

Function

Frequency .092

Avg_Purch .000062

Yrs_Purchsg .140

(Constant) -4.958

Unstandardized coefficients

The function z to categorise the customers into Normal and Loyal categories is as follows:
z= .092* Frequency + 0.000062*Avg_Purch + .140*Yrs_Purchsg – 4.958

Q2. State the Classification Accuracy of this Discriminant Model.

A2.

a
Classification Results

Predicted Group Membership

Normal
Loyalty Customers Loyal Customers Total

Original Count Normal Customers 8 1 9

Loyal Customers 0 9 9

% Normal Customers 88.9 11.1 100.0

Loyal Customers .0 100.0 100.0

a. 94.4% of original grouped cases correctly classified.

Out of all the 9 Normal customers, one normal customer was falsely recognized as a loyal customer.
Thus, out of 18 total customers, one was falsely recognized. Thus, the classification accuracy for the
function is 94.4% (17/18).
Q3. Determine whether the groups created by this Discriminant Function are distinctly different
statistically.

A3. To see whether the groups created by the discriminant function are significantly different we
compare the Eigen values and the Wilks’ Lambda.

Eigenvalues

Functio Canonical
n Eigenvalue % of Variance Cumulative % Correlation
a
1 1.965 100.0 100.0 .814

a. First 1 canonical discriminant functions were used in the analysis.

Wilks' Lambda

Test of
Functio
n(s) Wilks' Lambda Chi-square df Sig.

1 .337 15.760 3 .001

For the groups to be significantly different, the eigen value must be above 1, and the Wilks’ Lambda
must be less than 0.5. The Eigen value for the groups is 1.965 and Wilks’ Lambda value is .337. Thus,
the groups differentiated by the function z are significantly different from each other.

Q4. Which Predictor variable is the best discriminator for Customer Loyalty?

A4. To know the best discriminator, we check the standardized values for the canonical discriminant
function.

Standardized Canonical
Discriminant Function
Coefficients

Function

Frequency .777

Avg_Purch .740

Yrs_Purchsg .227

Frequency has the highest standardised discriminant function coefficient of 0.777, thus it is the best
discriminator for customer loyalty.
Q5. Identify a Discriminant Criterion which would enable the bank to classify Customers in future
into Normal and Loyal categories based on their Discriminant Scores.

A5. The discriminant criterion is found out to use for future cases. We can use the same model and
the discriminant criterion Zc to analyse whether a customer is loyal or not based on the independent
variables.
To find Zc we take a grand mean of the z scores. This means the average of means of both Loyal
customers and Normal customers. We find the individual group averages in the table named
Function at Group Centroid.

Functions at Group Centroids

Function

Loyalty 1

Normal Customers -1.322

Loyal Customers 1.322

Unstandardized canonical discriminant

functions evaluated at group means

Zc = (-1.322*9 +1.322*9)/18 = 0
The Discriminator Criterion here is 0. That means if the function Z has a value:
 Z > Zc then the customer belongs to the Loyal Customers Group
 Z < Zc then the customer belongs to the Normal Customers Group