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EXPLORATORY FACTOR ANALYSIS: USING SPSS

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 EXPLORATORY
FACTOR ANALYSIS:
USING SPSS
 A researcher is interested to measure the image of the
bank. Respondents were asked to rate the importance of
15 bank attributes. A five point likert scale ranging from
“not important” to “very important” was employed.
 After conducting exploratory factor analysis, a four
factor solution resulted: Traditional Services (6),
convenience (4), visibility(4) and competence (2).
Source: Sinukula , J.M. and Lowtor, L (1987), “Positioning in the Finanacial Service Industry: A Look at the
Decompossion of Image,” in Jon. M. Hawes and George B Glisan, eds., Development in Marketing Science, Vol. 10
(Akron, OH, Academy of Marketing Science, 1987): pp.439-42.
SERVQUAL Scale
 A researcher is interested to measure perceived service
quality. Ninety seven statements were originally
developed.
 These ninety seven statements were reduced to 34
statements using factor analysis. These 34 statements
were further reduced to 22 statements, reflecting five
dimensions of service quality.
 Tangibility, reliability, responsiveness,
empathy.
Source: Parasuraman, A; Zeithaml, V. A and Berry, L.L. (1988), “SERVQUAL: A Multiple-Item Scale For Measuring
Consumer Perceptions of Service Quality,” Journal of Retailing, Vol. 64 (1), pp.12-40.
 A researcher is interested to study the consumer
motivation to shop in shopping malls. He developed the
research instrument after conducting in depth review of
the literature. The instrument contained 35 statements on
seven point likert type scale.
 After conducting exploratory factor analysis, the
researcher summarized the 35 statements in six
motivational factors to shop in Shopping Malls.
 Economic Incentives, Aesthetic Ambience, Diversion/Browsing,
Social Experience, Convenient Service Availability, Meal /
Snack Consumption
Dr. Vipul Patel Source: Kang, Kim and Taun (1993) “Motivational Factors of Mall Shoppers – Effects of Ethnicity and Age” Journal
of Shopping Center Research, Vol. 3(1), pp.7-31
Brand Personality Scale
 A researcher is interested to develop the scale for brand
personality. At the initial stage, 309 personality traits
were identified. These were reduced to 114 personality
traits for study.
 Using exploratory factor analysis, five dimensions with 15
traits of brand personality were identified.
 Sincerity (4), Excitement (4), Competence (3), Sophistication
(2), Ruggedness (2)
 Further, the researcher used CFA to check validity and
reliability of Brand personality scale.
Source: Aaker, J.L. (1997), “Dimensions of Brand Personality,” Journal of Marketing Research, Vol. 34 (3), pp.347-
356.
Job Satisfaction of Industrial Salesperson
 The researcher is interested to develop the scale to measure
the job satisfaction of industrial sales person.
 Through an extensive literature review and open ended
questions with salespeople and a work psychologist, 185 items
were generated. These items were reduced to 117 items and
further reduced to 95 items using factor analysis techniques.
 During this procedure, seven dimensions of job satisfaction
were identified: (1) the job itself, (2) fellow worker, (3)
assurance and
supervisors (4) company policy and support (5) pay (6)
promotion and advancement (7) customers.
Source: Churchil, Ford and Walker (1974), “Measuring the Job Satisfaction of Industrial Salesmen,” Journal of
Marketing Research, Vol. 11, pp.254-260
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 Perceived Leadership Behavior

 Researcher is interested to classified the leadership behavior.
Based on path goal theory and extensive literature review, a
pool of 35 items were generated. Data were collected from
206 employees of two electronic firms and consisted of
manager, professionals, foremen, blue collar workers,
technicians and others.
 Principal Components Factor Analysis revealed three types of
leadership behavior : Instrumental leadership (7), Supportive
Leadership (10) and Participative leadership (5).
 In a study, a researcher is interested to study the customer
preference for life insurance in Northern Region of India.
Data were collected from 600 customers on 20 reasons
(i.e., variables) for preference of life insurance on five
point likert scale from “1 = least important” to “5 = most
important”
 Using Factor Analysis, five factors are derived: Core
Product, Promotional, Consumer Expectation, Service
Quality, and Risk Return.

Source: House, Robert, J and Dessler Gary (1974) “The Path Goal Theory of Leadership: Some Post Hoc and A
Priori Tests,” In James G Hunt and Lars L Larson (Eds), Contingency Approaches to Leadership. Carbondale:
Southern Illinois University Press.

What is Factor Analysis? R-Matrix:

 Factor analysis is a method of data reduction and Underlying benefits Consumers seek from the purchase
summarisation: take many variables and explain them of toothpaste
with a few “factors” or “components” or “dimensions”
V1 V2 V4 V3 V5 V6
 The common objective of factor analysis is to V1: Prevention of Cavities 1.000 Health Benefit Factor
represent a set of variables in terms of a smaller V2: Fighting against 0.837 1.000
Germs
number of latent variables.
V4: Prevention of tooth 0.858 0.672 1.000
 The primary function of factor analysis is to define decay Social Benefit Factor

the underlying structure among the variables in the V3: Shiny teeth 0.053 0.002 -0.248 1.000
V5: Fresh Breath 0.004 -0.155 0.018 0.778 1.000
analysis.
V6: Attractive teeth -0.086 0.0001 0.007 0.596 0.779 1.000
 SERVQUAL

EFA v/s CFA

 Factor analysis is foundation for other univariate or  Exploratory Factor Analysis (EFA):
multivariate analysis like t test, ANOVA, MANOVA,  The researcher may not have any idea as to how many
Regression Analysis, Cluster Analysis, etc. underlying dimensions there are for the given data.
 Factor Analysis can be used for checking reliability Factor analysis may be used a means of exploring the
data for possible data reduction.
and validity of scales designed to measure latent
variables.  Confirmatory Factor Analysis
 (CFA using AMOS)  The researcher may anticipate or hypothesize that
there are n different underlying dimensions and that
certain variables belong to one dimension while others
belong to the second.

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Assumptions of Factor Analysis Procedure for EFA
 Sample should be homogeneous with respect to the  Stage 1: Conceptual Consideration
underlying factor structure.  Stage 2: Appropriateness of Data for Factor
 Normality Analysis
 Kolmogorove-Smirnove Test  Stage 3: Method of Factor Analysis
 Skewness and Kurtosis  Stage 4: Extraction, Interpretation and Naming the
 Multicollinearity Factors.
 Determinant of the R-Matrix should be greater than
0.00001.

Stage 1: Conceptual Consideration

 R factor Analysis v/s Q factor Analysis
 Variable Selection
 “Garbage in, Garbage out”
 Metric variables (continuous variables)
 Five or more variables per factor
 Sample Size
 The sample must have more observation than variables.
 The minimum sample size should be 50.
 Preferable sample size should be 100 or more.
 As a general rule, the minimum sample size is to have at
least five times as many observations as the number of
variables to be analyzed, and the more acceptable
sample size would have a 10:1 ratio.
 Some researchers even propose a minimum of 20 cases
for each variable.

Stage 2: Appropriateness of Data for

 Nunnally (1978) recommend having 10 times as many
participants as variables.
 Kass & Tinsley (1979) recommend having between 5 and
10 participants per variable up to a total of 300.
 Tabachnick & Fidell (2001) agree that it is comforting to
have at least 300 cases for factor analysis.
 Comrey & Lee (1992) class 300 as a good sample size,
100 as poor and 1000 as excellent.
Factor Analysis
 Kaiser-Meyer-Olkin (KMO) Measure of Sampling
Adequacy
Values of of KMO between 0.5 and 0.7 are mediocre,
values between 0.7 and 0.8 are good, values between
0.8 and 0.9 are great and values above 0.9 are superb
(Hutcheson & Sofroniou, 1999).
 Bartlett’s test of sphericity

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Stage 3: Method of Factor Extraction Stage 4: Number of Factors
 Principal Component Analysis  Determination based on Eigen value
 Common Factor Analysis  Determination based on Scree Plot
 Determination based on Percentage of Variance
 Guadagnoli and Velicer (1988) concluded that the solutions
generated from Principal Components Analysis differ little from
 A priori Determination
those derived from Common factor Analysis.
 Empirical research demonstrates similar results in many instances.
In most applications, both principal component analysis and
common factor analysis arrive at essentially identical results if
the number of variables exceeds 30 or the communalities exceed
0.60 for most variables.

Stage 5: Interpret and Name the

Scree Plot
Factors
 Factor Loading
 Factor loadings are the weights and correlations between each
variable and the factor.
 The higher the load the more relevant in defining the factor’s
dimensionality.
 Factor loading in the range of ±0.30 to ±0.40 are considered

Point of Inflexion to meet the minimum level for interpretation of structure.

 Loadings ±0.50 or greater are considered practically
significant.
 Loadings exceeding ±0.70 are considered indicative of well
defined structure and are the goal of any factor analysis.

Guidelines for Identifying Significant Factor Loadings  Factor Rotation

Based on Sample Size  Orthogonal Rotation & Oblique Rotation
Factor Loading Sample Size Needed for Significance at  Interpretation of factor Structure
5% significance level
 Step1: Examine factor loadings
0.30 350
0.35 250 Cross loading
0.40 200
0.45 150  Step 2: Assess the communality of variables
0.50 120  Step 3 : Label the Factors
0.55 100
0.60 85
0.65 70
0.70 60
0.75 50

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 Interpretation of a Hypothetical Factor Loading
Matrix
Unrotated Factor Loading Matrix VARIMAX Rotated Factor Loading Matrix
Simplified Rotated Factor Loading Matrix
Factor Factor
1 2 3 1 2 3 Communality Factor
V1 0.511 0.250 -0.204 V1 0.462 0.099 0.505 0.324 1 2 3
V2 0.614 -0.446 0.264 V2 0.101 0.778 0.173 0.644 V2 0.807
V5 0.803
V3 0.295 -0.447 0.107 V3 -0.134 0.517 0.114 0.477
V3 0.524
V4 0.561 -0.176 -0.550 V4 -0.005 0.184 0.784 0.648
V7 0.802
V5 0.589 -0.467 0.314 V5 0.087 0.801 0.119 0.664
V9 0.686
V6 0.630 -0.102 -0.285 V6 0.180 0.302 0.605 0.548
V8 0.655
V7 0.498 0.611 0.160 V7 0.795 -0.032 0.120 0.647 V4 0.851
V8 0.310 0.300 0.649 V8 0.623 0.293 -0.366 0.608 V6 0.717
V9 0.492 0.597 -0.094 V9 0.694 -0.147 0.323 0.608

*Factor loading less than 0.40 are not shown.

*Factor loading more than 0.4 is considered for interpretation
**Variables are shorted by highest loadings.

SPSS Exercise Uses of Factor Analysis Results

 Surrogate Variable
 Case Study: HBAT  Summated Scales
 SPSS File: Case_HBAT.sav  Reliability Analysis
 Cronbach’ Alpha should be greater than 0.7, although
a 0.60 level can be used in exploratory research.

Thank You!!!

Dr. Vipul Patel

(vipulpat@gmail.com)

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