Laptops not needed immediately

Session 11
Correlation – Regression – Discriminant Analysis
Regression
• To analyse associative relationship between

• Single metric dependent variable

• One or more metric and non-metric independent variables

• To test:

• Whether a relationship exists

• Strength of relationship

• Predict values of the dependent variable

• Control for other variables

 Relationship/ Form Strength of association (R²)
Y = β0 + β1 X + e Total variation
SSy

Ŷi = a + b Xi Explained Variation Residual Variation

SSreg SSres

𝑆𝑆𝑟𝑒𝑔
𝑏 = 𝐶𝑜𝑣 𝑥𝑦 / 𝑆𝑥² 𝑎 = 𝑦ത − 𝑏𝑥ҧ
𝑟2 =
𝑆𝑆𝑦

Estimate β

Test of significance for β T-test Test of significance for 𝑅2 F-test

 Regression

Bivariate Multivariate
BIVARIATE REGRESSION
• Single metric dependent variable and single metric independent

variable

• Similar to correlation but has a direction

• Is consumer’s demand of a product determined by its price?

• Bivariate Regression Model:

• Y = β0 + β1 X + e
MULTIPLE REGRESSION
• Single dependent variable and two or more independent variables
• Is consumer’s demand of a product determined by its price?

• Is consumer’s demand of a product determined by its price and its marketing

expenditure?

• Y = β0 + β1 X1+ β2 X2 + e
• Adjusted R²

• Coefficient of multiple determination

• Partial coefficients
 Dummy Variables
• For independent variables that are nominal or categorical

Original Variable Dummy Variable Code

Gender
Code D1
Female 1 1
Male 2 0

Socio-economic Original Variable Dummy Variable Code

Class Code D1 D2
A 1 1 0
B 2 0 1
C 3 0 0
 Checking Validity

• Cross validation

• Double cross validation

 Uses in Marketing
• Improvement in customer health metrics – satisfaction, loyalty and
recommendation – by identifying the variables that impact them

• To predict the sales, given changes in price, ad spend etc – based on

previous data

• To check the relative effectiveness of online and TV advertising on sales

• How is likelihood to recommend impacted by wait time, price, quantity

purchased etc.?
Discriminant Analysis
 Basics of Discriminant Analysis

• Purpose
• To discriminate between two or more groups on the basis of a set of variables

• To see whether groups are significantly different

• To develop discriminating functions

• To determine best predictor

• Classification of cases

• Accuracy of classification

• Variables
• DV – Grouping variable - CATEGORICAL

• IDV – Predictors of groups - METRIC

Examples
• To discriminate between
• Domestic and international holiday

• Heavy, medium or low users of organic products

• Regular and irregular gym visitors

• People paying and defaulting on loans

• Brand loyal and not loyal

• PGPs opting for marketing, finance and ops specializations

• Social and unsocial people

• Users and non users of brand X/ product X

• And many more

 MODEL

𝐷 = 𝑏𝑜 + 𝑏1 𝑋1 + 𝑏2 𝑋2 + . . 𝑏𝑘 𝑋𝑘

Discriminant Discriminant Predictor/ Independent

Score Coefficients Variables
 What do you need for DA?

Objective

Criterion/ dependent Predictor/ independent

variable variable

Analysis &
Validation
Sample