Factor Analysis

Factor Analysis

• A data reduction technique designed to

represent a wide range of attributes on a
smaller number of dimensions.
 Factor Analysis

• For example, suppose that a bank asked a

large number of questions about a given
branch. Consider how the following
characteristics might be more
parsimoniously represented by just a few
constructs (factors).
Factor Analysis
 Factor Analysis

- Benefits include: (1) a more concise representation

of the marketing situation and hence communication
may be enhanced; (2) fewer questions may be
required on future surveys; and, (3) perceptual maps
become feasible.

- Ideally, interval data (e.g., a rating on a 7 point

scale), regarding the perceptions of consumers are
required regarding a number of features, such as
those noted above for the bank are gathered.
 Objectives of Exploratory Factor Analysis
• Reduce the number of variables
• Examine the structure or relationship between variables
• Detection and assessment of unidimensionality of a theoretical
construct
• Evaluates the construct validity of a scale, test, or instrument
• Development of parsimonious (simple) analysis and
interpretation
• Addresses multicollinearity (two or more variables that are
correlated)
• Used to develop theoretical constructs
• Used to prove/disprove proposed theories
 Cumulative percent of variance explained.

We are looking for an eigenvalue above 1.0.

Expensive Appeals to Others Reliable
Exciting Attractive Looking Latest Features
Luxury Trend Setting Trust
Distinctive
Not Conservative
Not Family
Not Basic
What shall these components be called?

Expensive Appeals to Others Reliable

Exciting Attractive Looking Latest Features
Luxury Trend Setting Trust
Distinctive
Not Conservative
Not Family
Not Basic
 EXCLUSIVE TRENDY RELIABLE

Expensive Appeals to Others Reliable

Exciting Attractive Looking Latest Features
Luxury Trend Setting Trust
Distinctive
Not Conservative
Not Family
Not Basic
Calculate Component Scores

EXCLUSIVE
= (Expensive + Exciting + Luxury + Distinctive – Conservative – Family – Basic)/7

TRENDY
= (Appeals to Others + Attractive Looking + Trend Setting)/3

RELIABLE
= (Reliable + Latest Features + Trust)/3
 Exclusive Trendy Reliable
Beetle 1.4 6.7 6.9
Hummer 3.9 6.2 6.7
Lotus 4.1 7.3 6.7
Minivan -1.67 4.83 6.5
Pick-Up -0.43 4.93 6.3

Not much differing on

this dimension.
 Exclusive Trendy Reliable
Beetle 1.4 6.7 6.9
Hummer 3.9 6.2 6.7
Lotus 4.1 7.3 6.7
Minivan -1.67 4.83 6.5
Pick-Up -0.43 4.93 6.3
 Vehicle by Component

Pick-Up

Minivan

Lotus

Hummer

Beetle

-3 -2 -1 0 1 2 3 4 5 6 7 8

Exclusive Trendy