Factor Analysis

Gaurang Rami
grami@rediffmail.com

Factor analysis is very widely used technique in marketing research for reducing data
complexity by reducing the number of variable being studied. Usually to find a
marketing decision maker wondering what exactly makes a consumer by his product.
The possible purchasing criteria could range from just one or two to fifteen or twenty,
and often, the marketing manager is shooting in the dark, trying to figure out what
really drives buyer behaviour. In other words, what are the underlying significant drivers
of his behaviour? Factor analysis is a good way of resolving this confusion and
identifying latent or underlying factors from an array of seemingly important variables.
In a more general way, factor analysis is a set of technique which, by analyzing
correlations between variables, reduces their number into fever factors which explain
much of the original data more economically. Even though a subjective interpretation
can result from a factor analysis output, the procedure often provides an insight into
relevant psychometric variables, and results in economical use of data collection efforts.

Example:

Two-wheeler manufacturer is interested in determining which variables his potential

consumers think about when they consider his product?

Twenty two-wheeler owners were surveyed by this manufacturer. They were asked to
indicate on a seven point scale (1=completely agree, 7=completely disagree), their
agreement of disagreement with a set of ten statements relating to their perceptions
and some attributes of the two-wheelers.

The ten statements were as follows:

1. I use two wheeler because it is comfortable 1 2 3 4 5 6 7

2. It gives me a sense of freedom to own a two wheeler
3. Low maintenance cost makes a two wheeler very economical in the long run
4. A two wheeler is essentially a man’s vehicle
5. I feel very powerful when I am on my two wheeler
6. Some of my friends who don’t have their own vehicle are jealous of me
7. I feel good whenever I see the ad for my two wheeler on TV, in a magazine or on
a hoarding
8. My vehicle gives me a comfortable ride
9. I think two wheelers are safe way of travel
10. Three people should be legally allowed to travel on a two wheeler
The answer given by the twenty respondents on a scale of 1 to 7 are as follows:

Sr Question No
No 1 2 3 4 5 6 7 8 9 10
1 1 4 1 6 5 6 5 2 3 2
2 2 3 2 4 3 3 3 5 5 2
3 2 2 2 1 2 1 1 7 6 2
4 5 1 4 2 2 2 2 3 2 3
5 1 2 2 5 4 4 4 1 1 2
6 3 2 3 3 3 3 3 6 5 3
7 2 2 5 1 2 1 2 4 4 5
8 4 4 3 4 4 5 3 2 3 3
9 2 3 2 6 5 6 5 1 4 1
10 1 4 2 2 1 2 1 4 4 1
11 1 5 1 3 2 3 2 2 2 1
12 1 6 1 1 1 1 1 1 2 2
13 3 1 4 4 4 3 3 6 5 3
14 2 2 2 2 2 2 2 1 3 2
15 2 5 1 3 2 3 2 2 1 6
16 5 6 3 2 1 3 2 5 5 4
17 1 4 2 2 1 2 1 1 1 3
18 2 3 1 1 2 2 2 3 2 2
19 3 3 2 3 4 3 4 3 3 3
20 4 3 2 7 6 6 6 2 3 6

SPPS COMMANDS FOR FACTOR ANALYSIS:

1. Click on ANALYZE at the SPSS menu bar

2. Click on DATA REDUCTION, followed by FACTOR
3. On the dialogue box which appears, select all the variables required for the
factor analysis by clicking on the right arrow to transfer them from the variable
list on the left to the variable box on the right
4. Click on EXTRACTION in the lower part of the dialogue box
i. Select ‘PRINCIPLE COMPONENTS’ as the METHOD
ii. Under DISPLAY, select ‘UNROTATED FACTOR SOLUTION’
III. Under EXTRACT, select ‘EIGEN VALUES OVER 1’
iv. Under ANALYZE, choose ‘CORRELATION MATRIX’
v. Click continue
5. Click on the ROTATION in the lower part of the main dialogue box. Select
VARIMAX from the option under METHOD. Click CONTINUE

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 6. Click OK to get factor analysis output.

Practice Example:

Why people prefer smoking?

Factor Analysis

A cigarette manufacturer is interested in determining which variables his potential

customers think about when they consider his product. To get an answer to above, a set
of 10 statements were prepared by the manufacturer with the help of a market
research agency. The statements are listed bellow.

Twenty respondent were surveyed the following questions and were requested to them
on a seven point scale (1= completely agree and 7 = completely disagree). The answer
given by the respondents were related to their perceptions and some attributes of the
cigarettes.

Note: The sample comprised male smokers only

1) It makes me feel very manly

2) I feel women get attracted to me when I smoke
3) When I am in a group, it makes me feel superior with a cigarette in my hands, if
others in the group are non-smokers
4) I support the ban of cigarette advertisements
5) I prefer lighter cigarettes, which cause less harm to the body
6) Tension is relieved/ relaxation when I smoke
7) I endorse the view that all cigarette boxes should carry the statutory warning –
‘Cigarette smoking is injurious to health’
8) I tend to smoke more when tension prevails in my mind
9) I smoke because I like the smell of tobacco
10) A cigarette enhances my overall personality

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 The answer given by the twenty respondents on a scale of 1 to 7 are as follows:

1 1 1 7 3 3 3 7 7 2
5 4 4 6 4 7 4 6 7 5
2 3 2 6 5 5 1 7 6 1
3 1 2 6 4 5 5 6 7 2
4 3 3 5 1 5 2 7 6 4
6 6 5 7 4 1 1 2 3 7
7 1 1 7 6 7 5 7 7 4
1 1 1 7 1 7 7 7 7 1
4 5 6 7 4 6 2 6 7 3
5 3 1 6 4 3 5 6 5 4
1 2 1 6 2 2 3 3 6 2
2 1 1 6 2 3 3 4 3 3
2 1 1 7 1 2 1 1 7 1
7 6 5 7 5 1 2 7 3 7
2 5 4 5 2 7 2 6 7 2
5 1 1 7 5 1 7 6 7 2
2 1 1 7 3 4 5 7 7 3
7 7 6 5 5 2 4 6 4 5
2 4 3 7 6 6 4 7 6 3
3 1 5 7 4 3 7 7 5 4

SPPS COMMANDS FOR FACTOR ANALYSIS:

7. Click on ANALYZE at the SPSS menu bar

8. Click on DATA REDUCTION, followed by FACTOR
9. On the dialogue box which appears, select all the variables required for the
factor analysis by clicking on the right arrow to transfer them from the variable
list on the left to the variable box on the right
10. Click on EXTRACTION in the lower part of the dialogue box
i. Select ‘PRINCIPLE COMPONENTS’ as the METHOD
ii. Under DISPLAY, select ‘UNROTATED FACTOR SOLUTION’
III. Under EXTRACT, select ‘EIGEN VALUES OVER 1’
iv. Under ANALYZE, choose ‘CORRELATION MATRIX’
v. Click continue

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11. Click on the ROTATION in the lower part of the main dialogue box. Select
VARIMAX from the option under METHOD. Click CONTINUE
12. Click OK to get factor analysis output.