PREDICTIVE ANALYSIS ASSIGMENT

Submitted by: Bhavana PV

RegNo: 180101616177

Instruction: use SPSS or Excel or any software convenient for you.

Case 1: Telecom Industry (Cluster Analysis)

Questions:

1. Conduct a quick clustering on the data and arrive at a two - cluster solution

2. Interpret and name of the cluster

3. What are the implications for the decision-maker in this case?

Analysis:
Peforming K-means clustering with K=2

Initial Cluster Centers

We have specified the number of clusters to 2.

People of Cluster 1 give more importance to Availability of Customer Service Station, Price, Value
added Service.

People of Cluster 2 give more importance to Network Coverage, Network Quality and Bill Payment
Service.
Membership:

We can infer that ,

Respondents 1-3, 6-8,11-14,16-17,19,27-29 belong to Cluster 2 and remaining respondents belong

to Cluster 1.

Final Clusters:
Variables Network Quality , Customer Support, Average of Customer Service Station, Bill Payment
Service and Promotional Offer are having Significance value more than 0.05

We need to calculate clustering again by avoiding them.

Cases count:

Number of Cases in
each Cluster
Cluster 1 14.000
2 16.000
Valid 30.000
Missing .000

Under Cluster1 : 14
Under cluster 2: 16
Perfrming ANOVA

ANOVA
Cluster Error
Mean Square df Mean Square df F Sig.
Network Coverage 3.621 1 .881 28 4.109 .052
Complaint Management 16.601 1 .942 28 17.629 .000
Price 11.010 1 .959 28 11.478 .002
Value added Service 18.229 1 .712 28 25.601 .000
Internet Service 19.934 1 .388 28 51.366 .000

Number of Cases in
each Cluster
Cluster 1 16.000
2 14.000
Valid 30.000
Missing .000

We can group respondents based on 2 clusters by classifying the them, based on Network Coverage,
Complaint Management, Price, Value Added Service and Internet Service.

Respondents 1-3, 6-8,11-14,16-17,19,27-29 belong to Cluster 2 and remaining respondents belong

to Cluster 1.

We analyse and interprets that that Cluster 1 respondents gives more priority to Price, Value Added
Service and Internet Service. Cluster 2 respondents gives more priority to Network Quality,
Customer Support and Availability of Customer Service Centres.
Case 2: Success and Failure of Small Business (factor analysis)

A study aimed to determining the reasons for success or failure of small business. A sample of 5o
entrepreneurs was asked to indicate the perceived areas of strength of their organizations. Their
responses identified 7 variables rated on five point scale.

Five-point Scale

Organizational Strength Code

Very strong 5

Strong 4

Natural/Normal 3

Weak 2

Very weak 1

Variables

V1 = Location of the Firm

V2 = Product Quality

V3 = Pricing of the Product

V4 = Customer Service

V5 = Innovation in Product

V6 = Cost Control

V7 =Employee Productivity

Questions:

1. Conduct a factor analysis to identify the reasons for success or failure of small business

2. Determine the variance summarized by the extracted factors.

3. Interpret the communalities of each of the variables.

3. What are the implications for the decision-maker in this case?

NOTE: Please go through the annexure file for the data (Success and Failure of Small Business data).
Analysis:

Descriptive Statistics
Mean Std. Deviation Analysis N
Location of the Firm 4.22 .954 50
Product Quality 4.24 .657 50
Pricing of the Product 3.38 1.193 50
Customer Service 4.24 .797 50
Innovation in Product 3.66 .872 50
Cost Control 4.36 .722 50
Employee Productivity 3.70 .886 50
Sample contains 50 sets of responses. Mean of each of the variables are provided.

KMO and Bartlett's Testa

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .556
Bartlett's Test of Sphericity Approx. Chi-Square 71.977
df 21
Sig. .000
a. Based on correlations

KMO is 0.556,greater than 0.5. Hence,we can perform Factor analysis.

Since Significance is less than 0.05(From the Bartlett’s test), Factor analysis for the given data is
Significant.

Total Variance Explained :--

Total Variance Explained

Extraction Sums of Squared Loadings Rotation Sums of Squared Loadings
Component Total % of Variance Cumulative % Total % of Variance Cumulative %
1 2.259 32.275 32.275 2.002 28.601 28.601
2 1.619 23.125 55.400 1.796 25.661 54.262
3 1.069 15.276 70.676 1.149 16.413 70.676
Extraction Method: Principal Component Analysis.
There are 2 subdivisions here.

Raw :It is first iteration’s starting point

Rescaled : Multiple iterations will be processed and the final values will appear after the last
iteration which is shown in Rescaled section.

So, there are 7 components which depicts 7 variables.

The column Total shows the Eigen values for each component. The criteria to extract the number of
Factors is that only those Factors should be considered whose Eigen value should be atleast 1.

Here, we have only 3 components with Eigen value atleast or greater than 1 i.e. 1st 3 Factors. The
total of all the Eigen value should be 7 but individually each component should have specific Eigen
value. So, out of 7 variables, it is enough if we consider only the 1st 3 factors as these 3 factors will
shows the maximum amount of variation of the variables.

Here, we see that Eigen value of 1st component is : 2.259 which explains 32.275% of variation. The
second component Eigen value is 1.619 which explains 23.125% of variation. The third component
Eigen value is 1.069 which explains 15.276% of variation. So, Cumulative variation is 70.676%
variation is explained by the 1st 3 components out of total variation of 100% of 7 components.
Remaining 40% might be due to different factors which are not part of this analysis.

The Extracted sum of squares shows first 3 factors. But, we will consider only 1st 3 factors as they
have Eigen value more than 1. So, total percentage of variation explained is 70.676%.

So, we can understand from here that the first 2 factors i.e. Location of the Firm and the Product
Quality are very important for the success of the business.

Component Matrix

Component Matrixa
Component
1 2 3
Location of the Firm -.474 .652 .158
Product Quality .571 .338 .088
Pricing of the Product .550 -.590 .439
Customer Service .207 .413 .814
Innovation in Product .769 -.135 -.262
Cost Control .432 .708 -.331
Employee Productivity .764 .202 -.053
Extraction Method: Principal Component Analysis.
a. 3 components extracted.

Component matrix shows the factor loading. Factor loading is the correlation coefficient of the
extracted factor score with a variable. So, the above Component matrix shows the correlation
between the variable and the factor scores extracted. Factor scores are obtained upon running the
analysis as below:--
So, in Component Matrix we see, 3 factors and in the above diagram we see the values for each
observation have a Factor value correspondingly for each of the 3 factors. These are the Factor
scores.

So, the Factor scores for each of 7 components is shown in the Component Matrix. Notice here we
have 3 Factor analysis.

Rotated Component Matrix :--

Rotated Component Matrixa

Component
1 2 3
Location of the Firm -.105 -.751 .316
Product Quality .611 .074 .263
Pricing of the Product .029 .878 .270
Customer Service .145 -.030 .924
Innovation in Product .635 .484 -.203
Cost Control .802 -.392 -.018
Employee Productivity .741 .259 .106
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 5 iterations.

This Rotated component matrix shows the rotation of the factors of the Initial Component Matrix
using Varimax method. We are getting new values here which will show variance either closer 0 or 1.

Closer to 0 indicates that correlation between that factor and the variable is almost 0(zero) whereas
closer to 1 indicates that correlation between that factor and the variable is high.

Here, if we square and add the values of the Factor 1, it will provide the Eigen value of the Factor 1.

So, here we can say that Correlation between Factor 1 and Product Quality, Innovation in Product,
Cost Control and Employee Productivity are having good correlation with Factor 1 and whereas with
Factor 2 Pricing of the Product has highest correlation and with Factor 3 Customer Service has
highest correlation.

Component Transformation Matrix :--

Component Transformation Matrix

Component 1 2 3
1 .817 .565 .114
2 .502 -.794 .342
3 -.284 .222 .933

The Component Transformation Matrix shows that there are 3 factors and shows how these factors
are correlated with each other.

Component Score Coefficient Matrix :--

Component Score Coefficient Matrix

Component
1 2 3
Location of the Firm -.011 -.406 .252
Product Quality .288 -.005 .177
Pricing of the Product -.100 .519 .286
Customer Service -.013 .018 .808
Innovation in Product .306 .205 -.219
Cost Control .463 -.308 -.118
Employee Productivity .353 .081 .035
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
Component Scores.

This is the matrix from which we can write the model as follows :--

F1 = -.011x1 + .288x2 - .100x3 - .013x4 + .306x5 + .463x6 + .353x7

F2 = -.406x1 - .005x2 + .519x3 + .018x4 + .205x5 - .308x6 + .081x7

F1 = .252x1 + .177x2 + .286x3 + .808x4 - .219x5 - .118x6 + .035x7

Communalities:--

Communalities
Extraction
Location of the Firm .676
Product Quality .449
Pricing of the Product .844
Customer Service .876
Innovation in Product .679
Cost Control .797
Employee Productivity .627
Extraction Method: Principal
Component Analysis.

This explains that the 3 factors can explain

67.6% of variation of Location of the Firm variable,

44.9% of variation of Product Quality,

84.4% of variation of Pricing of the Product,

87.6% of variation of Customer Service,

67.9% of variation of Innovation in Product,

79.7% of variation of Cost Control ,

62.7% of variation of Employee Productivity.

Now, for we can see that these 7 variables can be minimized to 3 Factors whose values can be used
to proceed with Regression analysis. But, before that we need to name the Factors using the Rotated
Component Matrix values:--

Rotated Component Matrix

Component
1 2 3
Location of the Firm -.105 -.751 .316
Product Quality .611 .074 .263
Pricing of the Product .029 .878 .270
Customer Service .145 -.030 .924
Innovation in Product .635 .484 -.203
Cost Control .802 -.392 -.018
Employee Productivity .741 .259 .106
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 5 iterations.
This analysis shows that in-spite of using all the 7 variables for regression of any other model, we
can reduce the variables by dimension of rejection to 3 meaningful factors which are enough to
depict the maximum amount of variation of the original dataset of 7 variables for success or failure
of the business and using these 3 factors the regression analysis can be done to identify whether the
business is successful or not.