MARKETIN

G
RESEARCH
Session 8
Indirah Indibara
 FACTOR ANALYSIS

 Factor analysis is a general name denoting a class of procedures primarily used for
data reduction and summarization.

 Factor analysis is an interdependence technique in that an entire set of

interdependent relationships is examined without making the distinction between
dependent and independent variables.

 Factor analysis is used to identify underlying dimensions, or factors, that explain

the correlations among a set of variables.
 STATISTICS ASSOCIATED WITH FACTOR ANALYSIS

 Bartlett's test of sphericity. Bartlett's test of sphericity is a test statistic used to examine the
hypothesis that the variables are uncorrelated in the population.

 Communality. Communality is the amount of variance a variable shares with all the other
variables being considered.

 Eigenvalue. The eigenvalue represents the total variance explained by each factor.

 Factor loadings. Factor loadings are simple correlations between the variables and the factors.
 STATISTICS ASSOCIATED WITH FACTOR ANALYSIS

 Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy. The Kaiser-Meyer-Olkin

(KMO) measure of sampling adequacy is an index used to examine the appropriateness of
factor analysis. High values (between 0.5 and 1.0) indicate factor analysis is appropriate.
Values below 0.5 imply that factor analysis may not be appropriate.

 Percentage of variance. The percentage of the total variance attributed to each factor.
 METHOD OF FACTOR ANALYSIS

 Principal components analysis is recommended when the primary concern is to

determine the minimum number of factors that will account for maximum
variance in the data for use in subsequent multivariate analysis. The factors are
called principal components.
DETERMINE THE NUMBER OF FACTORS
 

 Determination Based on Eigenvalues. In this approach, only factors with

Eigenvalues greater than 1.0 are retained.

 Determination Based on Scree Plot. A scree plot is a plot of the Eigenvalues

against the number of factors in order of extraction..
 
 Determination Based on Percentage of Variance. In this approach the
number of factors extracted is determined so that the cumulative percentage of
variance extracted by the factors reaches a satisfactory level. It is
recommended that the factors extracted should account for at least 60% of the
variance.
 SCREE
3.0
PLOT
Fig. 19.4

2.5

2.0

Eigenvalue
1.5

1.0

0.5

0.0
1 2 3 4 5 6
Component Number
 ROTATE FACTORS
 Although the initial or unrotated factor matrix indicates the relationship between the factors and individual
variables, it seldom results in factors that can be interpreted, because the factors are correlated with many
variables. Therefore, through rotation, the factor matrix is transformed into a simpler one that is easier to
interpret.

 In rotating the factors, we would like each factor to have nonzero, or significant, loadings or coefficients
for only some of the variables. Likewise, we would like each variable to have nonzero or significant
loadings with only a few factors, if possible with only one.

 The rotation is called orthogonal rotation if the axes are maintained at right angles.

 The most commonly used method for rotation is the varimax procedure. This is an orthogonal method of
rotation that minimizes the number of variables with high loadings on a factor, thereby enhancing the
interpretability of the factors. Orthogonal rotation results in factors that are uncorrelated.
 CONDUCTING FACTOR ANALYSIS
RES P ONDENT
Table 19.1 NUMB ER V1 V2 V3 V4 V5 V6
1 7 .00 3.00 6.00 4.0 0 2.00 4.00
2 1 .00 3.00 2.00 4.0 0 5.00 4.00
3 6 .00 2.00 7.00 4.0 0 1.00 3.00
4 4 .00 5.00 4.00 6.0 0 2.00 5.00
5 1 .00 2.00 2.00 3.0 0 6.00 2.00
6 6 .00 3.00 6.00 4.0 0 2.00 4.00
7 5 .00 3.00 6.00 3.0 0 4.00 3.00
8 6 .00 4.00 7.00 4.0 0 1.00 4.00
9 3 .00 4.00 2.00 3.0 0 6.00 3.00
10 2 .00 6.00 2.00 6.0 0 7.00 6.00
11 6 .00 4.00 7.00 3.0 0 2.00 3.00
12 2 .00 3.00 1.00 4.0 0 5.00 4.00
13 7 .00 2.00 6.00 4.0 0 1.00 3.00
14 4 .00 6.00 4.00 5.0 0 3.00 6.00
15 1 .00 3.00 2.00 2.0 0 6.00 4.00
16 6 .00 4.00 6.00 3.0 0 3.00 4.00
17 5 .00 3.00 6.00 3.0 0 3.00 4.00
18 7 .00 3.00 7.00 4.0 0 1.00 4.00
19 2 .00 4.00 3.00 3.0 0 6.00 3.00
20 3 .00 5.00 3.00 6.0 0 4.00 6.00
21 1 .00 3.00 2.00 3.0 0 5.00 3.00
22 5 .00 4.00 5.00 4.0 0 2.00 4.00
23 2 .00 2.00 1.00 5.0 0 4.00 4.00
24 4 .00 6.00 4.00 6.0 0 4.00 7.00
25 6 .00 5.00 4.00 2.0 0 1.00 4.00
26 3 .00 5.00 4.00 6.0 0 4.00 7.00
27 4 .00 4.00 7.00 2.0 0 2.00 5.00
28 3 .00 7.00 2.00 6.0 0 4.00 3.00
29 4 .00 6.00 3.00 7.0 0 2.00 7.00
30 2 .00 3.00 2.00 4.0 0 7.00 2.00
 SPSS WINDOWS: PRINCIPAL COMPONENTS

1. Select ANALYZE from the SPSS menu bar.

2. Click DATA REDUCTION and then FACTOR.
3. Move “Prevents Cavities [v1],” “Shiny Teeth [v2],” “Strengthen Gums [v3],”
“Freshens Breath [v4],” “Tooth Decay Unimportant [v5],” and “Attractive Teeth
[v6]” into the VARIABLES box
4. Click on DESCRIPTIVES. In the pop-up window, in the STATISTICS box check
INITIAL SOLUTION. In the CORRELATION MATRIX box, check KMO AND
BARTLETT’S TEST OF SPHERICITY. Click CONTINUE.
5. Click on EXTRACTION. In the pop-up window, for METHOD select
PRINCIPAL COMPONENTS (default). In the ANALYZE box, check
CORRELATION MATRIX. In the EXTRACT box, check EIGEN VALUE
OVER 1(default). In the DISPLAY box, check UNROTATED FACTOR
SOLUTION. Click CONTINUE.
6. Click on ROTATION. In the METHOD box, check VARIMAX. In the DISPLAY
box, check ROTATED SOLUTION. Click CONTINUE.
7. Click on OPTIONS. Check “Sorted by Size” and “Suppress small coefficients”
(0.4).
8. Click OK.
QUESTION

 Conduct an Exploratory Factor Analysis for Nike data and interpret the result.