Chapter_19

Factor Analysis

Naresh K. Malhotra
Marketing Research-an applied orientation, 4th ed.
 Factor Analysis
Factor Analysis is a general name denoting a class of
procedures primarily used for data reduction and
summarization.

It is an interdependence technique in that an entire set of

interdependent relationships is examined.

Area of Factor Analysis:

1. To identify underlying dimensions or factors.
2. To identify a new, smaller set of uncorrelated variables.
3. To identify a smaller set of salient variables from a larger set.
 Factor Analysis
Model:
X i A i1F1 A i2 F2 A i3 F3 ... A im Fm Vi U i

Where,
X i ith standardized variable
A ij standardized multiple regression coefficient of variable i on common factor j
F Common Factor
Vi Standardized regression coefficient of variable i on unique factor i
U i The unique factor for variable i
m number of common factors

Common Factor, Fi Wi1X1 Wi2 X 2 Wi3 X 3 ... Wik X k

Where,
Fi Estimate of ith error
Wi Weight or factor score coefficient
k number of variables
 Conducting Factor Analysis

It is a eight-step process:

Formulate the problem

Construct the correlation matrix

Determine the method of factor Analysis

Rotate the factors

Interpret the factors

Calculate the factor scores Select the surrogate variables

Determine the model fit

 Conducting Factor Analysis

Objectives of factor analysis should be

identified.

The variables to be included in the

factor analysis should be specified
Formulate the based on past research, theory and
problem judgment of the researcher.

The variables be appropriately

measured on an interval or ratio scale.
 Conducting Factor Analysis

For the factor analysis to be

appropriate, the variables must be
correlated.
Conduct the
If the correlations between all the
correlation variables are small, factor analysis may
matrix not be appropriate.
 Conducting Factor Analysis

1.Principal component analysis

Total variance in the data is
considered.
Determine the 2.Common factor analysis
Estimates the factors based only on
method of the common variance.
factor analysis
 Conducting Factor Analysis

1.A Priori determination

2.Determination based on Eigenvalues
3.Determination based on Scree Plot
Determine the 4.Determination based on Percentage
of Variance
method of 5.Determination based on Split-Half
factor analysis Reliability
6.Determination based on Significance
Test
 Conducting Factor Analysis
The factor matrix contains the coefficients used
to express the standardized variables in terms of
the factors. These coefficients, the factor loadings,
represent the correlations between the factors and
the variables. A coefficient with a large absolute
value indicates that the factor and the variable are
closely related.
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
Rotate Factors correlated with many variables. If the variables is
found in 2 factors then through rotation, the factor
matrix is transformed into a simpler one that is
easier to interpret.
 Conducting Factor Analysis
The factor can then be interpreted in terms of
the variables that load high on it.

On the other hand, variables at the end of an

axis are those that have high loadings on only
that factor, and hence describe the factor.
Interpret factors Variables near the origin have small loadings
on both the factors.
 Conducting Factor Analysis
If the goal of factor analysis is to reduce the
original set of variables to a smaller set of
composite variables (factors) for use in
subsequent multivariate analysis, it is useful to
compute factor scores for each respondent.
Calculate factor A factor is simply a linear combination of the
scores original variables.

The weights,
Common Factor,or
Fi factor
Wi1X1 score
Wi2 X 2coefficients,
Wi3 X 3 ... used
Wik X k
to combine the standardized variables are
obtained from the factor score coefficient
matrix.
 Conducting Factor Analysis
Instead of computing factor scores, the
researcher wishes to select surrogate variables.
Selection of substitute or surrogate variables
involves singling out some of the original
variables for use in subsequent analysis.
Select If the researcher thinks that the factor which
surrogate is important not important as his prior
knowledge then he reject the variable and
variables selecting the variable is called surrogate
variable. Obviously the rejected variable will
be replaced with the another variable with the
highest factor loadings of the next one.
 Conducting Factor Analysis
The difference between the observed
correlations (correlation matrix) and the
reproduced correlations can be examined to
determine the model fit.

These differences are called residuals. If there

Determine the are many large residuals (value more than
model fit 0.05), the factor model does not provide a good
fit to the data and the model should be
reconsidered.
 Conducting Factor Analysis: SPSS
Windows
Analyze > Data Reduction > Factor
Descriptive > Coefficients, KMO and
Bartletts test of spericity, and Reproduced
Result of Extraction > Method > Principal
Principal Components, Correlation Matrix and
Eigenvalues over 1
component Rotation > check on varimax
analysis