Factor Analysis
Factor Analysis
Factor Analysis
Basics
• Used for Date Reduction & Summarization
• Reduction to manageable level
• Interval or ratio scale
• Interdependence technique: Make no
difference between independent & dependent
variable.
• Multivariate analysis
Assumptions
• Normality
• Factorability of correlation matrix – there
should be sufficient correlations in the data
matrix of variables to justify the application of
factor analysis.
Where we can use?
• Market segmentation
• To determine the brand attributes
• Identify the characteristics of price-sensitive
consumers.
• Understand the media consumption habits of
the target market.
Premises
• Similar to multiple regression analysis i.e. each
variable is expressed in a linear combination.
• Factor model:
Xi = Ai1F1 + Ai2F2 + Ai3F3 + ……..+ AimFm+ViUi
Xi = ith standardized variable
Aij= 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
Ui = the unique factor for variable i
m = number of common factors