Factor Analysis• Factor analysis is a multivariate statistical technique that is used to summarize the information contained in a large number of variables into a smaller number of subsets or factors.• The purpose of factor analysis is to simplify the data.• With factor analysis there is no distinction between dependent and independent variables; rather, all variables under investigation are analyzed together to identify underlying factors
Applications of Factor Analysis• Advertising. Factor analysis can be used to better understand media habits of various customers.• Pricing. Factor analysis can help identify the characteristics of price-sensitive and prestige-sensitive customers.• Product. Factor analysis can be used to identify brand attributes that influence consumer choice.• Distribution. Factor analysis can be employed to better understand channel selection criteria among distribution channel members.
• For example, suppose that a bank asked a large number of questions about a given branch. Consider how the following characteristics might be more parsimoniously represented by just a few constructs (factors).
Advantages of Factor Analysis- Benefits include: (1) a more concise representation ofthe marketing situation and hence communication maybe enhanced; (2) fewer questions may be required onfuture surveys; and, (3) perceptual maps becomefeasible.- Ideally, interval data (e.g., a rating on a 7 point scale),regarding the perceptions of consumers are requiredregarding a number of features, such as those notedabove for the bank are gathered.