MARKETING

RESEARCH
Analysis of Variance and Covariance
Topics to be covered:

 Data Requirement of One-Way ANOVA

 A Marketing Example of One-Way ANOVA
 The Steps of Conducting the One-Way ANOVA
Data Requirement of One-Way ANOVA

 One-way analysis of variance (ANOVA) can be conducted under the

following conditions:

Independent Variable (Non-metric) → Dependent Metric Variable

 Here the non-metric independent variable will be known as factor and
since we have only one factor in this analysis that is why it is known
as the one-way ANOVA. The number of categories in the factor will
be known as treatment and will be mathematically indicated by C.
A Marketing Example of One-Way ANOVA

Problem: A CMO of a company marketing carbonated soft-drinks has

developed three new flavors of cola and decided to measure the customers’
preference for these three flavors from 12 customers (each flavor will be given
to 4 customers) by using 9 point Likert Scale where 1 will indicate least
favored and 9 will indicate most favored. Which test you conduct here?
Solution: Here we can identify the following two variables:

So, one-way ANOVA is the appropriate analysis here.

The Steps of Conducting the One-Way ANOVA

 The procedure for conducting one-way analysis of variance may be

summarized below:
 Identify the Dependent and Independent Variables
 Decompose the Total Variation (Between Variation and Within
Variation: SStotal= SSbetween + SSwithin or mathematically, 𝑆𝑆𝑦 = 𝑆𝑆𝑥 +
𝑆𝑆𝑒𝑟𝑟𝑜𝑟
 Test the Significance (test the associated hypothesis)
 Measure the Effects (measure the strength of association)
 Interpret the Results (interpret the result and report it to the
marketing manager)
Problem: One-Way ANOVA

A CMO of a company marketing carbonated soft-drinks has developed three

new flavors of cola and decided to measure the customers’ preference for
these three flavors from 12 customers (each flavor will be given to 4
customers) by using 9 point Likert Scale where 1 will indicate least favored
and 9 will indicate most favored. The table shows the data collected from all
these customers:

[a] Which analysis would you suggest here? Why?

[b] Conduct your suggested analysis.
Solution (a):

Here we can identify the following two variables:

So, one-way ANOVA is the appropriate analysis here.

Solution (b)

Now the one-way ANOVA can be conducted here by conducting the

following five steps:
Step-1: Identify the Dependent and the Independent Variable: Here
Independent Variable is cola-flavors (non-metric) and the dependent
variable is customers’ preference (metric variable).
Step-2: Decompose the Total Variation: Here the following table can be
constructed for the purpose of decomposing the total variation:
(continued…)

Here n1 = 4, n2 = 4, n3 = 4, and n = n1 + n1 + n1 = 4 + 4 + 4 = 12 = total

sample size
Now the category means will be given by—
𝑌1 12
𝑌1 = = =3
𝑛1 4
𝑌2 20
𝑌2 = = =5
𝑛2 4
𝑌3 28
𝑌3 = = =7
𝑛3 4
3+5+7
And the grand means will be given by 𝑌 = =5
3
(continued…)
Now the between variation, 𝑆𝑆𝑥 = 𝑛(𝑌 − 𝑌)2
= 4 (5 – 3)2 + 4 (5 – 5)2 + 4 (5 – 7)2
= 16 + 0 + 16
= 32
And the within variation will be given by 𝑆𝑆𝑤𝑖𝑡ℎ𝑖𝑛 = y 𝑆𝑆𝑒𝑟𝑟𝑜𝑟 = (𝑌 − 𝑌)2
= (3 – 4)2 + (3 – 2)2 + (3 – 4)2 + (3 – 2)2
+ (5 – 6)2 + (5 – 4)2 + (5 – 5)2 + (5 – 5)2
+ (7 – 8)2 + (7 – 6)2 + (7 – 8)2 + (7 – 6)2
= 1+1+1+1+1+1+0+0+1+1+1+1
=10
(continued…)

Now the total variation can be calculated by adding between variation

and within variation,
SStotal = SSbetween + SSwithin
SSY = SSX + SSerror
SSy = 32 + 10 = 42
(continued…)

Step-3: Test the Significance: Now the following null and alternative
hypothesis can be developed here:
H0 : μ1 = μ2 = μ3
H1 : μ1≠ μ2≠ μ3
Now the following ANOVA table can be constructed for the purpose of
testing the associated hypothesis:
(continued…)

Here, C = number of categories in the factor = 3

Sample size, n = 12
𝑆𝑆𝑋 𝑆𝑆𝑒𝑟𝑟𝑜𝑟
Mean Squares are calculated by 𝑀𝑆𝑋 = and 𝑀𝑆𝑒𝑟𝑟𝑜𝑟 =
𝑑𝑓𝑋 𝑑𝑓𝑒𝑟𝑟𝑜𝑟
𝑀𝑆𝑋
Finally F-value is given by 𝐹 =
𝑀𝑆𝑒𝑟𝑟𝑜𝑟
(continued…)

Here the calculated value is Fcalculated = 14.41 and the value of Fcritical can
be found by consulting the F-Table (can be found at end of your text
book) by considering the appropriate level of confidence, and the
associated degrees of freedom in the following way:
Confidence level is assumed to be 95%, so the associated level of
significance is α = .05
First Degree of Freedom, df = 2
Second Degree of Freedom, df = 9
Now we have Fcritical = 4.26
(continued…)

Here Fcalculated = 14.41 > Fcritical = 4.26. So null hypothesis will be

rejected here. Now it can be concluded that there is a relationship
between cola-flavors and customers’ preference. In other words, cola-
flavors affect customers’ preference.
(continued…)

Step-4: Measure the Effects: Now the strength of association will be

calculated by the following formula:
𝑆𝑆𝑋 32
𝜂2 = = = .7619 or 76.19%
𝑆𝑆𝑌 42

The measure indicates that the relationship between cola-flavors and

customers’ preference is strong (by previously introduced rule of
thumb).
Step-5: Interpret the Results: There is a relationship between cola-
flavors and customers’ preference and this relationship was found to be
strongly held. The changes of customers’ preferences can be explained
by the changes of cola-flavors by 76.19%.
Thank You!