Factor Analysis

• Factor Analysis is a data reduction technique to

identify factors that explain variation.
• It is very useful method of reducing data complexity
by reducing no. of variables being studied.
• It is set of techniques which, by analyzing
correlations between variables, reduces their number
into fewer factor which explains much of the
original data more economically..
• Method -
• Stage 1 – Factor Extraction Method
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• Stage 2 – Rotation of Principal Components
 Factor Analysis
1. Factor Extraction Method –
• Objective is to identify how many factors will be
extracted from data.
• Method is Principal Component Analysis
• The concept of ‘Eigen Value’ translates
approximately to the ‘Variance Explained’ concept
of Regression Analysis.
• The higher is the “Eigen Value’ of a Factor, the
higher is the amount of variance explained by the
factor.
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• Eigen Value >/= 1.
 Factor Analysis
2. Rotation of Principal Components-
• Rotated Factor Matrix is used for this purpose.
• This is similar to Correlation Matrix.
• ‘Loading’ having values between 0 & 1.
• Close to 1 indicates higher loading & close to 0
indicates lower loading
• Objective is to find out variable having higher
loading on one factor but low loading on other
factors.
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 Factor Analysis
Example –
A Car Manufacturer want to release a small car into
the market. For this purpose, they have surveyed 20
respondents about their perceptions & image attributes
of small cars. Ten questions were asked to each of
them, all answered on a scale of 1 to 7. (1 =
Completely Agree, & = Completely Disagree)

The questions are given on the next slide -

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 Factor Analysis
• Questions –
1. The price of the car should be reasonable
2. Mileage should be at least 17 Kms / lt
3. A small car is easy to maintain & Service
4. Seating should be comfortable for four adults
5. It should have adequate leg space and head room.
6. Brakes are the most critical part of car.
7. Collapsible steering column should be standard feature
8. Power steering is must
9. Interior accessories should be attractive
10. Adequate space for luggage. 5
Factor Analysis - SPSS

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 Factor Analysis – SPSS Input
• Import the data from Excel Sheet
• Analyze – Data Reduction – Factor
• Select all variables on left side & transfer on rt side
variable box using right arrow
• Click ‘Extraction’ –
– Select ‘Principal Components’ as method
– Under ‘Display’ – select ‘Unrotated Factor Solution’
– Under ‘Extract’ – select ‘Eigen Value over 1’
– Under ‘Analyze’ – choose ‘Correlation Matrix’
– Click ‘Continue’
• Click ‘Rotation’ – select ‘VARIMAX’ from options under
‘Method’ – click ‘Continue’
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• Click ‘Ok’ to get Factor Analysis output
Factor Analysis – SPSS Output

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Factor Analysis - SPSS

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 Factor Analysis - SPSS
• Interpretation –
• 3 Factors –Eigen value more than 1- Cumulative Variance –
82. 154% explained ( Information contained in 10 variables)
• ‘Communality’ is the proportion of variance in any one of
the original variable which is captured by the extracted
factors. e.g. for Var 1 – 0. 941 is captured by 3 extracted
factors, 0.969 for Var 2 & so on.
• So also, any variable should load close to 1 on one Factor &
close to 0 on remaining. If this is not the case, it indicates
that either the sample of respondents has more than one
opinion about the variable or the question / variable may not
be clear in it’s phrasing.
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 Factor Analysis - SPSS
• Interpretation –
• Loading of 1,2,3 & 10 on Factor 1 – i.e Factor 1 is
combination of 4 – Can be named as ‘Economy’
• Loading of 4 & 5 on Factor 2 – i.e. Factor 2 is combination
of 2 – can be named as ‘Spaciousness’
• Loading of 6 & 7 on Factor 3 – i.e. Factor 3 is combination
of 2 – can be named as ‘Safety’
• 8 & 9 could be independent – should be further investigated
Another question is ‘What should be considered as high
loading?’
There is no clear cut guideline & thies should be looked
into wrt ‘Relativity’ concept & with left to researcher’s
expertise. 11
 Factor Analysis - SPSS
• Ex. 2 – Twenty 2 Wheeler Owners were surveyed
about their perceptions & image attributes of the
vehicles they owned . Ten Questions were asked to
each of them, all answered on a scale of 1 to 7 ( 1 =
Completely Agree & 7 = Completely Disagree).
• 1 – I use 2 Wheeler because it is affordable
• 2 – It gives me sense of freedom to own a 2 Wheeler
• 3 – Low Maintenance cost makes a 2 Wheeler very
economical in long run.
• 4 – A 2 Wheeler is essentially a male dominated
vehicle 12
 Factor Analysis - SPSS
• 5 - I feel very powerful when I am on my 2 Wheeler
• 6 – Some of my friends who do not have their own
vehicle are jealous of me
• 7 – I feel good whenever I see the Ad of my 2
Wheeler on TV, in a magazine or on a hoarding
• 8 – My vehicle gives me a comfortable ride
• 9 – I think 2 Wheeler are a safe way to travel
• 10 – Three people should be legally allowed to
travel on 2 Wheeler
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Factor Analysis - SPSS

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Factor Analysis - SPSS

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Factor Analysis - SPSS

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 Factor Analysis - SPSS
• Interpretation –
• Loading of 4,5,6 & 7 on Factor 1 – i.e Factor 1 is
combination of 4 – Can be named as ‘Pride of Ownership’
• Loading of 8 & 9 on Factor 2 – i.e. Factor 2 is combination
of 2 – can be named as ‘Utility’ So also Var 3 has a high
loading on Factor 2 in Unrotated Factor Matrix. This also
may be included based on Researcher’s choice.
• Loading of 1 & 10 on Factor 3 – i.e. Factor 3 is combination
of 2 – can be named as ‘Economy’
• 2 could be independent – should be further investigated

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Factor Analysis - SPSS

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