Factor Analysis

Chapter Outline
1) Overview
2) Basic Concept
3) Factor Analysis Model
4) Statistics Associated with Factor Analysis
5) Conducting Factor Analysis
i. Problem Formulation
ii. Construction of the Correlation Matrix
iii. Method of Factor Analysis
iv. Number of of Factors
v. Rotation of Factors
vi. Interpretation of Factors
vii. Factor Scores
viii.Selection of Surrogate Variables
ix. Model Fit
 6) Applications of Common Factor Analysis
7) Internet and Computer Applications
8) Focus on Burke
9) Summary
10) Key Terms and Concepts
11) Acronyms
Fig 19.1 Conducting Factor Analysis
Problem formulation

Construction of the Correlation Matrix

Method of Factor Analysis

Determination of Number of Factors

Rotation of Factors

Interpretation of Factors

Calculation of Selection of
Factor Scores Surrogate variables

Determination of Model Fit

 RES P ONDENT
NUMB ER V1 V2 V3 V4 V5 V6
Table 19-1 1 7.00 3 .0 0 6.00 4 .00 2.00 4 .00
2 1.00 3 .0 0 2.00 4 .00 5.00 4 .00
3 6.00 2 .0 0 7.00 4 .00 1.00 3 .00
4 4.00 5 .0 0 4.00 6 .00 2.00 5 .00
5 1.00 2 .0 0 2.00 3 .00 6.00 2 .00
6 6.00 3 .0 0 6.00 4 .00 2.00 4 .00
7 5.00 3 .0 0 6.00 3 .00 4.00 3 .00
8 6.00 4 .0 0 7.00 4 .00 1.00 4 .00
9 3.00 4 .0 0 2.00 3 .00 6.00 3 .00
10 2.00 6 .0 0 2.00 6 .00 7.00 6 .00
11 6.00 4 .0 0 7.00 3 .00 2.00 3 .00
12 2.00 3 .0 0 1.00 4 .00 5.00 4 .00
13 7.00 2 .0 0 6.00 4 .00 1.00 3 .00
14 4.00 6 .0 0 4.00 5 .00 3.00 6 .00
15 1.00 3 .0 0 2.00 2 .00 6.00 4 .00
16 6.00 4 .0 0 6.00 3 .00 3.00 4 .00
17 5.00 3 .0 0 6.00 3 .00 3.00 4 .00
18 7.00 3 .0 0 7.00 4 .00 1.00 4 .00
19 2.00 4 .0 0 3.00 3 .00 6.00 3 .00
20 3.00 5 .0 0 3.00 6 .00 4.00 6 .00
21 1.00 3 .0 0 2.00 3 .00 5.00 3 .00
22 5.00 4 .0 0 5.00 4 .00 2.00 4 .00
23 2.00 2 .0 0 1.00 5 .00 4.00 4 .00
24 4.00 6 .0 0 4.00 6 .00 4.00 7 .00
25 6.00 5 .0 0 4.00 2 .00 1.00 4 .00
26 3.00 5 .0 0 4.00 6 .00 4.00 7 .00
27 4.00 4 .0 0 7.00 2 .00 2.00 5 .00
28 3.00 7 .0 0 2.00 6 .00 4.00 3 .00
29 4.00 6 .0 0 3.00 7 .00 2.00 7 .00
30 2.00 3 .0 0 2.00 4 .00 7.00 2 .00
Table 19.2 Correlation Matrix

Variables V1 V2 V3 V4 V5 V6
V1 1.00
V2 -0.53 1.00
V3 .873 -.155 1.00
V4 -.086 .572 -.248 1.00
V5 -.858 .020 -.778 -.007 1.00
V6 .004 .640 -.018 .640 -.136 1.00
 Results of Principal Components Analysis
Table 19.3

Communalities
Variables Initial Extraction
V1 1.000 .926
Barlett test of sphericity
V2 1.000 .723 • Approx. Chi-Square = 111.314
V3 1.000 .894 • df = 15
V4 1.000 .739 • Significance = .00000
V5 1.000 .878 • Kaiser-Meyer-Olkin measure of
V6 1.000 .790 sampling adequacy = .660
Initial Eigenvalues
Factor Eigenvalue % of variance Cumulat. %
1 2.731 45.520 45.520
2 2.218 36.969 82.488
3 0.442 7.360 89.848
4 0.341 5.688 95.536
5 0.183 3.044 98.580
6 0.085 1.420 100.000
Table 19.2 Contd.
Extraction Sums of Squared Loadings
Factor Eigenvalue % of variance Cumulat. %
1 2.731 45.520 45.520
2 2.218 36.969 82.488

Factor Matrix
Variables Factor 1 Factor 2
V1 .928 .253
V2 -.301 .795
V3 .936 .131
V4 -.342 .789
V5 -.869 -.351
V6 -.177 .871

Rotation Sums of Squared Loadings

Factor Eigenvalue % of variance Cumulat. %
1 2.688 44.802 44.802
2 2.261 37.687 82.488
Table 19.2 Contd.

Rotated Factor Matrix

Variables Factor 1 Factor 2
V1 .962 -.027
V2 -.057 .848
V3 .934 -.146
V4 -.098 .845
V5 -.933 -.084
V6 .083 .885

Factor Score Coefficient Matrix

Variables Factor 1 Factor 2
V1 .358 .011
V2 -.001 .375
V3 .345 -.043
V4 -.017 .377
V5 -.350 -.059
V6 .052 .395
Table 19.2 Contd. The lower left triangle contains the reproduced
correlation matrix; the diagonal, the communities; the
upper right triangle, the residuals between the
observed correlations and the reproduced
correlations.

Factor Score Coefficient Matrix

Variables V1 V2 V3 V4 V5 V6
V1 .926 .024 -.029 .031 .038 -.053
V2 -.078 .723 .022 -.158 .038 -.105
V3 .902 -.177 .894 -.031 .081 .033
V4 -.117 .730 -.217 .739 -.027 -.107
V5 -.895 -.018 -.859 .020 .878 .016
V6 .057 .746 -.051 .748 -.152 .790
Fig. 19.2 Screen Plot
3.0

2.5

2.0
Eigenvalue

1.5

1.0

0.5

0.0
1 2 3 4 5 6
Component Number
 Fig. 19.3 Factor Loading Plot
Rotated Component Matrix
Component
Variable 1 2
V1 0.962 -2.66E-02
Component Plot in Rotated Space V2 -5.72E-02 .848
Component 1 V3 0.934 -.146
1.0
V4 -9.83E-02 .854
V4
V2  V6
V5 -.933 -8.40E-02
0.5
Component 2 V6 8.337E-02 0.885

0.0
V1

 V5 V3 

-.5

-1.0
1.0 0.5 0.0 -.5 -1.0
Table 19.4 Results of Common Factor Analysis
Communalities
Variables Initial Extraction
V1 .859 .928 Barlett test of sphericity
V2 .480 .562 • Approx. Chi-Square = 111.314
V3 .814 .836
V4 .543 .600 • df = 15
V5 .763 .789 • Significance = .00000
V6 .587 .723 • Kaiser-Meyer-Olkin measure of
sampling adequacy = .660
Initial Eigenvalues
Factor Eigenvalue % of variance Cumulat. %
1 2.731 45.520 45.520
2 2.218 36.969 82.488
3 0.442 7.360 89.848
4 0.341 5.688 95.536
5 0.183 3.044 98.580
6 0.085 1.420 100.000
Table 19.4 Contd.
Extraction Sums of Squared Loadings
Factor Eigenvalue % of variance Cumulat. %
1 2.570 42.837 42.837
2 1.868 31.126 73.964

Factor Matrix
Variables Factor 1 Factor 2
V1 .949 .168
V2 -.206 .720
V3 .914 .038
V4 -.246 .734
V5 -.850 -.259
V6 -.101 .844

Rotation Sums of Squared Loadings

Factor Eigenvalue % of variance Cumulat. %
1 2.541 42.343 42.343
2 1.897 31.621 73.964
Table 19.4 Contd.

Rotated Factor Matrix

Variables Factor 1 Factor 2
V1 .963 -.030
V2 -.054 .747
V3 .902 -.150
V4 -.090 .769
V5 -.885 -.079
V6 .075 .847

Factor Score Coefficient Matrix

Variables Factor 1 Factor 2
V1 .628 .101
V2 -.024 .253
V3 .217 -.169
V4 -.023 .271
V5 -.166 -.059
V6 .083 .500
Table 19.4 Contd.

The lower left triangle contains the reproduced

correlation matrix; the diagonal, the communities; the
upper right triangle, the residuals between the
observed correlations and the reproduced
correlations.
Factor Score Coefficient Matrix
Variables V1 V2 V3 V4 V5 V6
V1 .928 .022 -.000 .024 -.008 -.042
V2 -.075 .562 .006 -.008 .031 .012
V3 .873 -.161 .836 -.005 .008 .042
V4 -.110 .580 -.197 .600 -.025 -.004
V5 -.850 -.012 -.786 .019 .789 .003
V6 .046 .629 -.060 .645 -.133 .723
RIP 19.1 Driving Nuts For Beetles
Generally, with time, consumer needs and tastes change.
Consumer preferences for automobiles need to be continually
tracked to identify changing demands and specifications.
However, there is one car that is quite an exception - the
Volkswagen Beetle. More than 21 million have been built
since it was introduced in 1938. Surveys have been
conducted in different countries to determine the reasons why
people purchase Beetles. Principal components analyses of
the variables measuring the reasons for owning Beetles have
consistently revealed one dominant factor - fanatical loyalty.
The company has long wished its natural death but without
any effect. This noisy and cramped "bug" has inspired
devotion in drivers.
RIP 19.1 Contd.

Now old bugs are being sought everywhere. "The Japanese

are going absolutely nuts for Beetles," says Jack Finn, a
recycler of old Beetles in West Palm Beach, Florida.

Beetles are still made in Mexico, but they cannot be exported

to US or Europe because of safety and emission standards.
Because of faithful loyalty for the "bug", VW has repositioned
the beetle as a new shiny VW Passat, a premium quality car
which gives an image of sophistication and class as opposed
to the old one which symbolized low-priced brand.
RIP 19.2 Factors Predicting Unethical
Marketing Research Practices
A survey of 420 marketing professionals was conducted to identify
organizational variables that determine the incidence of unethical marketing
research practices. These marketing professionals were asked to provide
evaluations of the incidence of fifteen marketing research practices that have
been found to pose ethical problems. They also provided responses on several
other scales, including an 11 item scale pertaining to the extent to which ethical
problems plagued the organization, and what top management's actions were
toward ethical situations. The commonly used method of principal components
analysis with varimax rotation indicated that these 11 items could be represented
by two factors.

Contd.
 RIP 19.1 Contd.
Factor Analysis of Ethical Problems and Top Management Action Scale
Extent of Ethical
Problems within Top Management
the organization actions on ethics
(factor 1) (factor 2)
1. Successful executives in my company make rivals
look bad in the eyes of important people in my
company. 0.66
2. Peer executives in my company often engage in
behaviors that I consider unethical. 0.68
3. There are opportunities for peer executives in my company to
engage in unethical behavior. 0.43
4. Successful executives in my company take credit for the
ideas & accomplishment of others. 0.81
5. In order to succeed in my company, it is often necessary
to compromise one's ethics. 0.66
6. Successful executives in my company are generally more
unethical than unsuccessful executives.
0.64
7. Successful executives in my company look for a
"scapegoat" when they feel they may by associated with
failure. 0.78
Factor Analysis of Ethical Problems and Top Management Action Scale
Extent of Ethical
Problems within Top Management
the organization actions on ethics
(factor 1) (factor 2)
8. Successful executives in my company withhold
information that is detrimental to their self-interest.
0.68
9. Top management in my company has let it be
known in no uncertain terms that unethical behaviors will not
be tolerated. 0.73
10. If an executive in my company engages in unethical
behavior resulting in personal gain (rather than
corporate gain), he/she will be promptly reprimanded.
0.80
11. If an executive in my company engages in unethical
behavior resulting in corporate gain, he/she will be
promptly reprimanded. 0.78 Eigenvalue
5.06 1.17 % of Variance Explained 46%
11% Coefficient Alpha 0.87 0.75
To simplify the table, only varimax-rotated loading of .40 or greater are reported. Each was rated
on a five-point scale with 1 = "strongly agree" and 5 = "strongly disagree”

RIP 19.1 Contd.

RIP 19.1 Contd.

Factor Analysis of Ethical Problems and Top Management Action Scale

The first factor could be interpreted as the incidence of unethical practices, while
the second factor denotes top management actions related to unethical practices.
The two factors together account for more than half the variation in the data with
the first factor being dominant. These two factors were then used along with four
other variables as predictors in a multiple regression. The results indicated that
they were the two best predictors of unethical marketing research practices.