EXPLORATORY FACTOR ANALYSIS: USING SPSS

Dr. Vipul Patel

A researcher is interested to study the consumer motivation to shop in shopping malls. He developed the research instrument after conducting in depth review of the literature. The instrument contained 35 statements on seven point likert type scale. After conducting exploratory factor analysis, the researcher summarized the 35 statements in six motivational factors to shop in Shopping Malls.

Economic Incentives, Aesthetic Ambience, Diversion/Browsing, Social Experience, Convenient Service Availability, Meal / Snack Consumption

Source: Kang, Kim and Taun (1993) Motivational Factors of Mall Shoppers Effects of Ethnicity and Age Journal of Shopping Center Research, Vol. 3(1), pp.7-31

A researcher is interested to measure the image of the bank. Respondents were asked to rate the importance of 15 bank attributes. A five point likert scale ranging from not important to very important was employed. After conducting exploratory factor analysis, a four factor solution resulted: Traditional Services (6), convenience (4), visibility(4) and competence (2).

Source: Sinukula , J.M. and Lowtor, L (1987), Positioning in the Finanacial Service Industry: A Look at the Decompossion of Image, in Jon. M. Hawes and George B Glisan, eds., Development in Marketing Science, Vol. 10 (Akron, OH, Academy of Marketing Science, 1987): pp.439-42.

Brand Personality Scale

A researcher is interested to develop the scale for brand personality. At the initial stage, 309 personality traits were identified. These were reduced to 114 personality traits for study. Using exploratory factor analysis, five dimensions with 15 traits of brand personality were identified.

Sincerity (4), Excitement (4), Competence (3), Sophistication (2), Ruggedness (2)

Further, the researcher used CFA to check validity and reliability of Brand personality scale.

Source: Aaker, J.L. (1997), Dimensions of Brand Personality, Journal of Marketing Research, Vol. 34 (3), pp.347356.

SERVQUAL Scale

A researcher is interested to measure perceived service quality. Ninety seven statements were originally developed. These ninety seven statements were reduced to 34 statements using factor analysis. These 34 statements were further reduced to 22 statements, reflecting five dimensions of service quality.

Tangibility, empathy.

reliability,

responsiveness,

assurance

and

Source: Parasuraman, A; Zeithaml, V. A and Berry, L.L. (1988), SERVQUAL: A Multiple-Item Scale For Measuring Consumer Perceptions of Service Quality, Journal of Retailing, Vol. 64 (1), pp.12-40.

Job Satisfaction of Industrial Salesperson

The researcher is interested to develop the scale to measure the job satisfaction of industrial sales person. Through an extensive literature review and open ended questions with salespeople and a work psychologist, 185 items were generated. These items were reduced to 117 items and further reduced to 95 items using factor analysis techniques. During this procedure, seven dimensions of job satisfaction were identified: (1) the job itself, (2) fellow worker, (3) supervisors (4) company policy and support (5) pay (6) promotion and advancement (7) customers.

Source: Churchil, Ford and Walker (1974), Measuring the Job Satisfaction of Industrial Salesmen, Journal of Marketing Research, Vol. 11, pp.254-260

Perceived Leadership Behavior

Researcher is interested to classified the leadership behavior. Based on path goal theory and extensive literature review, a pool of 35 items were generated. Data were collected from 206 employees of two electronic firms and consisted of manager, professionals, foremen, blue collar workers, technicians and others. Principal Components Factor Analysis revealed three types of leadership behavior : Instrumental leadership (7), Supportive Leadership (10) and Participative leadership (5).

Source: House, Robert, J and Dessler Gary (1974) The Path Goal Theory of Leadership: Some Post Hoc and A Priori Tests, In James G Hunt and Lars L Larson (Eds), Contingency Approaches to Leadership. Carbondale: Southern Illinois University Press.

In a study, a researcher is interested to study the customer preference for life insurance in Northern Region of India. Data were collected from 600 customers on 20 reasons (i.e., variables) for preference of life insurance on five point likert scale from 1 = least important to 5 = most important Using Factor Analysis, five factors are derived: Core Product, Promotional, Consumer Expectation, Service Quality, and Risk Return.

What is Factor Analysis?

Factor analysis is a method of data reduction and summarisation: take many variables and explain them with a few factors or components or dimensions The common objective of factor analysis is to represent a set of variables in terms of a smaller number of latent variables. The primary function of factor analysis is to define the underlying structure among the variables in the analysis.

SERVQUAL

R-Matrix:
Underlying benefits Consumers seek from the purchase of toothpaste
V1 V1: Prevention of Cavities V2: Fighting against Germs V4: Prevention of tooth decay V3: Shiny teeth V5: Fresh Breath V6: Attractive teeth 1.000 0.837 0.858 0.053 0.004 -0.086 V2 V4 V3 V5 V6 Health Benefit Factor 1.000 0.672 0.002 -0.155 0.0001 1.000 Social Benefit Factor -0.248 0.018 0.007 1.000 0.778 0.596 1.000 0.779 1.000

Factor analysis is foundation for other univariate or multivariate analysis like t test, ANOVA, MANOVA, Regression Analysis, Cluster Analysis, etc. Factor Analysis can be used for checking reliability and validity of scales designed to measure latent variables.
(CFA

using AMOS)

EFA v/s CFA

Exploratory Factor Analysis (EFA):

The

researcher may not have any idea as to how many underlying dimensions there are for the given data. Factor analysis may be used a means of exploring the data for possible data reduction.

Confirmatory Factor Analysis

The

researcher may anticipate or hypothesize that there are n different underlying dimensions and that certain variables belong to one dimension while others belong to the second.

Assumptions of Factor Analysis

Sample should be homogeneous with respect to the underlying factor structure. Normality
Kolmogorove-Smirnove Skewness

Test

and Kurtosis of the R-Matrix should be greater than

Multicollinearity
Determinant

0.00001.

Procedure for EFA

Stage 1: Conceptual Consideration Stage 2: Appropriateness of Data for Factor Analysis Stage 3: Method of Factor Analysis Stage 4: Extraction, Interpretation and Naming the Factors.

Stage 1: Conceptual Consideration

R factor Analysis v/s Q factor Analysis Variable Selection Garbage in, Garbage out Metric variables (continuous variables) Five or more variables per factor

Sample Size
The

sample must have more observation than variables. The minimum sample size should be 50. Preferable sample size should be 100 or more. As a general rule, the minimum sample size is to have at least five times as many observations as the number of variables to be analyzed, and the more acceptable sample size would have a 10:1 ratio. Some researchers even propose a minimum of 20 cases for each variable.

Stage 2: Appropriateness of Data for Factor Analysis

Kaiser-Meyer-Olkin (KMO) Measure of Sampling Adequacy

Values of of KMO between 0.5 and 0.7 are mediocre, values between 0.7 and 0.8 are good, values between 0.8 and 0.9 are great and values above 0.9 are superb (Hutcheson & Sofroniou, 1999).

Bartletts test of sphericity

Stage 3: Method of Factor Extraction

Principal Component Analysis Common Factor Analysis

Stage 4: Number of Factors

Determination based on Eigenvalue Determination based on Scree Plot Determination based on Percentage of Variance A priori Determination

Scree Plot

Point of Inflexion

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Stage 5: Interpret and Name the Factors

Factor Loading Factor loadings are the weights and correlations between each variable and the factor. The higher the load the more relevant in defining the factors dimensionality. Factor loading in the range of 0.30 to 0.40 are considered to meet the minimum level for interpretation of structure. Loadings 0.50 or greater are considered practically significant. Loadings exceeding 0.70 are considered indicative of wee defined structure and are the goal of any factor analysis.

Factor Rotation
Orthogonal

Rotation & Oblique Rotation

Interpretation of factor Structure

Step1:

Examine factor loadings Cross loading Step 2: Assess the communality of variables Step 3 : Label the Factors

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Interpretation of a Hypothetical Factor Loading Matrix

Unrotated Factor Loading Matrix Factor 1 V1 V2 V3 V4 V5 V6 V7 V8 V9 0.511 0.614 0.295 0.561 0.589 0.630 0.498 0.310 0.492 2 0.250 -0.446 -0.447 -0.176 -0.467 -0.102 0.611 0.300 0.597 3 -0.204 0.264 0.107 -0.550 0.314 -0.285 0.160 0.649 -0.094 V1 V2 V3 V4 V5 V6 V7 V8 V9 1 0.462 0.101 -0.134 -0.005 0.087 0.180 0.795 0.623 0.694 VARIMAX Rotated Factor Loading Matrix Factor 2 0.099 0.778 0.517 0.184 0.801 0.302 -0.032 0.293 -0.147 3 0.505 0.173 0.114 0.784 0.119 0.605 0.120 -0.366 0.323 Communality 0.324 0.644 0.477 0.648 0.664 0.548 0.647 0.608 0.608

*Factor loading more than 0.4 is considered for interpretation

Simplified Rotated Factor Loading Matrix

Factor 2

V2 V5 V3 V7 V9 V8 V4 V6

1 0.807 0.803 0.524

0.802 0.686 0.655 0.851 0.717

*Factor loading less than 0.40 are not shown. **Variables are shorted by highest loadings.

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SPSS Exercise

Case Study: HBAT SPSS File: Case_HBAT.sav

Uses of Factor Analysis Results

Surrogate Variable Summated Scales Reliability Analysis

Cronbach

Alpha should be greater than 0.7, although a 0.60 level can be used in exploratory research.

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Thank You!!!
Dr. Vipul Patel (vipulpat@gmail.com)

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