Karak Tea Whitener: The Use of Factor Analysis

Factor Analysis Introduction

In the modern digital world marketers have available to them huge amounts of data, not all of which is
useful to them. The data needs to be summarized and pruned so that only the information most relevant
to the decision at hand remains as large amounts of data might not only have irrelevant bits but might
also be very difficult to manage. To summarize and reduce this data to a useful and manageable size
marketers use a number of data reduction techniques, one of which is factor analysis. For example, a
number of correlated variables might be affecting a decision to buy a particular product. Factor analysis
determines and summarizes those variables into factor that most affect the decision to buy that product.
This way marketers can only focus on those factors and come up with a better marketing strategy. The
following section shows a stepwise guide to perform factor analysis using SPSS.

There are multiple techniques available for performing Factor Analysis, however, the one we will be using
and the one most commonly used by statisticians in Principal Component Analysis or PCA. PCA allows us
to reduce the number of input variables by dropping the least important variables from our dataset.
Additionally, variables that show correlation with each other are bundled together into new variables,
called factors. These new variables or factors are independent of one another. Factor Analysis uses a linear
model to explain the variances therefore it is important that all the variables used are independent of one
anotheri.

When to use PCA?ii

1. Do you want to reduce the number of variables, but aren’t able to identify variables to completely
remove from consideration?
2. Do you want to ensure your variables are independent of one another?
3. Are you comfortable making your independent variables less interpretable?

Karak Tea Whitener - Steps to perform factor analysis

We will be using the example of Karak tea whitener for this exercise. See the problem below:

Seventeen psychographic statements were included in a questionnaire to know about the underlying
dimensions of Karak Tea Whitener usage. In order to deduce a small number of components (factors) that
can explain most of the variance in the seventeen psychographic statements, factor analysis was used as
a means of data reduction. Factors identified at this stage will then be used in cluster analysis to develop
segmentation. The following questions/variables will be used to run factor analysis:

1. Karak’s product advertising is a good source of learning and information about the product
2. Karak is a quality product
3. Karak is convenient to use
4. My parents have been using Karak since many years
5. Karak makes my tea more exciting
6. I have some good information about where Karak is available
 7. I take the decision of buying Karak
8. I gave my family and friends advice to try Karak
9. I tend to refer to salespeople to get information about Karak
10. Promotions and coupons on Karak influences my buying
11. Karak is available at the reasonable price
12. I don’t make Karak purchase decisions based on advertising
13. I don’t need to change Karak, as I’m happy with my routine over the days
14. Karak is available as a low-calorie option
15. I pay attention to the nutritional information mentioned on Karak’s Packaging

Let’s help Karak conduct factor analysis to find out which variables are most important!

i. Open the Karak Tea Whitener Data in SPSS. You can download the file from here.
ii. Click Analyze followed by dimension reduction->Factor to open the factor analysis window.

iii. Move our required variables (see above) to the Variables box as shown below.
 iv. Click on the Descriptives button and check initial solution, reproduced1 and KMO and
Barlett’s test for sphericityiii2 and press continue. The dialogue box should look like this

1
The estimated correlation matrix from the factor solution. Residuals (difference between estimated and observed
correlations) are also displayed.
2
The Kaiser-Meyer-Olkin Measure of Sampling Adequacy is a statistic that indicates the proportion of variance in
your variables that might be caused by underlying factors. High values (close to 1.0) generally indicate that a factor
analysis may be useful with your data. If the value is less than 0.50, the results of the factor analysis probably won't
be very useful. Bartlett's test of sphericity tests the hypothesis that your correlation matrix is an identity matrix,
which would indicate that your variables are unrelated and therefore unsuitable for structure detection. Small
values (less than 0.05) of the significance level indicate that a factor analysis may be useful with your data.
v. Click on the Extraction and select principle components as the method for running factor
analysis. Also make sure that correlation matrix, unrotated factor solution and based on
eigenvalues are checked. Press continue once your dialogue box looks like this
 vi. Click Rotation and make sure that Varimax3 and Rotated Solution4 are checked before
clicking continue.

vii. Click scores and make sure Display factor score coefficient matrix is checked before clicking
continue.

3
An orthogonal rotation method that minimizes the number of variables that have high loadings on each factor.
This method simplifies the interpretation of the factors.
4
A rotation method must be selected to obtain a rotated solution. For orthogonal rotations, the rotated pattern
matrix and factor transformation matrix are displayed. For oblique rotations, the pattern, structure, and factor
correlation matrices are displayed.
viii. Click Options and check exclude cases listwise, sorted by size and suppress small
coefficients. Select absolute value to be suppressed as 0.4 as shown below. However, based
on the marketers discretion this value can be anything. 0.4, usually is a good number.

ix. Press Ok at the factor analysis window to run the analysis based on the specified
parameters.
x. The KMO (greater than 0.6) and bartlett’s test (less than .05) indicate the factor analysis was
significant and our factor analysis is useful.

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .600

Bartlett's Test of Sphericity Approx. Chi-Square 615.615

Df 105

Sig. .000
xi. The total variance explained table indicates that 64.8% of the variance in respondents
answers can be explained by the first 5 factors. Only factors with eigenvalues greater
than 1 are selected for further analysis. The rotated components matrix has come up
with a 5 factor solution for our problem. You can see which variables form part of
which dimension in this table. For example factor 1 has 5 interdependent variables.
You can see the variable names in the table.
xii. Although the initial or unrotated factor matrix indicates the relationship between the
factors and individual variables, it seldom results in factors that can be interpreted,
because the factors are correlated with many variables. Therefore, to get a better
understanding of the factors the matrix is rotated.iv
Rotated Component Matrixa

Component

1 2 3 4 5

S1-Karak’s product
advertising is a good source
.823
of learning and information
about the product
S3-Karak is convenient to
.745
use
S2-Karak is a quality
.661
product
S5-Karak makes my tea
.629
more exciting
S4-My parents have been
using Karak since many .571 .407
years
S6-I have some good
information about where .894
Karak is available
S7-I take the decision of
.855
buying Karak
S8-I gave my family and
.807
friends advice to try Karak
S15-I pay attention to the
nutritional information
.411
mentioned on Karak’s
Packaging
S10-Promotions and
coupons on Karak .723
influences my buying
S11-Karak is available at
.681
the reasonable price
S9-I tend to refer to
salespeople to get .669
information about Karak
S12-I don’t make everyday
purchase decisions based .852
on advertising
S13-I don’t need to change
Karak, as I’m happy with my .674
routine over the days
S14-Karak is available as a
.862
low-calorie option
 xiii. The interpretation of these factors is done on the basis the variables that are part of
that factor and their respective weights. For example factor 1 could be about people
who look for validation and proof when using a new product but prefer official
sources as the source of that proof as the highest weight goes to people who look for
information through advertisements.

i
https://towardsdatascience.com/a-one-stop-shop-for-principal-component-analysis-5582fb7e0a9c
ii
https://towardsdatascience.com/a-one-stop-shop-for-principal-component-analysis-5582fb7e0a9c
iii
https://www.ibm.com/support/knowledgecenter/en/SSLVMB_sub/spss/tutorials/fac_telco_kmo_01.html
iv