Discriminant Analysis, Factor Analysis, Cluster Analysis, Multidimensional scaling and Conjoint analysis

Discriminant Analysis
A technique for analyzing marketing research data when the criterion/dependent variable is categorical and the predictor/independent variable are interval in nature

Objectives of discriminant analysis

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Development of discriminant functions (linear combinations of the predictor which will best discriminate between the categories of the criterion) Examination whether significant differences exist among the group Determination of which predictor variables contribute to most of the intergroup differences Classification of cases to one of the groups based on the values of the predictor variables Evaluation of the accuracy of classification

Similarities and Differences among ANOVA, Regression and Discriminant Analysis Similarities:
Number of dependent variables 1 Number of independent variables Multiple

Differences
Nature of dependent variable: Metric, Metric, Categorical Nature of independent variable: categorical, metric, metric

Steps involved in Discriminant Analysis

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Formulate the problem Estimate the discriminate function coefficient Determine the significance of the discrimination function Interpret the results Assess the validity of discriminant analysis

Marketing Research Applications

In term of demographic characteristics, how do customers who exhibit store loyalty differ from those who do not Do heavy, medium and light users of soft drink differ in terms of their consumption of frozen food What psychographic characteristics help differentiate between price-sensitive and non-price sensitive buyers of groceries Does the various market segment differ in their media consumption habits In terms of lifestyles, what are the differences between heavy patrons of general stores and Mall stores

Factor analysis
A class of procedures primarily used for data reduction and summarization It is use in the following circumstances 1. To identify underlying dimensions/factors that explain correlations among a set of variables 2. To identify a new, smaller set of uncorrelated variables to replace the original set of correlated variables in subsequent multivariate analysis 3. To identify a smaller set of salient variables from a larger set for use in subsequent multivariate analysis

Steps involved in factor analysis

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Formulate the problem Construct the correlation matrix Determine the method of factor analysis Determine the number of factors Rotate the factors Interpret the factors
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Calculate the factor scores Select the surrogate variables

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Determine the model fit

Marketing Research Application

Identifying the underlying variables on which to group the customers ( new car buyers may be grouped based on the relative emphasis they place on economy, convenience, performance, comfort and luxury.) Determining the brand attributes that influence consumer choice. (toothpaste brands might be evaluated in terms of protection against cavities, whiteness of teeth, taste, fresh breath and price) Understand the media consumption habits of the target market. The users of ready to eat food may be heavy viewers of cable TV, see a lot more movies, and listen to western music Identifying the characteristics of price-sensitive consumers (these consumers might be methodical, economy minded and home centered)

Cluster Analysis

A class of techniques used to classify objects/cases into relatively homogeneous groups called clusters. Objects in each cluster tend to be similar to each other and dissimilar to other cluster A.k.a. classification analysis/numerical taxonomy Both cluster analysis and discriminant analysis is used for classification but in cluster analysis there is no a priori information about the group/cluster membership

Steps involved in cluster analysis

Formulate the problem Select a distance measure Select a clustering procedure Decide on the number of cluster Interpret and profile cluster Assess the validity of clustering

Marketing Research Application

Segmenting the market Understanding buyer behaviour Identifying new product opportunities Selecting test markets Reducing data

Multidimensional scaling

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A class of procedures for representing perceptions and preferences of respondents spatially by means of a visual display. MDS has been used in marketing to identify: The number and nature of dimensions consumer use to perceive different brands in the market place The positioning of current brands on these dimensions The positioning of consumers ideal brand on these dimensions

Steps in MDS

Formulate the problem Obtain input data Select an MDS procedure Decide on the number of dimensions Label the dimensions and interpret the configurations Assess reliability and validity

Marketing Research Application

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Image measurement Market segmentation New product development Assessing advertising effectiveness Pricing analysis Channel decisions Attitude scale construction

Conjoint Analysis

A technique that attempts to determine the relative importance consumers attach to salient attributes and the utilities they attach to the levels of attributes It seeks to develop the partworth/utility functions describing the utility consumers attach to the levels of each attribute. It is complementary to MDS

Steps involved in Conjoint Analysis

Formulate the problem Construct the stimuli Decide on the form of input data Select a conjoint analysis procedure Interpret the results Assess reliability and validity

Market Research Application

Determining the relative importance of attributes in the consumer choice process Estimate market share of brands that differ in attribute levels Determining the composition of most preferred brand Segmenting the market based on similarity of preferences for attribute levels