Under what general circumstances is factor analysis used?
What will be an ideal response?
Factor analysis is used in the following circumstances:
1. To identify underlying dimensions, or factors, that explain the correlations among a set of variables.
For example, a set of lifestyle statements may be used to measure the psychographic profiles of consumers. These statements may then be factor-analyzed to identify the underlying psychographic factors.
2. To identify a new, smaller set of uncorrelated variables to replace the original set of correlated variables in subsequent multivariate analysis (regression or discriminant analysis).
For example, the psychographic factors identified may be used as independent variables in explaining the differences between loyal and nonloyal consumers.
3. To identify a smaller set of salient variables from a larger set for use in subsequent multivariate analysis.
For example, a few of the original lifestyle statements that correlate highly with the identified factors may be used as independent variables to explain the differences between the loyal and nonloyal users.
Factor analysis has numerous applications in marketing research.
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