Application of Factor Analysis: To Study the Factor Structure Among Variables
Buying decision of an individual depends upon large number of product characteristics. But the market strategy cannot be developed on the basis of all those parameters of a product that affect the buying behavior of an individual. The factor analysis, a multivariate technique, comes to our rescue in solving such problems. The factor analysis technique reduces the large number of variables into few underlying factors to explain the variability of the group characteristics. The concept used in factor analysis technique is to investigate the relationship among the group of variables and segregate them in different factors on the basis of their relationship. Thus, each factor consists of those variables which are related among themselves and explain some portion of the group variability. For example, personality characteristics of an individual can be assessed by the large number of parameters. The factor analysis may group these variables into different factors where each factor measure some dimension of personality characteristics. Factors are so formed that the variables included in it are related with each other in some way. The significant factors are extracted to explain the maximum variability of the group under study.