MARKET

RESEARCH

Submitted
By:

Himanshu Arora 06

Hemali Chawla 18

Nitin Chawla 19
 Multivariate Analysis
Techniques:
Situation 1: A harried executive walks into your office with a stack of
printouts. She says,
“You’re the marketing research whiz—tell me how many of this new red
widget we are going to sell next year. Oh, yeah, we don’t know what price
we can get for it either.”

Situation 2: Another harried executive (they all seem to be that way)

calls you into his office and shows you three proposed advertising
campaigns for next year. He asks, “Which one should I use? They all look
pretty good to me.”

Situation 3: During the annual budget meeting, the sales manager wants
to know why two of his main competitors are gaining share. Do they have
better widgets? Do their products appeal to different types of customers?
What is going on in the market?

All of these situations are real, and they happen every day across
corporate. Fortunately, all of these questions are ones to which solid,
quantifiable answers can be provided. An astute marketing researcher
quickly develops a plan of action to address the situation. The researcher
realizes that each question requires a specific type of analysis,

Over the past 20 years, the dramatic increase in desktop computing

power has resulted in a corresponding increase in the availability of
computation intensive statistical software. Programs like SAS and SPSS,
once restricted to mainframe utilization, are now readily available in
Windowsbased, menu-driven packages. The marketing research analyst
now has access to a much broader array of sophisticated techniques with
which to explore the data. The challenge becomes knowing which
technique to select, and clearly understanding their strengths and
weaknesses.

WHAT IS MULTIVARIATE ANALYSIS?

Multivariate analysis is the analysis of the simultaneous relationships

among three or more phenomena. While in a univariate analysis the focus
is on the level (average) and distribution (variance) of the phenomenon,
while in a bivariate analysis the focus shifts to the degree of relationships
(correlations or covarainces) between the phenomenon. In a multivariate
analysis, the focus shifts from paired relationships to the more complex
simultaneous relationships among phenomenon.

Multivariate analysis (MVA) is based on the statistical principle of

multivariate statistics, which involves observation and analysis of more
than one statistical variable at a time. In design and analysis, the
technique is used to perform trade studies across multiple dimensions
while taking into account the effects of all variables on the responses of
interest.

Uses for multivariate analysis include:

* Design for capability (also known as capability-based design)

* Inverse design, where any variable can be treated as an independent
variable
* Analysis of alternatives, the selection of concepts to fulfill a customer
need
* Analysis of concepts with respect to changing scenarios
* Identification of critical design drivers and correlations across
hierarchical levels

Multivariate analysis can be complicated by the desire to include physics-

based analysis to calculate the effects of variables for a hierarchical
"system-of-systems." Often, studies that wish to use multivariate analysis
are stalled by the dimensionality of the problem. These concerns are often
eased through the use of surrogate models, highly accurate
approximations of the physics-based code. Since surrogate models take
the form of an equation, they can be evaluated very quickly. This
becomes an enabler for large-scale MVA studies: while a Monte Carlo
simulation across the design space is difficult with physics-based codes, it
becomes trivial when evaluating surrogate models, which often take the
form of response surface equations.

Decision Analyst

In order to understand multivariate analysis, it is important to understand

some of the terminology. A variate is a weighted combination of variables.
The purpose of the analysis is to find the best combination of weights.
Nonmetric data refers to data that are either qualitative or categorical in
nature. Metric data refers to data that are quantitative, and interval or
ratio in nature.

Initial Step—Data Quality

Before launching into an analysis technique, it is important to have a clear

understanding of the form and quality of the data. The form of the data
refers to whether the data are nonmetric or metric. The quality of the data
refers to how normally distributed the data are. The first few techniques
discussed are sensitive to the linearity, normality, and equal variance
assumptions of the data. Examinations of distribution, skewness, and
kurtosis are helpful in examining distribution. Also, it is important to
understand the magnitude of missing values in observations and to
determine whether to ignore them or impute values to the missing
observations. Another data quality measure is outliers, and it is important
to determine whether the outliers should be removed. If they are kept,
they may cause a distortion to the data; if they are eliminated, they may
help with the assumptions of normality. The key is to attempt to
understand what the outliers represent.

Multiple Regression Analysis

Multiple regression is the most commonly utilized multivariate technique.

It examines the relationship between a single metric dependent variable
and two or more metric independent variables. The technique relies upon
determining the linear relationship with the lowest sum of squared
variances; therefore, assumptions of normality, linearity, and equal
variance are carefully observed. The beta coefficients (weights) are the
marginal impacts of each variable, and the size of the weight can be
interpreted directly. Multiple regression is often used as a forecasting tool.

Logistic Regression Analysis

Sometimes referred to as “choice models,” this technique is a variation of

multiple regression that allows for the prediction of an event. It is
allowable to utilize nonmetric (typically binary) dependent variables, as
the objective is to arrive at a probabilistic assessment of a binary choice.
The independent variables can be either discrete or continuous. A
contingency table is produced, which shows the classification of
observations as to whether the observed and predicted events match. The
sum of events that were predicted to occur which actually did occur and
the events that were predicted not to occur which actually did not occur,
divided by the total number of events, is a measure of the effectiveness of
the model. This tool helps predict the choices consumers might make
when presented with alternatives.

Discriminant Analysis

The purpose of discriminant analysis is to correctly classify observations

or people into homogeneous groups. The independent variables must be
metric and must have a high degree of normality. Discriminant analysis
builds a linear discriminant function, which can then be used to classify
the observations. The overall fit is assessed by looking at the degree to
which the group means differ (Wilkes Lambda or D2) and how well the
model classifies. To determine which variables have the most impact on
the discriminant function, it is possible to look at partial F values. The
higher the partial F, the more impact that variable has on the discriminant
function. This tool helps categorize people, like buyers and nonbuyers.

Multivariate Analysis of Variance

(MANOVA)
This technique examines the relationship between several categorical
independent variables and two or more metric dependent variables.
Whereas analysis of variance (ANOVA) assesses the differences between
groups (by using T tests for 2 means and F tests between 3 or more
means), MANOVA examines the dependence relationship between a set of
dependent measures across a set of groups. Typically this analysis is used
in experimental design, and usually a hypothesized relationship between
dependent measures is used. This technique is slightly different in that
the independent variables are categorical and the dependent variable is
metric. Sample size is an issue, with 15-20 observations needed per cell.
However, too many observations per cell (over 30) and the technique
loses its practical significance. Cell sizes should be roughly equal, with the
largest cell having less than 1.5 times the observations of the smallest
cell. That is because, in this technique, normality of the dependent
variables is important. The model fit is determined by examining mean
vector equivalents across groups. If there is a significant difference in the
means, the null hypothesis can be rejected and treatment differences can
be determined.

Factor Analysis

When there are many variables in a research design, it is often helpful to

reduce the variables to a smaller set of factors. This is an independence
technique, in which there is no dependent variable. Rather, the researcher
is looking for the underlying structure of the data matrix. Ideally, the
independent variables are normal and continuous, with at least 3 to 5
variables loading onto a factor. The sample size should be over 50
observations, with over 5 observations per variable. Multicollinearity is
generally preferred between the variables, as the correlations are key to
data reduction. Kaiser’s Measure of Statistical Adequacy (MSA) is a
measure of the degree to which every variable can be predicted by all
other variables. An overall MSA of .80 or higher is very good, with a
measure of under .50 deemed poor.

There are two main factor analysis methods: common factor analysis,
which extracts factors based on the variance shared by the factors, and
principal component analysis, which extracts factors based on the total
variance of the factors. Common factor analysis is used to look for the
latent (underlying) factors, where as principal components analysis is
used to find the fewest number of variables that explain the most
variance. The first factor extracted explains the most variance. Typically,
factors are extracted as long as the eigenvalues are greater than 1.0 or
the Scree test visually indicates how many factors to extract. The factor
loadings are the correlations between the factor and the variables.
Typically a factor loading of .4 or higher is required to attribute a specific
variable to a factor. An orthogonal rotation assumes no correlation
between the factors, whereas an oblique rotation is used when some
relationship is believed to exist.
Cluster Analysis

The purpose of cluster analysis is to reduce a large data set to meaningful

subgroups of individuals or objects. The division is accomplished on the
basis of similarity of the objects across a set of specified characteristics.
Outliers are a problem with this technique, often caused by too many
irrelevant variables. The sample should be representative of the
population, and it is desirable to have uncorrelated factors. There are
three main clustering methods: hierarchical, which is a treelike process
appropriate for smaller data sets; nonhierarchical, which requires
specification of the number of clusters a priori, and a combination of both.

There are 4 main rules for developing clusters:

the clusters should be different,
they should be reachable,
they should be measurable, and
the clusters should be profitable (big enough to matter).

This is a great tool for market segmentation.

Multidimensional Scaling
(MDS)

The purpose of MDS is to transform consumer judgments of similarity into

distances represented in multidimensional space. This is a
decompositional approach that uses perceptual mapping to present the
dimensions. As an exploratory technique, it is useful in examining
unrecognized dimensions about products and in uncovering comparative
evaluations of products when the basis for comparison is unknown.
Typically there must be at least 4 times as many objects being evaluated
as dimensions. It is possible to evaluate the objects with nonmetric
preference rankings or metric similarities (paired comparison) ratings.
Kruskal’s Stress measure is a “badness of fit” measure; a stress
percentage of 0 indicates a perfect fit, and over 20% is a poor fit. The
dimensions can be interpreted either subjectively by letting the
respondents identify the dimensions or objectively by the researcher.

Correspondence Analysis

This technique provides for dimensional reduction of object ratings on a

set of attributes, resulting in a perceptual map of the ratings. However,
unlike MDS, both independent variables and dependent variables are
examined at the same time. This technique is more similar in nature to
factor analysis. It is a compositional technique, and is useful when there
are many attributes and many companies. It is most often used in
assessing the effectiveness of advertising campaigns. It is also used when
the attributes are too similar for factor analysis to be meaningful. The
main structural approach is the development of a contingency (crosstab)
table. This means that the form of the variables should be nonmetric. The
model can be assessed by examining the Chisquare value for the model.
Correspondence analysis is difficult to interpret, as the dimensions are a
combination of independent and dependent variables.

Conjoint Analysis

Conjoint analysis is often referred to as “trade-off analysis,” in that it

allows for the evaluation of objects and the various levels of the attributes
to be examined. It is both a compositional technique and a dependence
technique, in that a level of preference for a combination of attributes and
levels is developed. A part-worth, or utility, is calculated for each level of
each attribute, and combinations of attributes at specific levels are
summed to develop the overall preference for the attribute at each level.
Models can be built which identify the ideal levels and combinations of
attributes for products and services.

Canonical Correlation

The most flexible of the multivariate techniques, canonical correlation

simultaneously correlates several independent variables and several
dependent variables. This powerful technique utilizes metric independent
variables, unlike MANOVA, such as sales, satisfaction levels, and usage
levels. It can also utilize nonmetric categorical variables. This technique
has the fewest restrictions of any of the multivariate techniques, so the
results should be interpreted with caution due to the relaxed assumptions.
Often, the dependent variables are related, and the independent variables
are related, so finding a relationship is difficult without a technique like
canonical correlation.

Structural Equation Modeling

Unlike the other multivariate techniques discussed, structural equation

modeling (SEM) examines multiple relationships between sets of variables
simultaneously. This represents a family of techniques, including LISREL,
latent variable analysis, and confirmatory factor analysis. SEM can
incorporate latent variables, which either are not or cannot be measured
directly into the analysis. For example, intelligence levels can only be
inferred, with direct measurement of variables like test scores, level of
education, grade point average, and other related measures. These tools
are often used to evaluate many scaled attributes or build summated
scales.

Each of the multivariate techniques described above has a specific type of

research question for which it is best suited. Each technique also has
certain strengths and weaknesses that should be clearly understood by
the analyst before attempting to interpret the results of the technique.
Current statistical packages (SAS, SPSS, S-Plus, and others) make it
increasingly easy to run a procedure, but the results can be disastrously
misinterpreted without adequate care.