Importance of Factor Analysis in Marketing
One of the most important topics from the perspective of marketing was covered in the subject of Business analytics and belonged to Factor Analysis. In essence, marketing factor analysis is changing one marketing variable to see what affect, if any, the change has on the outcome. The change in sales also affects the bottom line of the company, so factor analysis in marketing helps companies determine which marketing efforts it should pursue, which efforts need work and which marketing efforts may meet the cutting room floor.
Variables
An infinite number of marketing variables can exist, which is why it is necessary to alter only one at a time. Marketing variables include the product, the product packaging, the size of the product and the color of the product. The price, distribution channels and marketing strategies may also be variables of the product that can be changed to see how the change makes a difference in the sales of the product.
What Customers Want
Factor analysis in marketing is important because it reflects the perception of the buyer of the product. By testing variables, it is possible for marketing professionals to determine what is important to the customers of the product. For example, if a product is only available in black and the sales reach $150,000 in one year, but when the company adds color options of red, blue and silver, and sales reach $300,000, then the company can conclude through factor analysis that color options are important to the customers of the product. Ultimately, it is imperative to use factor analysis in marketing to create the ideal product for customers, which in turn, increases the sales of the product.
Conducting Factor Analysis
Generally, companies test variables with factor analysis in marketing using tools such as focus groups and surveys. Since making changes to the product itself in order to test variables can be expensive, surveys and focus groups allows companies to gather pertinent information without increasing the cost to manufacture the product. Focus groups and surveys allow companies to gather perceptual information from current and potential customers of the product. This information is important because it allows the company to see the product from the vantage point of the customers and determine which factors in marketing are the most important to the customers. For example, a focus group may see four different package versions of a product and then ask the focus group participants to choose which package they like best and explain why. Companies can use this information to alter product packaging to attract more customers and sell more products.
Misconceptions
Factor analysis in marketing can change the way a company sells its product, but factor analysis in marketing is not a science. Grand scale testing is typically required to come to a fair conclusion on the relationship of the variables. It is wise to have a market research expert help to conduct the factor analysis and evaluate the test results to ensure it is not an incorrectly implied cause/effect relationship.
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Group - Marketing 3
Author of the Article - Ritesh Chaddha(13094)& Ajay Khatwa(13123)
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