Application of differentiation strategy in commercial banking in Kenya
Abstract
Differentiation strategy is one of the generic strategies used by firms to
achieve competitive strategy. The banking industry in Kenya is facing a very
competitive environment coupled with different environmental changes. The
competition in this industry triggers the need for firms to come up with
competitive strategies for survival and sustained profitability. The banking
industry was recently affected by government regulations such as reenactment
of section 44 of the banking act, imposition of ceiling on interest
charged on non performing loans and disclosure of banks charges. The banks
also faced changed economic environment that saw a major decline on
interest rates on government securities. Banks traditionally invested and
reaped high revenues from the high interest rates.
The study sort to establish the use of differentiation strategy in the banking
industry given the changes in the environment. The study was set out as a
census survey involving all the 42 active commercial banks. Structured
questionnaires were administered to all the banks. However, only 26 banks
responded constituting 61% response rate.
The findings of the study indicated that the factors most affecting the banks
were decline on government security interest rates and inability to increase
charges without government approval. Inability to increase charges directly
affects application of differentiation strategy since it affects premium pricing
which is at the core of differentiation. Due to these factors, the research found
that there was an overall change in strategies as banks sought to find ways of
coping with the changing environment. The research also found that banks
had also attempted to fight against some of the regulations through their
umbrella body, the Kenya Bankers Association.
While all banks practice differentiation strategy to some extent, it was found
that there was a significant difference in application of the strategy between
large and small/medium banks and between foreign and local banks.
Citation
A Management Research Project Report Submitted in Partial Fulfillment for the Requirements of the Degree of Masters of Business Administration (MBA), School Of Business, University Of NairobiPublisher
Business Administration