Competitive strategies and porter’s five forces model by the insurance companies in Kenya
The state of competition in an industry depends on five basic forces. Porter’s five forces model is an analysis tool that uses five forces to determine the profitability of an industry and shape a firm’s competitive strategy. It is a framework that classifies and analyses the most important forces affecting the intensity of competition in an industry and its profitability level (Porter, 2008). Five forces model is very useful in formulating firm’s strategy as it reveals how powerful each of the five key forces is in a particular industry (Porter, 2008).Low insurance penetration is one of the challenges facing the insurance industry development in terms of market share, product diversification among other measures. The essence of competitive strategies is coping with competition. This study sought to fill the existing research gap by investigating on the challenges facing insurance companies in building competitive advantage in Kenya. The survey research design method was employed in this research. The survey is a method for collecting information or data as reported by individuals. The population for this study was 47 insurance companies in Kenya which operate under an umbrella body, the Association of Kenya Insurers (AKI) and regulated by the Insurance Regulatory Authority (IRA). The study was done using survey method to conduct the research. Self-administered questionnaires were used to collect primary data. The study generated both qualitative and quantitative data. Descriptive statistics data analysis method was applied to analyze both quantitative and qualitative data. Descriptive statistics helped to compute measures of central tendencies and measures of variability (Bell, 2007).Qualitative data was analyzed using content analysis. The analyzed findings were then presented inform of frequency tables, pie charts and bar charts since they are user friendly and gave a graphical representation of the different responses given by the respondents. The study concludes that the insurance companies in Kenya do apply the Porter’s five forces model in establishing competitive strategies to a great extent. The study further concludes that then companies apply the threat of entry force to determine the competitive strategy to adopt in order to discourage entry of new companies into the industry. The powerful supply force has enabled the companies to provide their customers with services at a relatively higher price. Further conclusions can be drawn that insurance companies that apply the threat of substitutes force are able to find about substitute products that pose competition which in turn enables them know which competitive strategy to adopt. The study recommends that companies need to be keen when applying the force of bargaining power of the supplier, since suppliers have strong bargaining power only when there are few suppliers but many buyers. There is need for the insurance companies to differentiate their services so as to stand out from the crowd. This way, the companies will be able to offer unique services that are not being offered by their competitors and will be in a position to retain their customers. The study recommends that insurance companies should adopt the cost leadership strategy due to the fact it is associated with internal strengths such as access to the capital required to make a significant investment in production of their services, since this always presents a barrier to entry that many firms may not overcome.