Influence of Product Differentiation Strategy on Performance of Commercial Banks in Lodwar, Kenya

Abstract

Commercial banks in Kenya are critical in fostering economic development as they fund investment. However, they are no longer making enough profit to keep them afloat while meeting the needs of their shareholders in the current economic climate due to increased competition both from other peer banks and financial innovations leading to the creation of Fintech firms. As a result, a product differentiation strategy needs to be developed to achieve a sustained competitive strategy. This study aimed to establish the influence of product differentiation strategy on the performance of commercial banks in Lodwar Town. In this respect, the study sought to determine whether a product differentiation strategy can effectively achieve sustainable competitive advantage. The study gathered primary data from four banks in Lodwar, Kenya. The banks included: Equity Bank, Kenya Commercial Bank, Cooperative Bank, and National Bank of Kenya. These banks have been in operation in Lodwar for more than a decade. A combination of questionnaires and interview schedules assisted in generating data. A total of 96 participants took part in the survey, while 4 assisted in answering the interview schedule. Regression analysis was used to test the influence of product differentiation strategy on the performance of commercial banks in Lodwar. The study found out a statistically significant positive relationship between product differentiation strategy and the performance of commercial banks in Lodwar, Kenya. This means that a product differentiation strategy can be used as a strategy to achieve sustainable competitive advantage. The effects of product differentiation strategy on performance differ from one bank to another. The main limitation is that only one area was considered. In addition, the study is correlational in nature. Hence, it cannot be used to infer a causal relationship between the two. Other than conducting additional studies comparing different areas, there is a need to conduct a causal relationship to establish whether product differentiation strategy causes the performance of commercial banks.