The use of market segmentation as a strategic management tool by commercial banks in Kenya

Abstract

Strategic management seeks to coordinate and integrate the activities of the various functional areas of a business in order to achieve long-term organizational objectives. Segmentation is central to strategy because different customer groups imply the need for different marketing mixes. The technique of segmenting a market also reveals profit and strategic opportunities for new competitors to challenge established market leaders. Several approaches to market segmentation are useful to locate and describe target segments and influence a company’s strategy. Knowing consumers’ level of interest in alternative benefits is important in shaping, and perhaps changing, a company’s product portfolio. Well defined market segmentation strategy enables better products and services for the customer and will win you a reputation of being the 'customer's marketer. As competition in the banking markets intensifies, financial service institutions have increasingly adopted a strategy based on sophisticated forms of segmentation. The objective of the study was to investigate how commercial banks in Kenya used market segmentation as a strategic management tool. The researcher adopted a descriptive cross-sectional survey and focused on all the 43 commercial banks in Kenya. The study collected primary data by use of self-administered questionnaire. Quantitative data collected was analyzed by the use of descriptive statistics using SPSS and presented through percentages, means, standard deviations and frequencies. The information was displayed by use of bar charts, graphs and pie charts and in prose-form. The study concludes that banks employ geographic, demographic, psychographic and behavioral segmentations as their strategic management tool. The study also recommends that it is of significant importance that banks should focus on consumers’ changing needs and preferences at different stages during their life in order to not fail to benefit from their customers.