Effect of Competitive Strategies on Performance of Commercial Banks in Kenya

Abstract

Commercial banks in Kenya have constantly found ways to remain competitive since Covid-19 . Today customers can do paperless account opening and enjoy convenience brought about by competitive strategies adopted by banks in response to effects of Covid-19 and other regulatory changes. This study seeks to determine effect of competitive strategies on performance of commercial banks in Kenya. The study was done on 38 commercial banks listed in the 2023 CBK report. Performance measured by market share index was the dependent variable. Independent variables were cost leadership measured by cost to income ratio and differentiation measured by expenditure on IT and development software. Firm size measured by total net assets was the control variable. Data was collected for a period of four years between 2020 and 2024 through secondary data. The study was a census study that employed a cross sectional survey type of descriptive research design using a linear regression model. Data was analyzed using SPSS the results produced R squared value was 0.10, indicating that firm size accounts for 10% of the variance in performance. However, when cost leadership and differentiation was included in the second model, the R squared rises to 0.35. This suggests that these strategies, in conjunction with firm size, explain 35% of the variation in performance. The increase in R squared by 0.25 (from 0.10 to 0.35) shows that cost leadership and differentiation play a significant role in performance, beyond what firm size can explain on its own. The study found out that there is a positive relationship between differentiation and performance of commercial banks, emphasizing its significance in boosting market share. It also showed moderate yet positive link between firm size and performance. The findings however showed a negative relationship between cost leadership and performance. The study therefore recommends commercial banks to focus on differentiation strategies to stand out in competitive market and attract loyal customer base so as to boost market share. On the other hand, commercial banks should be cautious when implementing cost leadership so as not to sacrifice customer satisfaction and quality of service.