A survey of the product diversification strategies adopted by firms in the banking industry in Kenya

Abstract

The banking industry in Kenya faces diverse challenges. One of the major challenges is the dynamic competitive environment in which they operate. This has compelled the banks to use various growth strategies like product diversification to achieve a sustainable competitive edge. The objective of this study was to establish the extent to which commercial banks have adopted product diversification strategies, determine the benefits of employing such strategies and the challenges faced thereof. The study was based on a descriptive design; the population included all the 44 commercial banks operating in Kenya. A census study was carried out due to a small number of banks. Data was collected by use of semi-structured questionnaire, which was administered through drop, and pick and follow up done through email method. The response rate was 82.5%. Data was analyzed using frequency tables, standard deviation and results presented in tables. The research findings revealed that product diversification is adopted by commercial banks to a large extent. They widely pursued related diversification with relative variation across banks. The main benefits cited for product diversification strategy was increase in profitability, stability of earnings and customer loyalty while the main challenges faced was increased cost of coordination among various new products. It is recommended that banks undertaking diversification should do so in the context of explicit policy regarding what the objectives of such should be in order to minimize pitfalls and increase shareholder value.