An Investigation Into The Marketing Strategies Used By Commercial Banks In Managing Service Breakdown Among SME Customers

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An Investigation Into The Marketing Strategies Used By Commercial Banks In Managing Service Breakdown Among SME Customers


Abstract


This study sought to establish the strategies used by commercialbanks in Kenya in Managing Service Breakdown among SME Customers. The study focused on five commercial banks namely Barclays, Kenya Commercial Bank, Standard Chartered, Equity and Fina bank which currently offer services to SME customers. A self-administered open and closed ended questionnaire was utilized in collecting primary data from the field. Data collected was analyzed using descriptive statistics. The study found that lack of clear communication with customers, long procedures; intrusive documentation and lack of flexibility are some of the causes resulting in service breakdown. It also established that the main strategies used by banks to deal with services breakdown include; designing services to fit the needs of customers; ensuring that services are always oh high quality without compromise; putting relevant systems in place; having competent employees in place; on time delivery of services and ensuring that services are driven by customers to increase acceptance and satisfaction.


Chapter One


Introduction

1.1 Background of the Study

A company’s strategy consists of the business approaches and initiatives it undertakes to attract customers and fulfill their expectations, to withstand competitive pressures and to strengthen its market position. These strategies provide opportunities for the organization to respond to the various challenges within its operating environment. Firms also develop strategies to enable them seize strategic initiatives and maintain a competitive edge in the market (Porter, 1985). The competitive aim is to do a significantly better job to its customers. The success of every organization is determined by its responsiveness to the customer needs.

The competitive aim is to do a significantly better job of providing what customers are looking for, thereby enabling the company to earn a competitive advantage and outsmart rivals in the market place. The core of a company’s marketing strategy consists of its internal initiatives to deliver satisfaction to customers but also includes offensive and defensive moves to counter the maneuvering of rivals, actions to shift resources around to improve the firm’s long term competitive capabilities and market position, and tactical efforts to respond to prevailing market conditions. Assuming that there are a number of providers, customers will choose which offering to accept on their perception of value-for-money.

Finance has been identified as the most important factor determining the survival and growth of small and medium sized enterprises in Kenya. Access to finance allows Small and Medium Enterprises (SME’s) to undertake productive investments to expand their businesses and to acquire the latest technologies, thus ensuring their competitiveness and that of the nation as a whole. Poorly functioning financial systems can seriously undermine the microeconomic fundamentals of a country, resulting in lower growth in income and employment (Griliches, 1998). Landes (1998) argues that despite their dominant numbers and importance in job creation, SME’s traditionally have faced difficulties in obtaining formal credit or equity. These difficulties are what the commercial banks call service breakdown. For example, maturities of commercial bank loans extended to SME’s are often limited to a period far too short to pay off any sizeable investment; secondly SME’s are regarded by creditors and investors as high-risk borrowers due to insufficient assets and low capitalization, vulnerability to market fluctuations and high mortality rates; thirdly information asymmetry arising from SME’s’ lack of accounting records, inadequate financial statements or business plans makes it difficult for creditors and investors to assess the creditworthiness of potential SME proposals; and lastly is the high administrative/transaction costs of lending or investing small amounts do not make SME financing a profitable business.

To compete effectively in the SME financing sector, and faced with this service breakdown, commercial banks need to provide financial services that meet the specialized needs of SME’s while coping with the high risks and costs associated with servicing them (Landes, 1998). To achieve this, an increasing number of banks have adopted separate strategies to service SME customers. The current trend is to shift from a product-based focus to a more customer oriented focus of providing packages of financial services tailored to their needs. This has the potential of considerably improving the banks’ relations with the SME sector, as well as increasing the profitability of providing financial services to it (Landes, 1998).

In Kenya, the rise of SME’s has been hindered by financial challenges and political instability (Carrier, 1999). Kenya has created conditions for private-sector growth but is still held back by an inadequate financial system. Kenya’s private sector consists of mostly informal micro enterprises, operating alongside large firms. Most companies are small because the private sector is new and because of legal and financial obstacles to capital accumulation. Between these large and small firms, SME’s are very scarce and constitute a “missing middle.”

Financing is necessary to help SME’s set up and expand their operations, develop new products, and invest in new staff or production facilities (Gomez-Mejia, 1988). Many small businesses start out as an idea from one or two people, who invest their own money and probably turn to family and friends for financial help in return for a share in the business. But if they are successful, there comes a time for all developing SME’s when they need new investment to expand or innovate further. That is where they often run into problems, because they find it much harder than larger businesses to obtain financing from banks, capital markets or other suppliers of credit. This “financing gap” is all the more important in a fast-changing knowledge-based economy because of the speed of innovation (Groke and Kreidle 1967).

Innovative SME’s with high growth potential, many of them in high-technology sectors, have played a pivotal role in raising productivity and maintaining competitiveness in recent years. But innovative products and services, however great their potential, need investment to flourish (Carrier, 1999). If SME’s cannot find the financing they need, brilliant ideas may fall by the wayside and this represents a loss in potential growth for the economy. The “bagless” vacuum cleaner and the “wind-up” radio or flashlight which need no batteries are now common household items, but nearly failed to see the light of day because their inventors could not find financial backing to transform their ideas into production. Already, differences are emerging between countries in terms of how easy it is for innovative SME’s to grow and develop. This sector has been very dynamic in the United States and a few other countries, but has lagged in many continental European countries and Japan, to the detriment of job creation and competitiveness (Gomez-Mejia, 1988).

Improving access to finance of small and medium enterprises is crucial in fostering entrepreneurship, competition, innovation and growth in Kenya. Access to sufficient and adequate capital to grow and further develop their activities is a difficulty faced by many Kenyan SME’s. This situation is compounded by the difficulties in accessing finance as SME financing is considered by many financial providers as a high risk activity that generates high transaction costs and/or low returns on investment. Moreover, SME’s need to meet the challenge of adapting to the changing financial environment and the increasing complexity and extent of financial acquisition. In an effort to access banking services, SME’s face the challenge of service products availed by their banks failing to meet their expectation leaving them helpless and frustrated to achieve their business objectives (Carrier, 1999). These are events of service breakdown.


1.2 Statement of the Problem

Several scholars have carried out extensive studies in the area of banking in Kenya and especially on competitive strategy. For instance, Warugu (2001) in his research, found out that focus and product differentiation are some of the major strategies that the banks have employed in their quest to outdo each other. Similarly,Kiptugen (2003) looked at the strategic responses to a changing competitive environment in the case study of KCB, he established that proactive rather than reactive strategies such as research on changing customer needs and preferences forms the basis of its strategic planning. Mbwayo (2005) focused on the strategies applied by commercial banks in Kenya in anti-money laundering compliance programs. He concluded that strict adherence procedures and standards have been implemented to ensure that money laundering is contained in Kenya.

These studies have looked at competitive strategies among commercial banks and response strategies at various levels in an attempt to gain a competitive edge over rivals in the banking industry but none has investigated marketing strategies used by these industry players to address the rampant service breakdown being experienced by SMEs in commercial banks in Kenya. Since there is a massive service breakdown in commercial banks in Kenya, there was a compelling need to investigate the strategies used in managing this problem.


1.3 Objectives of the Study

This study sought to examine the strategies used by Commercial banks in Kenya to deal with Service breakdown.

Specific objectives include:

  1. To identify the causes of service breakdown in commercial banks in Kenya, and;
  2. To establish the specific marketing strategies used by commercial banks in Kenya in managing service breakdown.

1.4 Significance of the Study

This study is of significance in that Executives in the banking industry will be able to use the findings of this study in drafting strategies on how to operate in the Kenyan market. It will help them understand better the problems facing SME’s as they relate with financial institutions in their pursuit for survival. As a result, it is expected that the executives will be able to formulate policies that are more benign to the sector.

Also, investors in the SME sector will use the information from this study to make decisions regarding investing in the area. The findings of the research will expose some of the challenges they are likely to encounter in their attempt to get banking services in Kenya. As a result, the investors will be more endowed with knowledge and prepared to fit in the prevailing banking environment.

Scholars in the field of strategic management and marketing will use the information to understand the state of the sector better. They will also use the information as a reference point to research on the strategy formulation and innovations in other industries. Finally, the Government will find the information useful in diagnosing the problems affecting the SME sector and come up with regulative solutions that would protect and help the SMEs thrive.


1.5 Limitations of the study

The demanding schedule of respondents at work made it very difficult getting the respondents to participate in the survey. As a result, retrieving copies of questionnaire in timely fashion was very challenging. Also, the researcher is a student and therefore has limited time as well as resources in covering extensive literature available in conducting this research. Information provided by the researcher may not hold true for all businesses or organizations but is restricted to the selected organization used as a study in this research especially in the locality where this study is being conducted. Finally, the researcher is restricted only to the evidence provided by the participants in the research and therefore cannot determine the reliability and accuracy of the information provided.

Financial constraint:

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint:

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.


1.6 Definition of Terms:

Marketing:

Is the process of exploring, creating, and delivering value to meet the needs of a target market in terms of goods and services; potentially including selection of a target audience; selection of certain attributes or themes to emphasize in advertising; operation of advertising campaigns; attendance at trade shows and public events; design of products and packaging attractive to buyers.

Commercial Banks:

Is a financial institution which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit.

SME:

Small and medium-sized enterprises or small and medium-sized businesses are businesses whose personnel and revenue numbers fall below certain limits.


Chapter Five


Summary, Conclusions and Recommendations

5.1 Summary

In relation to the first objective, to identify the causes of service breakdown in commercial banks in Kenya, the study found out that the lack of clear communication with customers, long procedures; intrusive documentation and lack of flexibility arc some to the causes resulting in service breakdown. Customers always want to have clear and well declined messages to help them make informed decisions always. Procedures should also be made flexible enough to be of help to them and not hinder them from gelling the services According to the respondents customers tend to shy away when they think that the information being asked to provide is intrusive hence the need to eliminate this intrusiveness of if it has to be done then they should he made aware that this documentation is not for other purposes other than to serve them. However strategies to enhance customer perception were given by respondents as ensuring that communication is done and using advertisements to position products in the minds of customers. I he second research objective was: to establish the specific marketing strategies used by commercial banks in Kenya in managing service breakdown It is apparent that a number of strategies on how to deal with service breakdown have been identified, these include; designing services to fit the needs of customers; ensuring that services are always oh high quality without compromise; putting relevant systems in place; having competent employees in place, on time delivery of services and ensuring that services arc driven by customers to increase satisfaction aim acceptance All these strategies need a dedicated workforce that works towards ensuring customers are satisfied at all limes. Markets are 28 also segmented based on the size of the market and the size of the loan applied while positioning is done according to the needs they satisfy, the benefits they deliver, specific service features and when and how they ate needed. (Inclusions Service breakdown in commercial banks is u real threat to the smooth provision of services to customers. In this sense banks need to always counter this threat with the strategies to ensure that customers do not have u reason to change where they hank. SMLs arc always seeking for better deals and links need to assist them by being as flexible as possible. This study established that a number of challenges facing these banks contribute to service breakdown; these challenges are; extended working hours, too much pressure on employees to deliver and uncooperative management These challenges need to be addressed if service breakdown is to be contained in the banks The quality of services provided from these- banks will in the long run determine the survival of these banking institutions. Customers will always look for tailor made services that satisfy their needs. Different dimensions have been put in place to help in defining the service quality; these arc reliability of services provided, responsiveness, courtesy and doc mentation Segmentation and positioning strategies have also been employed, SMI markets have been segmented mainly based on the side of the market served and the size of loan applied for while positioning strategies such as the use of sales promotions have been used to enhance customer perception


5.2 Conclusions

The study examined the impact of effective marketing strategy on commercial bank performance in Nigeria. The study found that high quality relationships between buyer and seller in the banking industry had a significant positive effect on customer retention. The study also revealed that the level of customer satisfaction in First Bank Plc. is very low and the degree of customer defection very high. With improved customer satisfaction social bonds, trust and commitment, First Bank Plc will be able to reduce the degree of customer defection through relationship marketing. Of the three components of Relationship marketing, trust was found to be the best predictor of customer retention. Therefore First Bank Plc should embrace relationship marketing as a long term customer retention strategy, with special emphasis on trust, thereby improving customer satisfaction and becoming customer oriented consequently reducing on the degree of customer defection. Overall relationship marketing and customer retention relate positively.


5.3 Recommendations

This study therefore recommends the following:

From the results of the study it is apparent that in order to address the concerns of customer retention in First Bank Plc, the employees need to understand and focus on the activities that can be used to build strong relationships with customers. Employees need to be trained and reminded to maintain frequent and timely communication with customers which will improve customer orientation and later on build strong social bonds and trust between the organization and its customers.

The management of First Bank Plc should make efforts to improve on its after sales support services. Most customers according to the findings of the study are unhappy with the after sales support they get from the company. This was given as the main reason for customer defection. This can be done by ensuring that their service engineers and support personnel are well motivated and competent enough to carry out repairs and maintenance.

Findings showed a significant positive relationship between customer orientation and customer satisfaction. The management of First Bank Plc should adopt customer retention as a long term strategy for managing existing customers, not merely as an outcome of marketing activity that pursues growth of market share.

Findings showed that First Bank Plc operates with little or incomplete. information about its customers. In order to pursue a relationship marketing strategy, the firm cannot let such ignorance continue. Technology, today, is allowing companies to achieve customer proximity as never before. Using databases, the Web, client server architecture, electronic data interchange etc., allows the company to build strong partnering relationships and win greater share of the customers’ business (Brewer, 1998).

Suggestions for further research particular study can be extended to other financial institutions in Kenyu to establish the strategies that can used to deal with service breakdowns. Despite the limitations, ibis study can act as a stepping-stone in the assessment of service breakdown in the banking industry other financial institutions in Kenya especially due to the big role that they play in the economic development in the country Ibis work will therefore sets up future contributions that will enable academicians; managers in private and public sector lo belter understand and evaluate the challenges posed by service breakdowns and expose them to marketing strategics that can be used to deny with it.


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