STRATEGIES FOR C O M PETITIV E ADVANTAGE IN THE CRED IT CARD
BUSINESS: A SURVEY OF M EM BER BANKS OF T H E KENYA CRED IT AND
DEBIT CARD ASSOCIATION (KCDCA)
BY
M BOGHOLI JOYCE M
A M anagement Research Project Submitted in P artial Fulfillment of the Award
of a Masters Degree in Business A dm inistration, School of Business, University of
Nairobi.
OCTOBER, 2009
DECLARATION
This research project is my original work and has not been presented for a degree in any
other university.
NAME: MBOGHOLI JOYCE M
REG: D61/P/8075/02
Date......3 / . U / f i L & 0 9
■
This research project has been submitted for examination with my approval as the
University Supervisor
Date:
s f a f D R MARTIN OGUTU
SCHOOL OF BUSINESS
UNIVERSITY OF NAIROBI
11
DEDICATION
I dedicate this project to my late brother, Jude Thaddeus Mbogholi Mwaingo.
m
ACKNOWLEDGEMENT
First, I would like to thank the almighty God for the gift of life, and for endowing me
with all the gifts that I needed to complete this project successfully.
I’m indebted to my supervisor Dr. Martin Ogutu; for his guidance and supervision
throughout the project; I just would not have gone this far without his help.
I also acknowledge the co-operation that I got from the respondents, especially in the way
that they expressed themselves honestly.
1 am very grateful to my parents and brothers, for their support and encouragement
throughout my study period.
God bless you all.
IV
TABLE OF CONTENT
DECLARATION.................................................................................................................... ''
DEDICATION......................................................................................................................
ACKNOWLEDGEMENT..................................................................................................... iv
TABLE OF CONTENT......................................................................
v
LIST OF FIGURES..............................................................................................................vii
LIST OF TABLES...............................................................................................................viii
ABSTRACT........................................................................................................................... ix
CHAPTER ONE: INTRODUCTION................................................................................... 1
1.1 Background................................................................................................................... I
1.1.1 Concept of strategy................................................................................................2
1.1.2 Competitive advantage...........................................................................................3
1.1.3 The credit card industry in Kenya......................................................................... 7
1.1.4 The members o f K.C.D.C.A................................................................................12
1.2 The Research Problem.................................................................................................13
1.3 The Research Objectives............................................................................................. 14
1.4 Significance of the Study............................................................................................ 14
CHAPTER TWO: LITERATURE REVIEW...................................................................... 16
2.1 Concept of Strategy..................................................................................................... 16
2.2 Competition and its Challenges................................................................................. 18
2.3 Competitive Advantage............................................................................................. 21
2.4 Strategies for Competitive Advantage...................................................................... 24
2.4.1 Porter’s Generic Strategies.................................................................................26
2.4.2 AnsofTs Product Markets.................................................................................. 28
2.4.3 Other strategies................................................................................................... 30
CHAPTER THREE: RESEARCH METHODOLOGY..................................................... 31
3.1 Research Design..........................................................................................................31
3.2 Population...................................................................................................................31
3.3 Data Collection...........................................................................................................31
3.4 Data Analysis..............................................................................................................31
CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION............................... 33
4.1 Profile of banks in study.............................................................................................33
4.1.1 Demographic information...................................................................................33
4.2 Bank Strategies...........................................................................................................36
4.2.1 Environmental factors......................................................................................... 45
4.2.2 Market factors......................................................................................................46
v
4.2.3 Industrial factors..................................................................................................47
4.2.4 Managerial factors...............................................................................................48
4.2.5 The services offered to influenced competitive advantage................................50
4.3 Effectiveness of Strategies adopted.........................................................................52
4.3.1 General Information............................................................................................52
4.3.2 Effectiveness o f strategies..................................................................................54
CHAPTER FIVE: SUMMARY, DISCUSSIONS AND CONCLUSIONS.......................60
5.1 Summary, Discussions and Conclusions................................................................... 60
5.1.1 Summary.............................................................................................................. 60
5.1.2 Discussions.......................................................................................................... 66
5.1.3 Conclusion...........................................................................................................67
5.2 Limitations.................................................................................................................67
5.3 Suggestions for Further Research............................................................................. 68
5.4 Implications for Policy and Practice.........................................................................68
REFERENCES.....................................................................................................................70
APPENDICES......................................................................................................................73
Appendix I: Letter of Introduction...................................................................................73
Appendix II: Issuing Bank Questionnaire........................................................................74
Appendix III: Customers’ Questionnaire.........................................................................81
Appendix IV: List of the Member Banks of the K..C.D.C.A......................................... 85
VI
LIST OF FIGURES
Figure 2.1: Steps in analyzing competitors.........................................................................22
Figure 2.2: Three Generic Strategies..................................................................................27
Figure 2. 3: Four basic types of opportunities..................................................................... 29
Figure 4. 1: Demographic area of operation........................................................................33
Figure 4.2: The duration o f time since the credit card service was introduced................34
Figure 4. 3: The number o f card customers in the banks.................................................... 35
Figure 4. 4: Whether the banks have strategies, and if known to the respondents........... 36
Figure 4. 5: Whether the strategies are more aligned to the customers or the competitors
............................................................................................................................................... 37
Figure 4. 6: Whether the strategies used are proactive or reactive.................................... 37
Figure 4. 7: Whether issuing credit cards has helped retain customers............................. 39
Figure 4. 8: Whether pricing is proactive or reactive......................................................... 41
Figure 4. 9: Whether the banks have competitive advantage and if they perceive
themselves as market leaders...............................................................................................41
Figure 4.10: The rating in terms o f response to the challenges........................................ 42
Figure 4.11: Whether the bank is also an acquirer in addition to being an issuer........... 43
Figure 4. 12: The plans the respondents have for the future if they were not acquirer.... 43
Figure 4. 13: Age of respondents......................................................................................... 52
Figure 4. 14: The number of years the respondent has been served by the bank............. 53
Figure 4. 15: Whether they felt that they get best services from the issuing bank........... 55
Figure 4. 16: Whether there is anything that should be done better by the issuing bank. 56
Figure 4. 17: Whether the respondents felt that the competitor was doing better............ 56
Figure 4. 18: Whether the respondent uses the card for emergencies or frequently......... 57
Figure 4. 19: Whether the card is used for entertainment or n o t....................................... 58
VII
LIST OF TABLES
Table 4. 1: Number of customers in the respondents b a n k .............................................. 34
Table 4. 2: The rate of the credit card growth in Kenya....................................................39
Table 4. 3: The strategies the bank employs to retains the market share..........................40
Table 4. 4: Strategies employed to ensure that the bank retains and attracts prospective
customers.............................................................................................................................. 44
Table 4. 5: Strategies that the bank uses in coping with competition within the industry .
.................................................................................................................................................44
Table 4. 6: Extent towards which the environmental factors influence competitive
advantage in the bank............................................................................................................45
Table 4. 7: The extent towards which market factors influence competitive advantage.. 46
Table 4. 8: The extent towards which the industrial factors influence competitive
advantage............................................................................................................................. 47
Table 4. 9: The extent towards which managerial factors influence competitive
advantage............................................................................................................................. 48
Table 4.10: Extent towards which the services offered influenced competitive advantage
................................................................................................................................................50
Table 4.11: Monthly income bracket of the respondents................................................... 53
Table 4.12: Whether the card was used for shopping or ATM withdrawals.................... 57
Table 4.14: Whether they got the limit they wanted or were denied................................ 58
VIII
ABSTRACT
To be successful, a company must do a better job than its competitors of satisfying target
consumers. This is competitive advantage and it is about winning target customers and
retaining them. In order for an organization to be able to gain competitive advantage
over its competitors, the organization must first analyze and understand its internal and its
external environment.
Kenya’s global share of the credit card industry has grown
remarkably; and in response to this, more banks are now issuing credit cards hence
competition is increasing among the banks.
The research objective was to investigate the strategies that banks in Kenya are using to
gain competitive advantage in the credit card business, and establishing the effectiveness
o f the strategies. The design for this study was a census survey design with a target
population o f the 16 member banks of the Kenya Credit and Debit Card Association.
Primary data was collected through structured questionnaires and other questionnaires
were issued to customers/a small section of card holders to get statistics of their preferred
issuers. Data was later analyzed and presented by use o f tables, bar charts, graphs and
pie charts.
The conclusion is that banks have strategies useful to gain competitive advantage in the
credit card business. The strategies are useful in customer retention and also attracting
potential customers; but they are faced with challenges like competition, credit card fraud
and high joining and running costs. The recommendations are that a lot of customer
education should be done; more research should be done on technological advancements,
improvements and innovations so as to fight and avoid credit card fraud and identity
theft; the interest rates and income level to get a credit card should be revised/lowered so
as attract a larger clientele; and the government needs to come up with legislation that
will introduce harsh punishment to identity theft offenders.
IX
CHAPTER ONE: INTRODUCTION
1.1 Background
The world we live in is not a simple one where a firm has a unilateral relationship with
the customer. Every day is a fight to keep one’s customers from the onslaughts from
competition. The competition on the other hand also try to sell their offerings to their
competitors’ customers - if not take them away altogether. Similarly, any attempts by a
firm to win new customers will face defenses from the competition. According to Porter
(1996), competition has intensified over the last decades in virtually all parts of the
world, and this increase in competition has played a major role in unleashing innovation
and driving progress worldwide. Therefore it is very important for an organization to
study and understand its competitors; and pre-empt their actions if one is to gain
sustainable competitive advantage.
The word credit comes from Latin, meaning “trust”. Credit was first used in Assyria,
Babylon and Egypt 3000 years ago. Plastic money in the form of credit cards emerged in
the first half of the twentieth century and initially cards were used as a way to simplify
the process of identification and confirmation of customers when tellers required
authorization for account purchases in retail stores. Before this, people had to pay cash
for almost all products and services (The Sunday Standard - December 16, 2007).
Today charging for products and services has become a way of life. Some people use
plastic money for the convenience of not carrying cash; others use them so that they can
purchase an item “on credit” when they cannot afford to pay cash at that point in time.
Most retail stores, gas stations, and the travel and entertainment industry, among others
industries, accept credit and debit cards as a form of payment today. This is therefore a
growing industry, and more and more banks and financial institutions now have a credit
card sections/business; and with this comes competition as they issue their various card
types/products (Frazer, 1998).
It is important for an organization to understand the competition because, not only will it
enable them to identify segments o f their customer base that might be at risk and to
formulate a response; but also knowing who they are and how they react enables the
organization to calculate their own competitive response to moves they may make. It
also helps the organization to focus their efforts on those customers that represent a real
or a potential threat rather than those who do not (Russell-Jones, 2003).
1.1.1 Concept of strategy
Strategic management involves the planning, directing, organizing, and controlling of a
company’s strategy-related decision and actions. It is the company’s “game plan”; and
while it does not detail all future development of resources, it provides the framework for
managerial decisions.
Pearce and Robinson (2005) view strategy or strategic
management as the set o f decisions and actions that result in the formulation and
implementation of plans designed to achieve a company’s objectives. It can also be seen
as large-scale, future oriented plans for interacting with the competitive environment to
achieve company objectives. Strategy can therefore also be said to be the process of
deciding a future course for a business and so organizing and steering that business so as
to attempt to bring about that future course (Cave, 1997).
A company’s strategy is also management’s action plan for running the business and
conducting operations. Thompson and Strickland (1993) define strategy as the pattern of
organizational moves and approaches devised by management to achieve organizational
objectives and pursue organizational mission. The crafting of a strategy represents a
managerial commitment to pursue a particular set of actions in growing the business,
attracting and pleasing customers, competing successfully, conducting operations, and
improving the company’s financial and market performance (Thompson, Strickland and
Gamble 2007).
2
1.1.2 Competitive advantage
To be successful, a company must do a better job than its competitors of satisfying target
consumers.
This is what competitive advantage is about.
Competitive advantage
therefore is about winning your target customers - and retaining them. This is through
coming up with competitive strategy - competitive strategy is the bases on which a
business unit might achieve competitive advantage in its market (Johnson and Scholes,
2004). Issues to focus on here include carrying out an analysis of the environment; an
industry analysis; an analysis of the internal organization capabilities; an analysis of the
organization’s position within its industry; and an analysis of the customer expectations
(Pearce and Robinson, 2005).
The first analysis is the Environmental analysis which includes analysis o f Economic
factors, Socio-cultural factors, Political factors, Technological factors, Legal factors and
Ecological factors. Economic factors are concerned with the nature and direction of the
economy in which a firm operates and how it influences consumption patterns. Each
firm must consider economic trends and factors in the segments that affect its industry
e.g. level o f economic development, monetary and fiscal policies, interest rates, taxation
system, currency convertibility, wage and salary levels, per capita income and GNP
trends on both the national and international level; managers must also consider the
general availability of credit, the level of disposable income and the propensity of people
to spend; among others.
Social-cultural factors include the cultures, beliefs, values, customer status symbols,
motivations, social institutions, attitudes, population demographics, income distribution,
social mobility, lifestyle changes, attitudes to work and leisure, opinions and lifestyles of
consumers and how they influence consumption patterns; among others. As social
attitudes change, so too does the demand for various types of consumer goods. Like
other forces in the external environment, social-cultural forces are dynamic, with constant
change resulting from the efforts of individuals to satisfy their desires and needs by
controlling and adapting to environmental factors (Pearce and Robinson, 2005)
3
Political factors define the legal and regulatory parameters within which firms must
operate. The political environment consists of laws, government agencies, and pressure
groups that influence and limit various organizations and individuals in a given society.
Issues to take into consideration here include the form of government, increasing
legislation, changing government agency enforcement, political ideology, stability of
government, social unrest, government attitude towards foreign firms, political strife and
insurgency; among others (Pearce and Robinson, 2005). Political constraints are placed
on firms through fairtrade decisions, tax programs, minimum wage legislation, pollution
and pricing policies; and many other actions aimed at protecting employees, consumers,
the general public and environment. Such laws and regulations are usually restrictive and
tend to reduce the potential profits of firms. There are however some political actions
that are designed to benefit and protect firms (Kotler and Armstrong, 2002).
The Technological environment consists of forces that create new technologies, creating
new products and market opportunities. Organizations must improve their technology in
accordance with changing times to avoid being obsolete and to also promote innovation
so as to be better than its competitors.
Firms must therefore be aware of the
technological changes that might influence their industry. Technological forecasting can
help protect and improve the profitability of firms in growing industries.
It alerts
strategic managers to both impending challenges and promising opportunities. The key
to beneficial forecasting o f technological advancement lies in accurately predicting future
technological capabilities and their impacts (Pearce and Robinson, 2005)
Ecological factors are concerned with issues such as global warming, loss of biodiversity,
air pollution, water pollution and land pollution. These would be caused by emissions
from factories and waste disposal; or through use of natural products faster than they
reproduce (extinction). To avoid getting in trouble with the law or reputational damage,
an organization must ensure compliance with environmental legislation (sustainable
development).
Important issues here include Environmental protection laws, waste
disposal and energy consumption (Johnson and Scholes, 2004).
4
Legal factors include legal tradition, effectiveness o f legal system, monopolies
r
legislation, employment law, health and safety, product safety, patent trademark laws and
laws affecting business firms. Well conceived regulation can encourage competition and
ensure fair markets for goods and services; thus governments develop public policy to
guide commerce - sets of laws and regulations that limit business for the good of society
as a whole (Pearce and Robinson, 2005).
The second analysis to be conducted is the Industry analysis, and includes analysis of the
following factors - Level o f rivalry among existing firms; Barriers to entry in the industry
(i.e. how easy/difficult is it for new firms to enter into this industry); Threat o f substitute
products; Bargaining power of suppliers; and Bargaining power of buyers.
Rivalry
among existing companies/firms (competitors) takes the form of jockeying for position
using tactics like price competition, product introduction, brand identity and marketing
strategies; while, barriers to entry in the industry are factors that need to be overcome by
new entrants if they are to compete successfully. These include economies of scale;
product differentiation (to win customer loyalty), capital requirements (initial heavy
investments), access to distribution channels (e.g. shelf space on supermarkets), cost
disadvantages independent of size (existing companies have cost advantages stemming
from experience e.g. knowing where to get best and cheaper raw materials), expected
retaliation from existing firms, and government policy (e.g. government can limit or even
foreclose entry to industries with controls such as license requirements).
Substitute products limit the potential of an industry usually by placing a ceiling on the
prices it can charge.
The strategic balance can be considerably altered by the
development of products that meet underlying customer needs more cost effectively then
existing products (McCarthy and Perreault, 1993). Unless it can upgrade the quality o f
the product or differentiate it somehow (as via marketing), the industry will suffer in
earnings and possibly in growth. The more attractive the price-performance trade-off
offered by substitute products, the firmer the lid placed on the industry’s profit potential.
Substitutes often come into play if some development increases competition in the
industries and causes price reduction or performance improvement.
5
Suppliers can exert bargaining power on participants in an industry by raising prices or
reducing the quality of purchased goods and services. Powerful suppliers can therefore
squeeze profitability out o f an industry unable to recover cost increases in its own prices.
If the supply of critical materials is controlled by a few suppliers, or if an individual
company’s purchases from a supplier constitute only a small part of his output, then
freedom from maneuver may be limited. Buyers/customers on the other hand can exert
their bargaining power and force down prices, demand higher quality or more service,
and play competitors off against each other all at the expense of industry profits. The
power o f each important supplier (or buyer) group depends on a number of characteristics
of its market situation and on the relative importance o f its sales or purchases to the
industry compared with its overall business (Pearce and Robinson, 2005).
The third analysis is that of the organization’s internal capabilities. A SWOT technique
can be used, and this involves analyzing the internal strengths and weaknesses of a firm
and the environmental opportunities and threats facing that firm. This involves assessing
the organization’s strengths (what attributes makes it better than its competitors); and its
weaknesses (hence find ways o f overcoming them). A strength is a distinctive
competence when it gives the firm a comparative advantage in the marketplace; and
strengths arise from the resources and competencies available to the firm. A weakness is
a limitation or deficiency in one or more resources or competencies relative to
competitors that impedes a firm’s effective performance. In addition, the organization
should also assess what are the threats that it’s likely to face; and the opportunities that
it’s likely to come across. An opportunity is a major favorable situation in a firm’s
environment, while a threat is a major unfavorable situation in a firm’s environment.
The fourth analysis is that of the organization’s position within its industry or its
competitive position.
By doing this a business improves its chances o f designing
strategies that optimize environmental opportunities and also enables a firm to more
accurately forecast both its short and long term growth and profit potentials. The range
o f competitive intelligence that should be gathered include finding out: Who are the
current competition and who will be the competition in the future; what are their shares
o f market segments and trends; their product line, performance, quality, service; their
6
management, its skills, philosophies; their technological capabilities; their financial
strength; their objectives and strategies (McCarthy and Perreault, 1993).
The fifth analysis is that of customer profiles and their expectations. Before it can satisfy
its customers, a company must first understand their needs and wants, thus requiring a
careful analysis of these customers. Companies know that they cannot connect profitably
all consumers in a given industry - at least not all consumers in the same way.
In
developing a profile of present and prospective customers, managers are better able to
plan the strategic operations of the firm, anticipate changes in the size of markets, and
allocate resources supporting forecast shifts in demand patterns (Kotler and Armstrong,
2002).
Strategies for the organization to be able to gain competitive advantage over its
competitors, an organization must first analyze and understand its internal and its external
environment. A SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis can
assist in the internal analysis with especial analysis o f the organization’s strengths or
resource advantage relative to the competitors; and weaknesses or limitations/deficiencies
in one or more resources relative to the competitors. External analysis involves analyzing
the host of external factors that influences a firm’s choice of direction, and ultimately its
organization structure and internal processes.
1.1.3 The credit card industry in Kenya
Plastic money in the form of credit cards emerged in the first half of the twentieth century
and initially cards were used as a way to simplify the process o f identification and
confirmation of customers when tellers required authorization for account purchases in
retail stores. Before this, people had to pay cash for almost all products and services
(Johnson and Scholes, 2004). By 1924, gas credit cards appeared on the scene; this was
an important advancement because as automobiles became more common, so did
traveling (Rigby, 1987). The process developed and in the 1940’s a number o f US banks
allowed customers to charge purchases against their monthly bank charge account rather
than to a store account. During this early part of the century, although there grew an
7
increase in individual store credit accounts, a credit card that could be used at more than
one merchant store was not invented until 1950 (Johnson and Scholes, 2004).
It all started when Frank X. McNamara and two of his friends went out to supper and he
was shocked to discover that he had forgotten his wallet at home. To his embarrassment,
he then had to call his wife and have her bring him some money. Frank had previously
also gotten in trouble when he had lent a number of his charge cards (available from
individual department stores and gas stations) to poor neighbors who needed items on
emergency. For this service he required his neighbors to pay him back the cost of the
original purchase plus some extra money. Many of his neighbors were unable to pay him
back within a short period of time and he was then forced to borrow money from
Hamilton Credit Corporation. Therefore, merging the two concepts - the lending of
credit cards and not having cash on hand to pay for the meal, Frank came up with a new
idea - a credit card that could be used at multiple locations. What was particularly novel
about his concept was that there would be a middle-man between companies and their
customers (The Sunday Standard - December 16, 2007).
In 1950, Diners Club launched a Travel and Entertainment card (T & E), an innovation
which also led to the establishment of American express; whereby the issuer o f the T & E
card would settle the bills from hotels, restaurants or airlines and reclaim payment from
the member. The T & E card therefore provided settlement in arrears but no rollover
credit, while additional revenue for the issuer was generated from annual fees from
customers and charging a commission on sales to the merchant. It was around this time
that the Franklin National Bank (based in New York) developed what is recognized as the
originator o f the first real credit card. This involved offering rollover credit up of an
authorized credit limit. Initially, banks issued cards that could be used by not only their
customers, but also non-customers, but due to the localized nature o f branch banking then
in the US, cards were only useful in the limited area served by the issuing bank. With
time however, a franchising system developed under which banks acquired the right to
issue branded cards in a particular city that customers could use with collaborating
merchants both locally and out o f state.
8
In 1958 Bank of America, with the advantage of its huge West Coast Network, launched
the blue, white and gold BankAmericard; and by 1965 it was realizing the brand value of
its heavily promoted card by actively franchising other banks to issue its card and recruit
merchants.
In this way, the network provided BankAmericard cardholders with a
national (and eventually international) network o f service points which was to provide the
foundation for the future Visa Network (Johnson and Scholes, 2004).
In the UK, Barclays Bank was the first UK bank to recognize the potential o f the credit
card. After evaluating BankAmericard’s operations in the US it negotiated a franchise
from BankAmericard at the end o f 1965. A small team was set up to plan a UK launch
six months later under the brand Barclaycard, and by launch date 30,000 retailers had
been signed up. Early promises to retailers to publish the name and address o f every one
of the shop accepting Barclaycard led to what is still believed to be one o f the largestever press advertisements. It appeared in the “Daily Mail” on 29 June 1966, extended
over eight pages and carried all the 30,000 names and addresses of retailers.
Successful
acceptance by the British adult population meant that by the end of 1966 Barclays Bank
had passed the milestone o f 1 million Barclaycard holders (Johnson and Scholes, 2004).
In 1966, prompted by the success of BankAmericard network, members o f competing
franchises formed the Interbank Card Association (ICA), later to become MasterCard
International. Therefore MasterCard International was established in the 1970’s. Later
on, what was to become Visa International was formed by Bank o f America’s
international licensees while, in parallel, ICA rebranded as MasterCard International and
then as MasterCard (Johnson and Scholes, 2004).
However, it was only until the
establishment of standards for the magnetic strip in 1970 that the credit card became part
of the information age. The first use of magnetic stripes on cards was in the early 1960’s
when the London Transit Authority installed a magnetic strip system (The Sunday
Standard - December 16, 2007).
At this point, the two card systems (Visa and MasterCard) that between them would
preside over the world credit card market for the following thirty years were in place. As
open membership organizations they provided a common framework giving banks access
9
to what turned out to be easily the most profitable and fastest growing product in the
portfolio o f most retail banks.
The global card market is still dominated by Visa
International and MasterCard International to date.
The first plastic/credit card in Kenya was launched in 1967 by Diners Club Africa Ltd
(Mahinda, 1991). However, the peak of usage of credit cards wasn’t realized until the
early 1980’s. Kenya’s domestic credit card market is mainly due to aggressive marketing
of Diners Club Card. The first plastic card issued by Diners Club Africa Ltd was a
charge card; cardholders could buy goods and services on credit through the use of this
card, and later on the cardholders were billed by the card company and required o settle
the entire debt by a specified cut-date of a month.
Later on, Royal Card took the
franchise o f Diners Card after the collapse of Diners Club Card in 1984. Barclays Bank
of Kenya Ltd joined in the market thereafter in 1989 (Yau, 2008).
Banks in Kenya, whether multinational or local, usually have guidelines as to who
qualifies for a credit card and who doesn’t. In addition, even with those who qualify,
there are further guidelines as to what limit each card holder qualifies for e.g. some banks
give only to high net worth individuals, others aren’t so discriminative. Some give limits
that are equivalent to the card holder’s income, while others give more or less than the
card holder’s income. A survey o f bank charges in Kenya on credit cards revealed that
some banks charge a joining fee ranging between Ksh.2,000 and Ksh.6,000, in addition to
the annual fees (Yau, 2008).
There is a difference between a credit card and a debit card. With a credit card, a card
holder is given a limit to spend and has to repay at least the minimum amount required
each month. A credit card is in effect therefore a loan from the bank where the card
holder incurs expenses, which the bank pays on his/her behalf then collects after him/her
after a specified period.
With most banks, the repayment period is 50 days which is
usually a 50 days interest free period; but after the 50 days the outstanding amount/bill
starts incurring interest. A debit card is pegged to a bank account and only allows the
card holder to use the money that is in the account or an agreed overdraft. Debit cards
provide instantaneous transfer of funds from the card holder’s account to the transacting
10
merchant or cash issuing bank.
Debit cards are usually provided by many banks on
account opening and can be used either on an Automated Teller Machine (ATM) to
withdraw funds from the account or in a merchant outlet (Nguru, 1992).
Table 1.1: Chronology of Plastic Card Issuers in Kenya
Year
Banks
1966
Non-Banks
Type
Diners Club Card
Diners
International
VIP
Cards
1977
VIP Cards
CBA Ltd
June 1986
Allied Cards Ltd
Senator
1986
Merchant Card Ltd
Merchant Card
September 1987
KCB Ltd
Visa Card
September 1987
Standard Bank
Money Link
October 1989
BBK Ltd
VIP
Cheque
guarantee scheme,
BarclayCash
Royal Credit Card
1989
Royal Card
1993
NBK Ltd
Visa
1995
Postbank
Visa Classic
1999
BBK Ltd
MasterCard
2001
KCB Ltd
Visa
September 2002
BBK Ltd
Visa
(branded
Barclaycard
in
2006
2005
Pesa Point Paynet
Visa
Cards
Ltd
proprietary
and
Source: KCDCA (2007)
OF NAIROBI
11
1.1.4 The members of K.C.D.C.A
Kenya Credit and Debit Association is the umbrella body which brings together
organizations that deal with credit and debit cards. It was established in 1992 as Kenya
Credit Card Association (KCCS) but changed its name in 2003 to Kenya Credit and Debit
Card Association (KCDCA). Organizations which are eligible to join KCDCA are banks
and other institutions issuing paying cards such as credit, debit and pre-paid card
products. The main objective o f the KCDCA is to bring together different players in
credit and debit card industry in Kenya with a view of enhancing their business.
The current members are: Barclays Bank (K) Ltd, Commercial Bank of Africa Ltd, Co­
operative Bank of Kenya Ltd, Fidelity Commercial Bank Ltd, Imperial Bank Ltd, Kenya
Commercial Bank Ltd (KCB), National Bank o f Kenya Ltd, NIC Bank Ltd, Postbank,
Prime Bank Ltd, Senator cards (Southern Credit Banking Corporation), Standard
Chartered Bank Kenya, Stanbic CFC Bank Ltd, Equity Bank Ltd, Diamond Trust Bank
Ltd and I & M Bank Ltd. (KCDCA, 2009). There are other banks/financial institutions
that issue debit cards on account opening but are not members of the KCDCA.
There are other cards such as charge cards and purchase cards; with a charge card a
cardholder’s spend has to be repaid in full when a statement is received, while a purchase
card which is used by businesses rather than individuals, is used to purchase goods and
services from their suppliers. However, this study shall concentrate on credit cards and
debit cards. This is because credit cards are the ones that businesses compete in selling
(fight for market share), while debit cards are given automatically on account opening.
With credit cards, banks can make money from the monthly interest charged on the
balance and on penalties levied on customers who pay late, exceed their credit limit or
make cash withdrawals; but with debit cards, since one can only use what is in the
account, they do not attract interest from which a bank makes money.
An issuer is a bank, or financial institution which issues plastic cards; while a merchant is
a business holder/establishment that accepts credit cards as one of the modes of payment
for its goods and services. An Acquirer is a bank or financial institution who is a member
o f card schemes such as Visa or MasterCard; and Acquirers enter into agreements with
12
merchants to process card transactions on their behalf. Card schemes promote the use o f
various card types which carry their logos through assisting in authorization o f card usage
between banks.
These include Visa International, MasterCard International and
American Express (AMEX) which are transaction and information processing networks.
The card schemes also set guidelines, rules and regulations for member banks. Banks
and financial institutions have to apply for membership of the appropriate card scheme
before they can issue cards or acquire transactions (Yau, 2008).
1.2 The Research Problem
Generally there is a growth in credit cards usage in Kenya; although there are still a small
percentage o f conservative people who fear using credit cards because they fear they will
overspend and run into debt. Kenya’s global share o f the credit and debit card business
has recently grown to 0.03% and today there are over 1.6 million cards in the market, of
which 1.5 million are debit cards, compared to around 120,000 credit cards (Business
Daily Africa, 2007). Credit cards and other forms o f plastic money in Kenya are issued
mostly by banks; and some by other major financial institutions.
Kenya’s global share of the credit card industry has grown remarkably; and more and
more people are getting used to credit cards. In response to this, more banks are now
issuing credit cards hence competition is increasing among themselves and their various
brands, competition on pricing; they’re faced with increasingly demanding customers;
changes in IT and technology; threat of substitute products (e.g. travelers cheques,
purchase cards, smart cards, cheque books, travel cards, etc). In addition, consumer
awareness has also increased and therefore organizations have to find new ways o f
attracting new customers to retain and retaining old ones, hence ensuring competitiveness
in the market. Companies must be flexible to rapid competitive and market challenges
(Porter, 1996).
Previous research in the credit card industry has mostly focused on challenges on uses o f
the credit card - Mahinda (1991), Nguru (1992), Mbaabu (2007) and Muriu (2007); risk
assessment practices and financial aspects o f the card - Oduor (2007). These research
studies have not focused on the strategies employed by the various card issuers and
13
acquirers to gain competitive advantage in the credit card industry. This research study
therefore is motivated to bridge the knowledge gap in this area by determining the
strategies banks in Kenya use for gaining competitive advantage in the credit card
business.
This study will attempt to answer the following research questions: What
strategies do banks in Kenya use to gain competitive advantage in the credit card
business?
How effective are these strategies in gaining competitive advantage in the
credit card business?
1.3 The Research Objectives
This study is an attempt to investigate the strategies that banks in Kenya use in achieving
the competitive advantage in the credit card business. The study considerered the
following objectives:
i)
To determine the strategies that banks in Kenya are using to gain competitive
advantage in the credit card business.
ii)
To establish the effectiveness o f the strategies in gaining competitive advantage in the
credit card business
1.4 Significance of the Study
Stakeholders: The study will be significant to all stakeholders in the credit card industry
as it will show the effectiveness and ineffectiveness of the various strategies that
commercial banks and other financial institutions have employed to gain competitive
advantage. This will be shown through the survey that will show the market share held
by the various players; and the preferred players mentioned by the consumers/card
holders. The study will also give recommendations for improvement that will be
beneficial to the players in the market. Even with growth of the credit card industry there
still needs to be a lot of demystification of it to be done and a lot more that banks can do
to enable this.
14
Academic Researchers; The study will also be significant to/benefit academic
researchers as it will provide a base for them to carry out further research in this field and
so increase the volumes of existing knowledge.
Government: this study will enable the government to set up policies that can enhance
the banks’ business transactions and assessing their performance to promote economical
growth.
15
CHAPTER TWO: LITERATURE REVIEW
2.1 Concept of Strategy
Johnson and Scholes (2004) define strategy as the direction and scope of an organization
over the long term which achieves advantage for the organization through its
configuration of resources within a challenging environment, to meet the needs of
markets and to fulfill stakeholder expectations. Strategy is likely to be concerned with
the long-term direction o f an organization; and can be seen as the matching of the
resources and activities of an organization to the environment in which it operates.
Strategic decisions are normally about trying to achieve some advantage for the
organization over competition and are likely to be concerned with the scope of the
organization’s activities.
Strategic planning is the process o f developing and maintaining a strategic fit between the
organization’s goals and capabilities, and its changing marketing opportunities.
It
involves defining a clear company mission, setting supporting objectives, designing a
sound business portfolio, and
co-coordinating functional strategies.
Strategic
management is the set o f decisions and actions that result in the formulation and
implementation of plans designed to achieve a company’s objectives. It involves long­
term, future-oriented, complex decision-making and requires considerable resources.
There are three ingredients that are critical to the success of a strategy: The first is that
strategy must be consistent with conditions in the competitive environment, i.e. it must
take advantage of existing or projected opportunities and minimize the impact of major
threats. The second ingredient is that it must place realistic requirements on the firm’s
resources i.e. the firm’s pursuit o f market opportunities must be based not only on the
existence o f external opportunities, but also on competitive advantages that arise from the
firm’s key resources; and the third ingredient is that the strategy must be carefully
executed (Aosa, 2005).
According to Aosa (2005), strategy is about winning. It is a unifying theme that gives
adherence and direction to the actions and decisions o f an individual organization. Good
16
strategy enhances an organization’s chances of success. Strategy is not purely a matter of
intuition and experience; analysis does play a role in the strategic process.
guides organizations to
superior performance through
establishing
Strategy
competitive
advantage; and it also acts as a vehicle for communication and co-ordination within
organizations. Implementation o f strategy introduces change in the organization and it
has to do with effective management of the change.
Porter (1996) asserts that strategy is creating a fit among company’s activities. The
success of a strategy depends on doing many things well - not just a few- and integrating
them.
If there is no fit among activities, there is no distinctive strategy and little
sustainability. Successful strategy involves having objectives that are simple, consistent
and long-term (focus on the future) and this further implies having single mindedness of
goals, unity of purpose, and long-term focus. David (2007) describes strategy as the
unique and distinctive actions that a company takes on the organization’s value chain to
achieve a competitive advantage that will contribute to greater net profitability. And,
according to Jauch and Gluek (1988), strategy is a unified, comprehensive and integrated
plan that relates the strategic advantage of the firm to the challenges of the environment
and that it is designed to ensure that the basic objectives of the enterprise are achieved
through proper execution by the organization.
Strategies exist at three levels - the first is the Corporate-level strategy which is
concerned with the overall purpose and scope of an organization. The second level is the
Business unit strategy which is about how to compete successfully in particular markets;
the strategic decisions here need to be related to a Strategic Business Unit or SBU (a part
of an organization for which there is a distinct external market for goods or services that
is different from another SBU).
The third level is Operational strategies which are
concerned with how the component parts of an organization deliver effectively the
Corporate and Business level strategies in terms o f resources, processes and people
(Johnson and Scholes, 2004).
17
2.2 Competition and its Challenges
Competition is the act o f striving against another force for the purpose o f achieving
dominance or attaining a reward.
Competitive rivals are organizations with similar
products and services aimed at the same customer group (Johnson and Scholes, 2002).
According to Pearce and Robinson (2005), the essence o f strategy formulation is coping
with competition. The degree of competitiveness is an industry is not manifested only in
the other players, rather, competition in an industry is rooted in its underlying economics,
and competitive forces exist that go well beyond the combatants in a particular industry.
Russell-Jones (2003) emphasizes this further, and according to him, building a strong
brand requires a keen understanding of competition, and competition grows more intense
every year. Markets have become too competitive to just focus on the consumer alone.
In particular, a firm needs to know the following about the competition: Who are they
now? Who were they in the past - and why are they no longer there? Who might they be
in the future? What do they offer? How do our offerings compare? Which do our
customers prefer and why? What is the competitive response that they will take to action
we initiate? The competition can be split into three types: The first type is Threats - a
threat is a major unfavorable situation in a firm’s environment and constitutes key
impediments to the firm’s current or desired position. The second type is Opportunities an opportunity is a major favorable situation in a firm’s environment; those that represent
opportunities need the same type of analysis but with a view to where you can attack their
customers and how to win them across. The third type is Allies - when you perceive
competitors as potential allies you will need to investigate where best to ally yourself and
what is in it for both parties e.g. sharing distribution outlets to reduce costs yet provide
extended service to customers in outlying areas or sharing products between a bank and
an insurance company (Russell-Jones, 2003).
The state o f competition in an industry depends on 5 basic forces, whose collective
strength determines the ultimate profit potential of an industry. According to Harvard
Professor Michael E. Porter, these are the threat of new entrants, the bargaining power of
cuslomers/buyers, bargaining power of suppliers, threat o f substitute products and rivalry
18
among existing firms (Porter, 1996). Therefore, customers, suppliers, potential entrants
and substitute products are all competitors that may be more or less prominent or active
depending on the industry.
It is extremely rare for an organization to be the sole supplier of a particular good or
service. Therefore an organization needs to find out what their competitors are doing and
predict what they might do in the future.
These activities concern the competitive
environment and organizations must remember to consider existing or potential
competition from foreign as well as local organizations. Given that organizations have
competitors, they must consider how this competition can affect the organization and
strategize on how to counter it.
According to Churchill and Peter (1995), the nature o f the competitive environment
depends in part on the type o f competition that occurs there; and economists and
marketers describe four main types of competition. The first is Pure competition, which
occurs when similar products are offered, buyers and sellers are familiar with the market,
and both buyers and sellers can easily enter the market.
Competition here is almost
entirely on the basis of price e.g. farm goods/products. The second type is Monopolistic
competition, and this is when there are many sellers of a product and each has a relatively
small market share e.g. banks. The competitors are able to differentiate their offers in
whole or part and they focus on market segments where they can meet customer needs in
a superior way and command a price premium.
The third type of competition is
Oligopoly competition, and this is where the products are similar and a few sellers
control most of the market e.g. air travel, oil and steel industry products, etc., which have
high start-up costs; hence why there are small numbers of competitors. The products
range from highly differentiated to standardized.
The fourth type of competition is
Monopoly, which is a market in which only one organization sells a good or service.
Andrew (1971) suggests profiling a company’s direct and indirect competitors by
mapping the buyers’ steps in obtaining and using the product. Companies must identify
both primary and secondary competitors; and to be leaders in their industry, a company
should benchmark their most successful competitors as well as world-class performers.
19
Once a company identifies its primary competitors however, it must ascertain their
strategies, objectives, strengths and weaknesses. From here they will be able to know
who their strongest and weakest competitors are. Attributes that can assist a company to
rate their competitors strengths and weaknesses are based on customer awareness,
product quality, product availability, technical assistance and selling staff.
In general, a company should monitor three variables when analyzing competitors: the
first is the competitors’ share o f the target market (share o f the market); second is the
percentage o f customers who named the competitor in responding to the statement “name
the first company that comes to mind in this industry” (share of the mind); and third is the
percentage o f customers who named the competitor in responding to the statement “name
the company from which you would prefer to buy the product” (share of he heart). The
generalization is that companies that make steady gains in mind share and heart share will
inevitably make gains in market share and profitability.
On a more local scale, customers are very likely to ask you about your products in
relation to those of your immediate competition (RusselI-Jones, 2003). An understanding
of their offerings and the relative merits of yours over theirs is extremely helpful in
discussing needs with customers.
Not only does it show that you are aware o f your
competition, but it gives an excellent opportunity to highlight the benefits of your
offering over theirs. In addition, it enables you to target your competitors’ customers
based on your understanding o f your competition’s analysis and offerings by tailoring
your offerings or the way they are represented to provide extra value to the competition’s
customers over and above the competition.
David (2007) describes how the sources of competitor information can be neatly grouped
into three categories: The first is Recorded data which is easily available in published
form either internally or externally e.g. company annual reports, press releases,
newspaper articles, analysts’ reports, government reports and product brochures. The
second source is Observable data which has to be actively sought and often assembled
from several sources e.g. competitor pricing/price lists, advertising campaigns,
promotions, tenders and patent applications. The third is Opportunistic data, and to get
20
hold of this kind of data requires a lot of planning and organization e.g. meetings with
suppliers, trade shows, sales force meetings, seminars/conferences, recruiting ex­
employees, discussion with shared distributors and social contacts with competitors.
2.3 Competitive Advantage
One of the characteristics of strategic management and decisions is that they are normally
about trying to achieve some advantage for the organization over competition. To be
successful, a company must do better than its competitors of satisfying target consumers.
This is what competitive advantage is about. A competitive advantage is an advantage
over competitors gained by offering consumers greater value, either by means of lower
prices or by providing greater benefits and service that justify higher prices (Barney,
1991). Therefore sustainable competitive advantage is about developing this advantage
over competitors and being able to sustain that position of doing better than them.
Therefore, the company’s strategies must be geared to the needs o f the consumers and
also to the strategies o f competitors.
In this way, strategic decisions are sometimes
conceived as the search for effective positioning in relation to competitors so as to
achieve advantage. The first step in achieving competitive advantage is competitor
analysis, and the second step is coming up with competitive strategies based on the
analysis (Kotler and Armstrong, 2002). Competitor analysis is the process o f identifying
key competitors; assessing their objectives, strategies, strengths and weaknesses, and
reaction pattern; and selecting which competitors to attack or avoid.
Competitive
strategies are strategies that strongly position the company against competitors and that
give the company the strongest possible strategic advantage.
2!
Figure 2. 1: Steps in analyzing competitors
Source: Kotler, P. and Armstrong, G. (2002).Principles o f Marketing. 9th Edition.
Pg. 682
In identifying their firm’s current and potential competitors, executives consider several
important variables. The first variable is “How do other firms define the scope of their
market?” The more similar the definition of firms, the more likely the firms will view
each other as competitors. The second variable is “How similar are the benefits the
customers derive from the products and services that other firms offer?”
The more
similar the benefits of products or services, the higher the level of substitutability
between them (therefore increasing competition). The third variable is “How committed
are other firms to the industry?” This question/variable is the most important because it
sheds light on the long term intentions and goals. To size up the commitment of potential
competitors to the industry, reliable intelligence data are needed which may relate to
potential resource commitments (Pearce and Robinson, 2005).
Some of the common mistakes made by organizations in identifying competitors include
overemphasizing current and known competitors while giving inadequate attention to
potential entrants; overemphasizing large competitors while ignoring small competitors,
overlooking potential international competitors; assuming that competitors will continue
to behave in the same way they have behaved in the pas; misreading signals that may
indicate a shift in the focus of competitors or a refinement o f their present strategies or
tactics; overemphasizing competitors; financial resources, market position, and strategies
while ignoring their intangible assets, such as top-management team; assuming that all
the firms in the industry are subject to the same constraints or are open to the same
22
opportunities; and believing that the purpose of the strategy is to outsmart the
competition, rather then to satisfy customer needs and expectations.
According to Porter (2004), competitive advantage is, in very basic words, a position a
firm occupies against its competitors. The primary factors of competitive advantage are
innovation, reputation and relationships.
Competitive advantage occurs when an
organization acquires or develops an attribute or combination of attributes that allows it
to outperform its competitors. Many competitive advantage types are unsustainable, as
competitors will eventually attempt to replicate what the first company has succeeded in
doing. However, a sustainable competitive advantage is possible when other companies
cannot duplicate what the one holding the advantage has been able to do.
According to Barney (1991), a firm is said to have a competitive advantage when it is
implementing a value creating strategy not simultaneously being implemented by any
current or potential competitors. A firm is said to have a sustained competitive advantage
when it is implementing a value creating strategy not simultaneously being implemented
by any current or potential competitors and when these other firms are unable to duplicate
the benefits o f this strategy. These definitions do not focus exclusively on a firm’s
competitive position vis-a-vis firms that are already in its industry, rather, a firm’s
competition is assumed to include also potential competitors poised to enter an industry
at some future date (McCarthy and Perreault, 1993). Also, the definition o f sustained
competitive advantage adopted here doesn’t depend upon the period of calendar time
during which a firm enjoys a competitive advantage, although some authors have
suggested that a sustained competitive advantage is simply a competitive advantage that
lasts a long period of calendar time (David, 2007). Also, it should be noted that a firm
enjoying sustained competitive advantage may experience major shifts in the structure of
competition and may see its competitive advantages nullified by such changes as
unanticipated changes in the economic structure of an industry, which may make what
was at one time, a source of sustained competitive advantage, no longer valuable for a
firm. However, a sustained competitive advantage is not nullified through competing
firms duplicating the benefits of that competitive advantage because the company will be
23
possessing value creating things or capabilities that cannot be duplicated or imitated by
other firms (competitive defendability).
At the most fundamental level, firms create competitive advantage by perceiving or
discovering new and better ways to compete in an industry and bringing them to market,
which is ultimately an act of innovation. Innovations shift competitive advantage when
rivals either fail to perceive the new way of competing or are unwilling or unable to
respond (Porter, 1996). The most typical causes of innovations that shift competitive
advantage are new technologies; new or shifting buyer needs; the emergence of a new
industry segment; shifting input costs of availability; and changes in government
regulation.
Porter (2004) outlines three conditions for the sustainability of competitive advantage:
the first is hierarchy of source (durability and instability) - lower order advantages such
as low labour costs may be easily imitated, while higher order advantages like proprietary
technology, brand reputation, or customer relationships require sustained and cumulative
investment and are more difficult to imitate. The second is the number of distinct sources
- many are hard to imitate; while the third is constant improvement and upgrading - a
firm must be “running scared”, creating new advantages, at least as fast as competitors
replicate old ones. The key to investing is not assessing how much an industry is going
to affect society, or how much it will grow, but rather in determining the competitive
advantage o f any given company and, above all, the durability of that advantage.
2.4 Strategies for Competitive Advantage
To be able to come up with strategies for the organization and be able to gain competitive
advantage over its competitors, an organization must first analyze and understand its
internal and its external environment.
The Internal environment refers to the
organization’s own strengths and weaknesses; and how to overcome the weaknesses
while at the same time capitalizing on its strengths; while the External environment refers
to understanding the various forces at place that determine who “wins” (who becomes
better than the competitors) and ways of achieving that (Russell-Jones, 2003).
24
Internal analysis is basically a realistic analysis o f the firm’s resources. A SWOT
(Strengths, Weaknesses, Opportunities and Threats) analysis can assist in the internal
analysis with especial analysis o f the organization’s strengths or resource advantage
relative to the competitors; and weaknesses or limitations/deficiencies in one or more
jt '
resources relative to the competitors. Many managers and writers have adopted a new
perspective on understanding the firm’s success based on how the firm uses its internal
resources; i.e. the Resource Based View (RBV) of the firm (Pearce and Robinson, 2005).
The RBV’s underlying premise is that firms differ in fundamental ways because each
firm possesses a unique “bundle” o f resources - tangible and intangible assets and
organizational capabilities to make use o f those assets. Each firm develops competencies
from these resources and, when developed especially well, these become the source of
the firm’s competitive advantage. These are the key core competencies that not only
enable the creation of new products and services, but also they are skills that enable a
business to deliver a fundamental customer benefit (i.e. what is it that causes customers to
choose one product over another, and even be willing to pay more for this product?)
The RBV has set forth some guidelines that help determine what constitutes a valuable
asset, capability of competence, are that it should be scarce because when a firm
possesses a resource and few, if any others do, and it is central to fulfilling customer’s
needs, then it becomes a distinctive competence for the firm.
Second is avoiding
imitability from competitors, for example through patent or registered trade marks. The
third and fourth qualities are appropriability and durability (i.e. the slower a resource
depreciates, the more valuable it is). Finally it should be sustainable (without cheaper
alternatives). Core competencies should change in response to changes in the company’s
environment; be flexible and evolve over time (Pearce and Robinson, 2005).
External analysis involves analyzing the host o f external factors that influences a firm’s
choice of direction, and ultimately its organization structure and internal processes.
These factors which constitute the external environment can be divided into three sub­
categories - factors in the remote environment, factors in the industry environment, and
factors in the operating environment (Pearce and Robinson, 2005).
The Remote
environment comprises factors/forces that originate beyond and usually irrespective of
25
any single firm’s operating situation; that is economic, social-cultural, political,
technological, legal and ecological factors. The operating environment, also called the
Competitive environment or Task environment involves factors in the immediate
competitive situation that provide many of the challenges a particular firm faces in
attempting to attract or acquire needed resources or in striving to profitably market its
goods and services. These factors include competitors, creditors and suppliers, customers
and accessible labour market. It is typically subject to much more influence or control by
the firm (Pearce and Robinson, 2005).
When analyzing the industry environment,
according to Porter (1996) the nature and degree of competition in an industry hinge on
five forces - the threat o f new entrants; the bargaining power of customers/buyers;
bargaining power of suppliers; threat of substitute products; and rivalry among existing
firms.
2.4.1 Porter’s Generic Strategies
After conducting an analysis of the internal and external environment, a firm will then
move on to select a strategy, Porter (2004) describes three generic strategies for achieving
above-average performance in an industry: cost leadership, differentiation, and focus.
According to Porter, the fundamental basis of above-average performance in the long run
is Sustainable Competitive Advantage.
Each of the generic strategies involves a
fundamentally different route to competitive advantage, combining a choice about the
type of competitive advantage sought with the scope o f the strategic target in which
competitive advantage is to be achieved. The notion underlying the concept of generic
strategies is that competitive advantage is at the heard o f any strategy; and achieving
competitive advantage requires a firm to make a choice - if a firm is to attain competitive
advantage it must make a choice about the type of competitive advantage it seeks to
attain and the scope within which it will attain it.
26
Figure 2. 2: Three Generic Strategies
COMPETITIVE ADVANTAGE
Lower Cost
Differentiation
Broad
Target
1. Cost Leadership
2. Differentiation
3A. Cost Focus
3B. Differentiation
COMPETITIVE SCOPE
Focus
Narrow
Target
Source: Porter, M. E. (2004). Competitive Advantage. Pg.12.
Under the cost leadership strategy the company works hard to achieve the lowest costs of
production and distribution so that it can price lower than its competitors and win a large
market share (Kotlerand Armstrong, 2002). The firm has a broad scope and serves many
industry segments, and may even operate in related industries - the firm’s breadth is
often important to its cost advantage.
The sources o f cost advantage are varied; for
example, they may include pursuit o f economies of scale, or proprietary technology. If a
firm can achieve and sustain overall cost leadership, then it will be an above average
performer in its industry provided it can command prices at or near the industry average;
and at equivalent or lower prices than its rivals, a cost leader’s low-cost position
translates into higher returns. In this case however, the product should be acceptable to
buyers.
Low cost producers typically sell a standard, or no-frills, product and place
considerable emphasis on reaping scale or absolute cost advantage from all sources
(Porter, 2004).
27
Differentiation, which is the second generic strategy, involves the company concentrating
on creating a highly differentiated product line and marketing program so that it comes
across as the class leader in the industry. Most customers would prefer to own this brand
if the price is not too high (Kotler and Armstrong, 2002). According to Porter (2004), the
firm selects one or more attributes that many buyers in an industry perceive as important
and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a
premium price. A firm that can achieve and sustain differentiation will be an average
performer in its industry if its price premium exceeds the extra costs incurred in being
unique. The means for differentiation can be based on the product itself, the delivery
system by which it was sold, the marketing approach, and a broad range of other factors.
The third generic strategy is focus. According to Kotler and Armstrong (2002), here the
company focuses it effort on serving a few market segments well rather than going after
the whole market. Porter (2004) sees this strategy as quite different from the others
because it rests on the choice of a narrow competitive scope within an industry. The
focuser selects a segment or group of segments in the industry and tailors its strategy to
serving them to the exclusion o f others.
By optimizing its strategy for the target
segments, the focuser seeks to achieve a competitive advantage in its target segments
even though it does not possess a competitive advantage overall. The focus strategy has
two variants: In cost focus a firm seeks a cost advantage in its target segment; while in
differentiation focus a firm seeks differentiation in its target segment.
The target
segments must either have buyers with unusual needs or else the production and delivery
system that best serves the target segment must differ from that of other industry
segments.
2.4.2 Ansoff s Product Markets
In 1965, Igor Ansoff came up with a product market expansion grid. This is a portfolio­
planning tool for identifying company growth opportunities through market penetration,
market development, product development, or diversification (Kotler and Armstrong,
2002) .
28
Figure 2. 3: Four basic types of opportunities.
Present products
Present
Market penetration
New products
Product development
markets
New
markets
Diversification
Market
development
Source: McCarthy and Perreault (1993). Basic Marketing. Pg. 80.
Market penetration is a strategy for company growth which involves increasing sales of a
firm’s present products in its present markets without changing the product. The firm
may try to increase the customer’s rate of use or attract competitors’ customers or current
non-users; for example, through adding new stores in current market areas to make it
easier for more customers to visit; or improvements in advertising, pricing, service, or
store design (Kotler and Armstrong, 2002).
Market development on the other hand
means trying to increase sales by selling present products in new markets; through
advertising in different media to reach new target customers, or they may add channels of
distribution or new stores in new areas, including overseas (McCarthy and Perreault,
1993).
The third type of opportunity or strategy is product development. This means offering
new or improved products for present markets. By knowing the present market’s needs, a
firm may see ways to add or modify product features, create quality levels, or add more
types or sizes to better satisfy customers. The fourth type o f strategy is diversification which means moving into totally different lines of business - perhaps entirely unfamiliar
products, markets, or even levels in the production-marketing system. Diversification
presents the most challenging opportunities as it involves both new products and new
markets (McCarthy and Perreault, 1993).
29
2.4.3 O ther strategies
Another strategy for gaining competitive advantage is Collaboration (Johnson and
Scholes, 2004).
Sometimes collaboration between potential competitors or between
buyers and sellers is likely to be advantageous when the combined costs of purchases and
buying transactions (such as negotiating and contracting) are lower through collaboration
than the cost o f operating alone. This can be explained in the five forces framework:
collaboration to increase buying power; collaboration to build barriers to entry or avoid
substitution; collaboration to gain entry and competitive power; and collaboration to
share work with customers.
Barney (1991) describes another type of strategy for gaining competitive advantage. This
is the Game Theory; which provides a basis for thinking through competitors’ strategic
moves in such a way as to pre-empt or counter them. e.g. changing the rules o f the game
so as to catch the competitors unaware. The main value o f Game theory in strategy is to
emphasize the importance of thinking ahead, thinking o f alternatives, and anticipating the
reactions o f other players in the “game”. Application areas in strategy are new product
introduction; licensing versus production; pricing; R & D; advertising; and regulation.
According to Yabs (2007), other strategies include Stability Strategies - which include
strategic alliances, outsourcing, horizontal and vertical integration. Survival strategies
include retrenchment, liquidation, bankruptcy and divesture; while Growth strategies
include concentric and conglomerate diversification, acquisitions, market development,
product development and innovation.
Combination strategies include joint ventures,
mergers, acquisitions, retrenchment and divesture.
Operational strategies include
Research and Development, Human Resource strategies, Purchasing strategies and
Financial related strategies.
30
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research Design
The appropriate research design for this study is a census survey design (Fowler, 2008)
which is suitable for studying a whole population. This particular research design was
suitable for this research because it involved making comparisons between the strategies
of the various banks that are members of the Kenya Credit and Debit Card Association
and also to show their variations.
3.2 Population
The target population of this study is the 16 member banks o f the Kenya Credit and Debit
Card Association as at the time of the study (September, 2009) and 34 customers who use
credit cards issued by various banks.
3.3 Data Collection
Primary data was collected through structured questionnaires with both closed and openended questions, which were dropped to firms in the sector and then collected later.
These were targeted at credit card managers in the various card centers to get information
from the banks regarding their strategies. Other questionnaires were issued to the
customers/a small section o f card holders to get statistics o f their preferred issuers.
3.4 Data Analysis
Data was analyzed using descriptive statistics and represented by measures of central
tendency, that is mean and standard deviation. Measures o f central tendency were used to
measure differentiation o f strategies used by banks for competitive advantage in the
credit card business. The higher the variations the more different are the strategies used
by the banks studied and the reverse is also true. The results were describing the
strategies across banks employed to cut an edge in the credit card business. The
information was presented by use o f tables, bar charts, graphs and pie charts to show the
variations of the strategies that banks in Kenya use to gain competitive advantage in the
31
credit card industry, and their effectiveness as per the objectives o f this research paper.
Responses from the various card holders were presented by use o f tables, bar charts,
graphs and pie charts to show their preferred cards/banks; and these results contributed to
establishing the effectiveness of the bank strategies as per the second objective of this
research paper.
32
CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION
4.1 Profile of banks in study
4.1.1 Demographic information
The respondents consisted of members of the Kenya Credit and Debit Card Association
as at the time o f the study (2009). These are: Commercial Bank o f Africa Ltd, Co­
operative Bank of Kenya Ltd, Fidelity Commercial Bank, Imperial Bank Ltd, Kenya
Commercial Bank Ltd, National Bank of Kenya Ltd, NIC Bank Ltd, Postbank Ltd, Prime
Bank Ltd, Senator Card (Southern Credit Bank Corporation), Standard Chartered Bank
Ltd, Stanbic CFC Bank Ltd, Equity Bank Ltd, Diamond Trust Bank and I & M Bank Ltd.
Figure 4.1: Demographic area of operation
The Figure 4.1 shows the geographical area o f operation from where the respondents
operate from. 81% said that they operate country wide, 13% said that they operate only in
Nairobi, Kisumu and Mombasa while only 6% of the respondents said that they operate
in Nairobi only. The majority said that they operate country wide due to the banks having
a country wide branch network.
33
Table 4.1: Number of customers in the respondents’ banks
Frequency
5
1
2
8
16
5001-10000
10001-15000
15001-20000
20001 and above
Total
Percent
31.25
6.25
12.5
50.0
100.0
The Table 4.2 shows the number o f customers that the respondents’ banks have. 50% of
the respondents said that they have 20001 and above number o f customers, 31.25% said
that they have 5001 to 10000 number of customers, 12.5% o f them said that they have
15001 to 20000 while 6.25% said that they have 10001 to 15000 number o f customers.
The majority said that they have 20001 and above number of customers. The reason that
they have such large numbers of customers might be as a result o f the banks having
products and services that have been able to attract a large number o f clients.
Figure 4. 2: The duration of time since the credit card service was introduced
D u r a t i o n o f t i m e s in c e t h e c r e d it c a r d s e r v i c e w a s i n t r o d u c e d
5 0 .0 0
4 5 .0 0
4 0 .0 0
3 5 .0 0
^
3 0 .0 0
2
2 5 00
• P e rc e n t
Qj
2 0 .0 0
1 5 .0 0
10.00
5.0 0
II
1 -5 y e a rs
6 -1 0 ye ars
1 1 -1 5 years
1 6 -2 0 y e a rs
A b o v e 2 0 ye a rs
Y ears
The Figure 4.2 shows the duration o f time since the credit card service was introduced.
43.75% said that the credit card service has been there for between 11 to 15 years,
18.75% of the respondents said that the credit card service has been there for between 6
to 10 years, 18.75% said that the credit card services had been there for approximately 1
34
to 5 years, 12.5% said that the service was introduced over 20 years, while 6.25% said
that the credit card service had been here for between 16 to 20 years.
Figure 4. 3: The number of card customers in the banks
N u m b e r of card customers
5001-10000
10001-15000
15001-20000
20001 and above
Y ears
The researcher wanted to know the number of card customers that the banks have. From
figure 4.3, we see that 50% of the respondents said that they have about 5001 to 10000
credit and debit card customers, 43.8% said that they have more than 20001 card
customers, while 6.2% said that they have about I5001 to 20000 card customers. None
of the respondents said that they have 10001 to 15000 card customers. The types of
VISA cards offered by the various banks are: VISA credit cards - local and international,
Classic VISA card, gold card, debit card, and international prepaid VISA. The types of
MasterCards used are Silver and gold card; while other types of cards offered by various
banks are ATM cards (VISA Electron), Co- branded visa and corporate credit card
(Company credit cards). Only one bank in Kenya was offering the MasterCard as at the
time of the study.
OF NAIR03I
LOWER KABETE LIBRARY
U N IV E R SIT Y
35
4.2 Bank Strategies
Figure 4. 4: Whether the banks have strategies, and if known to the respondents
W h e t h e r they h a v e s tr a te g ic s a n d a r e a w a r e o f th e m
0%
■ Yes
\
■ No
The Figure 4.4 shows that all the respondents said that the banks they work for have a
business strategy and are aware o f them. The strategies mentioned were growth of the
card business, general growth of credit card customer numbers, differentiation for each
segment, creating products to meet customer needs and lowering the card tariffs so as to
encourage more customers to apply for credit cards, even those in the middle to lower
income brackets.
36
Figure 4. 5: Whether the strategies are more aligned to the customers or the
competitors
W hether strategiies are m ore aligned to custom ers or to competitors.
D C u s to m e r
6%
■ C o m p e tito r
6%
a
B o th
88%
On the aspect o f whether the strategies are more aligned to customers or to competitors,
as shown by figure 4.5, we see that 88% of the respondents said that their strategies are
more aligned to customers, 6% said that their strategies are more aligned to their
competitors, while the other 6% said that their strategies are aligned to both customers
and competitors. The majority, therefore, have their strategies more aligned to customers
and this could be due to the fact that they are trying to respond to customer/market needs
in order to increase the number of customers/their market share.
Figure 4. 6: Whether the strategies used are proactive or reactive
37
The researcher wanted to know whether the respondents felt that the strategies used by
their banks are proactive or reactive. Figure 4.6 shows that 87% said that the strategies
are proactive while 13% said that the strategies are reactive. This can be seen through
being the first to initiate/introduce various products in the market (being innovative);
rather than reactively launching products into the market after competitors have already
successfully done so (hence looking like they are copying what competitors have already
done).
38
Table 4. 2: The rate of the credit card growth in Kenya
Frequency
Percent
Very good
6
37.5
Good
7
43.75
Moderate
3
18.75
Low
0
-
Total
16
100.0
On considering the rate of the credit card growth in Kenya, we see from table 4.3 that
43.75% said that they rated the growth as good, 37.5% rated it as very good, while
18.75% said that they rated it as moderate. None of them rated the growth of credit cards
as low.
Figure 4. 7: Whether issuing credit cards has helped retain customers
From Figure 4.7 which shows whether credit cards help in customer retention and
attraction of prospective customers, we see that 87% of the respondents said that issuing
credit cards has helped in customer retention and attraction of prospective customers
while 13% said that issuing credit cards has not helped in retention of customers.
39
T a b le 4 . 3 : T h e s t r a t e g i e s t h a t t h e b a n k s e m p l o y t o r e t a i n t h e m a r k e t s h a r e
Frequency
Percent
Knowing your current competitor
15
93.75
Market segmentation
10
62.5
Product differentiation
11
68.75
Creating products to meet customer needs
14
87.5
On the strategies that the banks employ to retain the market share that they have in the
industry 93.75% said that they know the current competitor, 87.5% said that they do so
by creating products to meet customer needs, 68.75% said that they practice product
differentiation while 62.5% said they do market segmentation. The majority said that they
do so by knowing their current competitor due to the need to know who exactly they are
fighting for their market share. By knowing its competitors, an organization is able to
use strategies such as the Game Theory which involves pre-empting what the competitors
are planning or countering them; thinking ahead of them, thinking o f alternatives and
anticipating the reactions of the competitors in the “game”.
The environmental factors that have affected the various bank strategies are increased
competition, growing customer needs and awareness, growth of credit card numbers in all
segments, technological advancements especially by competitors, economic factors
(influence consumption patterns and therefore force them to lower tariffs so that more
people can afford their product), social cultural factors (especially social attitudes
towards credit cards) and legislation/legal factors (the difficulty of the fact that there is no
legislation in Kenya currently specifically for dealing with fraud in the credit card
industry) and the need to create new products.
40
Figure 4. 8: Whether pricing is proactive or reactive
W h e t h e r th e p r i c i n g p r o a c tiv e o r r e a c t i v e
■ Proactive
■ Reactive
On the issue o f whether pricing is proactive or reactive, 87% of the respondent said that
their pricing is proactive while 13% said that it is reactive. The majority said that the
pricing is proactive which might be because they need to initiate good tariffs to attract
customers and reduce competition.
Figure 4. 9: Whether the banks have competitive advantage and if they perceive
themselves as market leaders
41
The figure 4.9 shows whether the banks have competitive advantage and if they perceive
themselves as market leaders. 56% said that they have competitive advantage while 44%
said that they do not have competitive advantage. Some o f the respondents said that their
banks have competitive advantage within target segments in the credit card business, one
bank said that it has a strong brand name which gives it competitive advantage, while the
rest said that they do not have competitive advantage in the credit card business but are
market leaders in other areas/products o f the bank.
The greatest challenges in the in the industry mentioned are competition, credit card
fraud, poor telecommunications support that make connectivity difficult for the acquiring
business, customer service, lack of proper knowledge in query resolution, pricing, public
image, growing the market share, cultural change, bad debt on credit cards, step up
standards, customer awareness and high costs both to join the business and the related
running costs after being an issuer/acquirer.
Figure 4. 10: The rating in terms of response to the challenges
Rating in terms of response to those challenges
60.0
V ery g o o d
G ood
S a tis fa c to ry
Poor
R a tin g s
The figure 4.10 shows the rating in terms of response to those challenges; and 50% of
the respondents said that they rate the response as good, 31.25% said that they rate it as
satisfactory, while 18.75% rated it as very good. None of the respondent rated the
response as poor.
42
Figure 4. 11: Whether the bank is also an acquirer in addition to being an issuer
W h e t h e r t h e y a r c a c q u i r e r in a d d i t i o n to b e i n g a n i s s u e r
Figure 4.11 shows that 75% are issuing banks only; while 25% are both issuing and
acquiring banks. O f the 25% it should be noted that 12.5% acquire all cards with VISA
and MasterCard logo (which gives them competitive advantage), while 12.5% acquire
only their cards (i.e. cards that they issue). It would also be worth noting further that of
the banks that acquire all cards with VISA and MasterCard Logo, only one bank
additionally acquires the JCB (Japanese Credit Bureau) card. It can be seen therefore that
the more the cards a bank acquires, the more competitive advantage it has because it is
able to offer a service that the competitors do not offer.
Figure 4. 12: The plans the respondents have for the future if they were not acquirer
W h e t h e r t h e y p l a n s in f u t u r e
■ Yes
■ No
43
The researcher wanted to know whether the banks that don’t acquire have any plans to
do so in the future. 69% said that they do not have any plans to acquirer, while 31% said
that they do have plans. The reasons mentioned for not having any plans to acquire in the
future include it not being part of their strategy, and the fact that acquiring business is too
expensive both at entry level (barriers to entry) and the running costs involved once in the
business.
Table 4. 4: Strategies employed to ensure that the bank retains and attracts
prospective customers
Frequency
Percent
Strategic operational plans/responses
15
93.75
Anticipating changes in the market
7
43.75
Forecasting shifts in the demand patterns
8
50.0
The Table 4.5 shows the strategies employed to ensure that the bank retains and attracts
prospective customers. 93.75% out of the whole population said that the strategic
operational plans/responses are employed, 50% out o f the whole population said that
forecasting shifts in the demand patterns strategy is used while 43.75% out o f the whole
population said that anticipating changes in the market strategy is also employed. The
majority said that they employ strategic operational plans/responses which include
marketing, research and development, financial, purchasing and human resources
strategies.
Table 4. 5: Strategies that the bank uses in coping with competition within the
industry
Frequency
Percent
Cost leadership
2
12.5
Differentiation
5
31.25
Cost focus
8
50.0
Differentiation focus
13
81.25
44
On the strategies that the bank uses in coping with competition within the industry and as
shown by table 4.6, 81.25% o f the respondents said that they use differentiation focus,
50% said that they employ the cost focus strategy, 31.25% said that they use the
differentiation strategy while 12.5% cost leadership. The majority therefore said that they
use differentiation focus which essentially means that they seek differentiation in their
target segments.
4.2.1 Environmental factors
Table 4. 6: Extent towards which the environmental factors influence competitive
advantage in the bank
Mean
Std. Dev.
Economic factor
2.2
2.4
Social cultural factor
1.5
1.8
Political factor
1.5
1.6
Technological factor
1.9
2.2
Legal factor
1.7
1.9
Environmental factors
The table 4.7 shows the extent towards which the environmental factors influence
competitive advantage in the bank. A Five point Likert scale was used to interpret the
responses. Accorded to scale, those factors which had no extent at all were awarded 1
while those which were very great extent were awarded 5. Within the continuum are 2 for
little extent 3 for moderate extent and 4 for at great extent. Mean and standard deviation
were used to analyze the data. According to the researcher those factors with a mean
close to 1.5 had no extent at all while those with a mean close to 2.5 were to a very great
45
extent. On the same note the higher the standard deviation the higher the level of
disagreement or dispersion among the respondents. In regard to this, the economic factor
had the greatest extent with a mean o f 2.2, the technological factor followed with a mean
of 1.9, legal factor influenced to a moderate extent with a mean of 1.7, social cultural
factor and political factor influenced to little extent with a mean of 1.5 each. The
economic factor had the greatest influence because it determines consumption patterns.
4.2.2 Market factors
Table 4. 7: The extent towards which market factors influence competitive
advantage
Market Factors
Positioning branches at accessible locations to
the customers
Few competitors in the field
Consistent market due to customers loyalty
Wider market created by opening up several
branches in the region
Long market experience
Mean
Std. Dev.
2.0
1.8
1.9
2.3
2.0
2.2
1.7
1.7
2.0
2.0
The researcher wanted to know the extent towards which market factors influence
competitive advantage. A Five point Likert scale was used to interpret the extent to which
the respondents felt that market factors influenced competitive advantage. Accorded to
scale those factors which had no extent at all were awarded 1 while those which were
very great extent were awarded 5. Within the continuum are 2 for little extent 3 for
moderate extent and 4 for at great extent. Mean and standard deviation were used to
analyze the data. According to the researcher those factors with a mean close to 1.5 had
46
no extent at all while those with a mean close to 2.0 were to a very great extent. On the
same note the higher the standard deviation the higher the level o f disagreement or
dispersion among the respondents. According to table 4.8 the respondents cited that
positioning branches at accessible locations to the customers was considered to a very
great extent with a mean of 2.0, consistent market due to customers loyalty was
considered to a great extent with a mean of 1.9,
few competitors in the field was
considered to a moderate extent with mean of 1.8, long market experience and wider
market created by opening up several branches in the region were considered to a little
extent with a mean of 1.7 each. The majority said that they considered the factor
positioning branches at accessible locations to the customers to a very great extent which
might be due to the convenience that it will bring to the customers.
4.2.3 Industrial factors
Table 4. 8: The extent towards which the industrial factors influence competitive
advantage
Industrial Factors
Mean
Std. Dev.
Rivalry among firms using tactics like price
competition
Barriers to entry in the industry
1.5
1.3
1.7
1.5
Threat of substitute products
Bargaining power of suppliers and buyers
1.5
1.4
1.7
1.7
Legal factor
1.8
2.0
The respondents were asked to rate the following industrial factors on the extent to which
they influence competitive advantage. A Five point Likert scale was used to interpret the
extent that the respondents felt the industrial factors influence competitive advantage.
Accorded to scale those factors which had no extent at all were awarded 1 while those
47
which were very great extent were awarded 5. Within the continuum are 2 for little extent
3 for moderate extent and 4 for at great extent. Mean and standard deviation were used to
analyze the data. According to the researcher those factors with a mean close to 1.0 had
no extent at all while those with a mean close to 2.0 were very great extent. On the same
note the higher the standard deviation the higher the level o f disagreement or dispersion
among the respondents. The respondents said that legal factor was considered to a very
great extent with a mean of 1.8, rivalry among firms using tactics like price competition
and threat of substitute products were considered to a great extent with a mean of 1.5
respectively, the factor of bargaining power of suppliers and buyers was considered to a
moderate extent with a mean of 1.4 while the barriers to entry in the industry factor was
considered to a little extent with a mean of 1.3.
4.2.4 Managerial factors
Table 4. 9: The extent towards which managerial factors that influence competitive
advantage
Mean
Std. Dev.
Effective corporate governance
1.9
2.1
Recommendable code of ethics of the bank
High accountability of the manager in the bank’s business
transactions
2.1
2.3
2.0
2.2
Business processes are formed to favor customers' needs
2.1
2.3
The bank managers have long experience in the field
1.8
2.0
Managerial Factors
Table 4.10 shows the findings after the respondents rated the influence of the managerial
factors on competitive advantage. A Five point Likert scale was used to interpret the
extent to which the respondent felt that managerial factors influence competitive
advantage. Accorded to scale those factors which had no extent at all were awarded 1
48
while those which were very great extent were awarded 5. Within the continuum are 2 for
little extent 3 for moderate extent and 4 for at great extent. Mean and standard deviation
were used to analyze the data. According to the researcher those factors with a mean
close to 1.5 had no extent at all while those with a mean close to 2.5 were very great
extent. On the same note the higher the standard deviation the higher the level of
disagreement or dispersion among the respondents. In this regard, the managerial factors
that business processes are formed to favor customers' needs and recommendable code of
ethics of the bank were considered to a very great extent with a mean 2.1 each, followed
by the factor that high accountability o f the manager in the bank's business transactions
was considered to a great extent with a mean of 2.0 while effective corporate governance
was considered to a moderate extent with a mean of 1.9 finally the factor that the bank
managers have long experience in the field was considered to a little extent with a mean
of 1.8. The factors that business processes are formed to favor customers' needs and that
recommendable code of ethics of the bank were considered to a very great extent might
be because the client was the point o f focus in the banks strategy formulation; and that
the banks found it important to have a reputation that made them trustworthy with clients.
49
4.2.5 The services offered to influenced competitive advantage
Table 4.10: Extent towards which the services offered influenced competitive
advantage
Mean
1.9
1.8
1.5
1.9
2.2
Services offered
Customer oriented services
Legal requirements
Special offers and promotions
Quick response to the customer needs
Efficient communication channels
Std. Dev.
2.1
2.0
1.7
2.2
2.4
The extent towards which the services offered influenced competitive advantage was
rated in table 4.11. A Five point Likert scale was used to interpret the extent to which the
respondents felt that services offered influenced competitive advantage. Accorded to
scale those factors which had no extent at all were awarded 1 while those which were
very great extent were awarded 5. Within the continuum are 2 for little extent 3 for
moderate extent and 4 for at great extent. Mean and standard deviation were used to
analyze the data. According to the researcher those factors with a mean close to 1.5 had
no extent at all while those with a mean close to 2.5 were very great extent. On the same
note the higher the standard deviation the higher the level of disagreement or dispersion
among the respondents. The factor efficient communication channels was rated to a very
great extent with a mean o f 2.2, this is followed by quick response to the customer needs
and customer oriented services with a mean o f 1.9 each, legal requirement was rated
moderately with a mean o f 1.8 while special offers and promotions was rated to a little
extent.
Generally the respondents felt that the following strategies had helped them to grow their
credit card numbers and market share: operational strategies such as research and
development, having a business development section, marketing and advertising, human
resource strategies such as having a sales staff for card sales, discounts and promotions,
50
partnerships such as the co-branded cards, and having a reward system. The respondents
also commented on the issue of why most people do not qualify for the credit card and
hence end up being debit card holders. The reason given is that most clients were low
income earners therefore they don’t qualify for the credit cards. There is the factor of
costing or pricing which results to the increase in the minimum costs to the card holders.
There should therefore be greater focus on areas like technological advancements,
promotions and special offers that will attract more customers who would not necessarily
be in the higher income brackets.
51
4.3 Effectiveness of Strategy adopted
The second objective of this research project was to establish the effectiveness of the
strategies that the banks have adopted in gaining competitive advantage in the credit card
business. In order to ascertain this, questionnaires were issued to various debit and credit
card customers/a small section of card holders to get statistics of their preferred issuers,
and why they preferred the particular issuers.
4.3.1 General Information
Figure 4.13: Age of respondents
Respondents age
The figure 4.13 shows the age bracket of the customers who use the credit cards. 53.3%
of them said that they were over 50 years, 33.3% said that they were between 31 to 50
years while only 13.3% who said that they were below 30 years. The majority of the
respondents were over 50 years which might be due to the nature of the business they do
and they could probably be business owners/proprietors who are financially stable/settled
and easily qualified for credit cards.
52
Table 4.11: Monthly income bracket of the respondents
Frequency
Percent
10,000-30,000
2
13.3
30,000-60,000
2
13.3
60,000-100,000
4
26.7
Over 100,000
7
46.7
Total
15
100.0
The table 4.12 shows the monthly income bracket of the respondents. 46.7% said that
they earn over Kshs. 100, 000, 26.7% said that they earn about Kshs. 60,000 to 100, 000,
13.3% said that they earn between Kshs.30, 000 to 60, 000 while the rest also 13.3% said
that they earn between Kshs 10, 000 to 30, 000. The majority said that they earn over
KshslOO, 000 and hence the reason why they qualified to get credit cards.
The
respondents said that they bank with the various banks that offer the card services like
Barclays bank (K) Ltd, CFC Stanbic bank, Co-operative bank (K) Ltd, NIC bank, and
Diamond trust bank among others; although they did not necessarily take the credit card
issued by their bankers (i.e. some had credit cards not issued by the bank where they are
account holders).
Figure 4. 14: The number of years the respondent has been served by the bank
53
The figure 4.14 shows the number o f years the respondent has been served by the bank.
Whereby 47% said that they have been served for more than 10 years, 33% said that they
have been served for 2 to 5 years, 13% said that they have been served for less than 1
year while 7% said that they have been served for 5 to 10 years. The majority said that
they have been served for more than 10 years. This shows customer loyalty and this may
be due to the reason that besides the credit card that the customer has, he/she could be
having other products offered by the bank, and probably content with the products and
services offered.
4.3.2 Effectiveness of Strategics
The type of credit cards and the issuers of the cards mentioned by the respondents were
the KCB VISA classic credit card issued by Kenya Commercial Bank Ltd, NIC Move
VISA credit card issued by NIC bank, classic and gold VISA credit cards issued by
Fidelity bank, VISA credit card issued by Diamond Trust bank Ltd, the co-branded VISA
credit card between Fidelity bank and Chandarana Supermarkets, MasterCard issued by
CFC Stanbic Bank Ltd, VISA classic and VISA Gold cards issued by Barclays bank, the
co-branded VISA credit card between Barclays bank (K) Ltd and Nakumatt supermarkets
and the international VISA card issued by cooperative bank.
The reasons given by various card holders as to why they had a credit card were - being
regular shoppers hence preferring to use a credit card, to increase one’s purchasing
power, convenience and safety of not having to carry cash and to have a source o f money
in case of emergency such as illness. The reasons given as to why they chose the cards
that they had were because of the issuing bank’s good marketing strategies, being an
employee of the bank, lower interest rates, it was faster to get through that particular
bank, the bank had less requirements to get the credit card/easier to get, and good
services offered like the SMS (short message service/mobile phone text alerts) when
credit card has been used (helping to fight fraud) and electronic statements. However the
bank that had the highest number o f card holders, had the respondents saying that it had a
strong brand name that made selling its cards easier (the card holders trusted the brand
54
name), had aggressive sales staff that made growth of market share easier and faster (e.g.
the sales staff would go to various companies to sell the credit cards instead o f waiting
for the customers to come and apply for credit cards at the bank), sales and marketing
strategies such as reducing the required bracket/level o f income to get a credit card
(thereby making sure that even the low income earners can qualify for credit cards, but
with lower limits depending on their salaries) and it also had other types o f beneficial
marketing strategies such as partnering with merchants to give card holders o f the bank
various discounts on purchasing goods in those merchant stores/shops.
Figure 4.15: Whether they felt that they get best services from the issuing bank
Whether they feel they get best services from issuer
On being asked whether they felt they get best services from the issuer, 73% said yes
while 27% said no. The majority o f the respondents said yes which might be due to the
various services offered by their card issuers which are satisfactory to them.
55
Figure 4.16: Whether there is anything that should be done better by the issuing
bank
Whether the is anything that should be improved
■ Yes
■ No
The researcher wanted to know whether there is anything that should be done better
where by 67% said yes while 33% said no. The majority said yes which might be due to
the reason that the credit card sector is growing hence a lot should be done in terms of
making the services better. Some o f the improvements requested for by card holders
include provision of electronic statement service, notification incase there is any extra
charge, the banks should enhance customer education in regard to card usage, interests
and card limits, provision of online usage and 24 hour support.
Figure 4.17: Whether the respondents felt that the competitor was doing better
W h e t h e r th e c o m p e t i t o r s d o b e t t e r
■ Y es
■ No
56
The researcher wanted to know whether the respondents felt that the competitor was
doing better, 60% said no while 40% said yes. The majority said no showing that they felt
they chose the best issuer in terms of meeting their credit card needs. Those who said yes
might have said so due to the areas that the issuers are yet to improve on and that the
competitors already had an upper hand on/were better at.
Table 4.12: Whether the card was used for shopping or ATM withdrawals
Frequency
Percent
Shopping
12
80.0
ATM withdrawals
3
20.0
Total
15
100.0
On being asked whether the card was used for shopping or ATM withdrawals 80% of the
respondents said that they used it for shopping while the rest 20% said that they use it for
ATM withdrawals. The majority said they use it for shopping to avoid the high charges
that come from using a credit card for ATM withdrawals (the charges on ATM
withdrawals for credit cards are very high - between 6% and 6.5% of the withdrawal
amount, but there are no charges for using a credit card on a point of sale machine).
Figure 4. 18: Whether the respondent uses the card for emergencies or frequently
W h e t h e r its u s e d o f r e m e r g e n c y o r f r e q u e n t l y
7 0 .0
60 0
5 0 .0
400
a P e rc e n t |
\
30 0
20 0
10 0
E m e r g e n c ie s
F re q u e n tly
O c c a s io n
57
The figure 4.18 shows the responses on whether the respondent uses the card for
emergencies only or frequently. 66.7% said that they use the card frequently and the rest
33.3% said that they use the card for emergencies only. The majority said that they use it
frequently which might be an indication of a growth of credit card usage. The challenges
that the respondents cited to have faced with regard to usage o f the credit card are fear of
fraud and identity theft, difficulty sometimes in repayment/monthly deductions, going
above the limit given by the banks and the interest charges/rates that are involved when
one does so, decline of card at point o f sale machine/terminals (and the embarrassment),
and the delays at the point of sales terminals/merchants.
Figure 4.19: Whether the card is used for entertainment or not
On whether the card is used for entertainment or not, 60% of the respondents said yes
while the rest 40% said no. The respondents who said no gave their reasons as mainly
fear o f misusing the credit card, and fear of fraud in entertainment establishments.
Table 4.13: Whether they got the limit they wanted or were denied
Frequency
Percent
Yes
11
73.3
No
4
26.7
Total
15
100.0
58
The table 4.14 shows the results on whether the respondent has a limit he or she wants or
was denied the limit and he or she wanted. 73.3% said that they did while the rest said
that they did not. Banks usually have guidelines as to the limits that they give credit card
holders hence it might at times be impossible for a credit card holder to get the limit that
he or she wants.
The challenges that the respondents gave that they face at point o f sales (POS) when
shopping are; poor communication hence duplicating debits sometimes on cardholders or
giving a false decline message yet the card could be having funds (unnecessary
embarrassment to cardholder), slow systems causing queues, poor communication using
the telephone land lines, and being kept waiting for long when merchant is trying to call
the acquiring bank for authorization. The respondents suggested that they want issuers or
acquirers to improve on are better customer service, introduction of SMS (short message
service/mobile phone text alert) when card has been used, provision of e-statements,
improve on communication with the clients, improve customer service, increase the
duration given for the payment of bills and avoid penalties, put measures to reduce fraud,
customer education, diarizing to tell a credit card holder well before the expiry period of
their credit card, after sales service, credit culture creation or promotion and better
communication at the point of sale.
59
CHAPTER FIVE: SUMMARY, DISCUSSIONS AND CONCLUSIONS
5.1 Summary, Discussions and Conclusions.
5.1.1 Summary
This study was an attempt to investigate the strategies that banks in Kenya use in
achieving the competitive advantage in the credit card business. The first objective of
this research project was to determine the strategies that banks in Kenya are using to gain
competitive advantage in the credit card business. The respondents consisted o f members
of the Kenya Credit and Debit Card Association as at the time of the study (2009). These
are Commercial Bank of Africa Ltd, Co-operative Bank of Kenya Ltd, Fidelity
Commercial Bank, Imperial Bank Ltd, Kenya Commercial Bank Ltd, National Bank of
Kenya Ltd, NIC Bank Ltd, Postbank Ltd, Prime Bank Ltd, Senator Card (Southern Credit
Bank Corporation), Standard Chartered Bank Ltd, Stanbic CFC Bank Ltd, Equity Bank
Ltd, Diamond Trust Bank and 1 & M Bank Ltd.
The type o f VISA cards offered by various banks are; VISA credit cards - local and
international, Classic VISA card, gold card, debit card, and international prepaid VISA.
The types of MasterCards used are Silver and gold card; while other types of cards
offered by various banks are ATM cards (VISA Electron), Co- branded visa and
Corporate credit card (Company credit cards). On the number of customer cards; 50% of
the respondents said that they have about 5001 to 10000 including the debit cards, 43.8%
said that they have more than 2001 cards while 6.2% said that they have about 15001 to
20000.
All the banks that the respondents work for have a business strategy and the respondents
were all aware of their business strategy. The strategies include growth o f the card
business, general growth o f credit card customer numbers, differentiation for each
segment, creating products to meet customer needs and lowering the card tariffs. 87%
said that the strategies are proactive while the rest 13% said that the strategies employed
by the bank are reactive. 88% of the respondents said that they have customer strategies
60
-at they have competitors' strategies in place while the rest 6% have
ace.
; credit card growth in Kenya, 43.75% rated it as good, 37.5% rated it
: 18.75% rated it as moderate. 87% said that the credit cards helped in
and attraction of prospective customers while 13% said that they do
o. On the stiategies that banks employ to retain the market share that
dustry, 93.75% said that they do so by knowing the current competitor
r s strategies), 87.5% said that they do so by creating products to meet
3.75% said that they practice product differentiation while 62.5% said
’mentation. 1 he majority said that they do so by knowing their current
the need to know who exactly they are fighting for their market share.
>mpetitors, an organization is able to use strategies such as the Game
/olves pre-empting what the competitors are planning or countering
ead o f them, thinking o f alternatives and anticipating the reactions of
the “game”.
:nts said that their pricing is proactive and that they perceive themselves
, while 13% said that their pricing was reactive. 56% said that they have
ntage while 44% said that they do not have. Some respondents said that
titive advantage within target segments; one said that they have a strong
le the rest said that they do not have competitive advantage in the credit
t they have competitive advantage or are market leaders in other bank
ondents said that they are acquirers in addition to being issuers, while
ey are not. O f the 25% it should be noted that 12.5% acquire all cards
MasterCard logo (which gives them competitive advantage), while the
niy their cards (i.e. cards that they issue). It would also be worth noting
e banks that acquire all cards with VISA and MasterCard Logo, only one
y acquires the JCB (Japanese Credit Bureau) card. On that aspect of
lg merchant services, it is noted that the more the cards a bank acquires,
61
the more competitive advantage it has because it is able to offer a service that the
competitors do not offer. This is because this service enables a merchant to accept more
types of cards in his business (therefore have a bigger customer base). The researcher
also wanted to know whether the banks that do not acquire plan to do so in the future. Of
the 16 respondents, 69% said that they do not have any plans while 31% said that they do
have plans. The reasons mentioned for not having any plans to acquire in the future
include it not being part of their strategy, and the fact that acquiring business is too
expensive both at entry level (barriers to entry) and the running costs involved once in the
business.
On the strategies employed to ensure that the bank retains and attracts prospective
customers, 93.75% out of the whole population said that the strategic operational
plans/responses are employed, 50% out o f the whole population said that forecasting
shifts in the demand patterns strategy is used while 43.75% out of the whole population
said that anticipating changes in the market strategy is also employed. The majority said
that they employ strategic operational plans/responses which include marketing, research
and development, financial, purchasing and human resources strategies. With regard to
the strategies that the banks use in coping with competition within the industry 81.25% of
the respondents said that they use differentiation focus, 50% said that they employ the
cost focus strategy, 31.25% said that they use the differentiation strategy while 12.5%
cost leadership. The majority therefore said that they use differentiation focus which
essentially means that they seek differentiation in their target segments.
The greatest challenges in the in the industry mentioned are competition, credit card
fraud, poor telecommunications support that make connectivity difficult for the acquiring
business, customer service, lack of proper knowledge in query resolution, pricing, public
image, growing the market share, cultural change, bad debt on credit cards, step up
standards, customer awareness and high costs both to join the business and the related
running costs after being an issuer/acquirer. On the rating in terms of response to those
challenges, whereby 50% of the respondents said that they rate the response as good,
31.25% said that they rate it as satisfactory, while 18.75% rated it as very good. None of
the respondent rated the response as poor.
62
The extent to which the environmental factors influence competitive advantage had
economic factor with the greatest extent with a mean o f 2.2, the technological factor
followed with a mean of 1.9, legal factor influenced to a moderate extent with a mean of
1.7, social cultural factor and while political factor influenced to the least extent with a
mean o f 1.5 each.
On the extent to which the market factors influence competitive
advantage, various factors such as positioning branches at accessible locations to the
customers was considered to a very great extent with a mean o f 2.0, consistent market
due to customers loyalty was considered to a great extent with a mean of 1.9, few
competitors in the field was considered to a moderate extent with mean of 1.8, long
market experience and wider market created by opening up several branches in the region
were considered to a little extent with a mean of 1.7 each .
The rating on the extent to which industrial factors influence competitive advantage
showed that legal factor was considered to a very great extent with a mean of 1.8, rivalry
among firms using tactics like price competition and threat o f substitute products were
considered to a great extent with a mean of 1.5 respectively, the factor of bargaining
power of suppliers and buyers was considered to a moderate extent with a mean of 1.4
while the barriers to entry in the industry factor was considered to a little extent with a
mean o f 1.3.
The managerial factors that business processes are formed to favor
customers' needs and recommendable code of ethics of the bank were considered to a
very great extent with a mean 2.1 each followed by the factor that high accountability of
the manager in the bank's business transactions was considered to a great extent with a
mean o f 2.0 while effective corporate governance was considered to a moderate extent
with a mean of 1.9 finally the factor that the bank managers have long experience in the
field was considered to a little extent with a mean of 1.8.
The extent towards which the services offered influenced competitive advantage was
rated; and whereby the factor efficient communication channels was rated to a very great
extent with a mean of 2.2, this is followed by quick response to the customer needs and
customer oriented services with a mean of 1.9 each, legal requirement was rated
63
moderately with a mean of 1.8 while special offers and promotions was rated to a little
extent.
Strategies that were seen to have helped the banks to grow their credit card numbers and
market share were: operational strategies such as research and development, having a
business development section, marketing and advertising, human resource strategies such
as having a sales staff for card sales, discounts and promotions, partnerships such as the
co-branded cards, and having a reward system. The respondents also commented on the
issue of why most people do not qualify for credit cards and hence end up being debit
card holders; hence it was felt that there should therefore be greater focus on areas like
technological advancements, promotions and special offers that will attract more
customers who would not necessarily be in the higher income brackets.
The second objective of this research project was to establish the effectiveness o f the
strategies that the banks have adopted in gaining competitive advantage in the credit card
business. In order to ascertain this, questionnaires were issued to various debit and credit
card customers/a small section of card holders to get statistics of their preferred issuers,
and why they preferred the particular issuers. 47% respondents said that they have been
served for more than 10 years by their bankers, 33% said that they have been served for 2
to 5 years, 13% said that they have been served for less than 1 year while the rest 7% said
that they have been served for 5 to 10 years.
The type of credit cards and the issuers of the cards mentioned by the respondents were
the KCB VISA classic credit card issued by Kenya Commercial Bank Ltd, NIC Move
VISA credit card issued by NIC bank, classic and gold VISA credit cards issued by
Fidelity bank, VISA credit card issued by Diamond Trust bank Ltd, the co-branded VISA
credit card between Fidelity bank and Chandarana Supermarkets, MasterCard issued by
CFC Stanbic Bank Ltd, VISA classic and VISA Gold cards issued by Barclays bank, the
co-branded VISA credit card between Barclays bank (K) Ltd and Nakumatt supermarkets
and the international VISA card issued by cooperative bank.
The reasons given by card holder respondents on the reason why they had a credit card
were being regular shoppers hence preferring to use a credit card, to increase one’s
64
purchasing power, convenience and safety of not having to carry cash and to have a
source of money in case of emergency such as illness. The reasons given as to why they
chose the cards that they had were because of the issuing bank’s good marketing
strategies, being an employee of the bank, lower interest rates, faster to get, less
requirements to get the credit card/easier to get, and good services offered like the SMS
(short message service/mobile phone text alerts) when credit card has been used (helping
to fight fraud) and electronic statements. It was also noted that the bank that had the
highest number of card holders among the respondents, had the respondents saying that it
had a strong brand name that made selling its cards easier (the card holders trusted the
brand name), had aggressive sales staff that made growth of market share easier and
faster (e.g. the sales staff would go to various companies to sell the credit cards instead of
waiting for the customers to come and apply for credit cards at the bank), sales and
marketing strategies such as reducing the required bracket/level of income to get a credit
card (thereby making sure that even the low income earners can qualify for credit cards,
but with lower limits depending on their salaries) and it also had other types of beneficial
marketing strategies such as partnering with merchants to give card holders o f the bank
various discounts on purchasing goods in those merchant stores/shops.
The challenges the respondents face at point of sales (POS) when shopping are; poor
communication hence duplicating debits sometimes on cardholders or giving a false
decline message yet the card could be having funds (unnecessary embarrassment to
cardholder), slow systems causing queues, poor communication using the telephone land
lines, and being kept waiting for long when merchant is trying to call the acquiring bank
for authorization.
The respondents suggested that they want issuers or acquirers to
improve on are better customer service, introduction of SMS (short message
service/mobile phone text alerts) when card has been used, provision of e-statements,
improve on communication with the clients, improve customer service, increase the
duration given for the payment of bills and avoid penalties, put measures to reduce fraud,
customer education, diarizing to tell a credit card holder well before the expiry period of
their credit card, after sales service, credit culture creation or promotion and better
communication at the point of sale.
65
5.1.2 Discussions
From the findings, we see that the banks in Kenya have strategies useful in gaining
competitive advantage in the credit card business, which are proactive and more aligned
to the customers than competitors. They have employed strategies such as discounts on
joining fees and other credit card related fees, lowering interest rates, good services
offered like the SMS (short message service/mobile phone text alerts) when credit card
has been used (helping to fight fraud) and electronic statements, strategic operational
plans/responses, anticipating changes in the market and forecasting shifts in the demand
patterns. These strategies are useful in customer retention and also attracting potential
customers. They are also useful in helping to cope with competition by employing cost
leadership; differentiation, cost focus and differentiation focus strategies. All these
strategies are useful in coping with various environmental, industrial, market and
managerial factors that influence competitive advantage.
Some o f the winning strategies were having a strong brand name, having an aggressive
sales staff that made growth of market share easier and faster, sales and marketing
strategies such as reducing the required bracket/level of income to get a credit card
thereby improving accessibility of the credit card facility to lower income bracket
earners, other types of beneficial marketing strategies such as partnering with merchants
to give card holders of the bank various discounts on purchasing goods in those merchant
stores/shops, co-branding with other organizations that will offer an additional benefit to
the card holder, discounts on joining, annual and other related fees, fraud alert services
such as the SMS (short message service/text alerts) when credit card has been used, and
differentiation focus strategies. This was concluded from the fact that the bank that had
the highest number of card holders had these as the strategies and also had the card
holders mentioning many of these as the reasons as to why they picked this bank the
preferred credit card issuer/company.
However, with the strategies the banks have employed there are various challenges like
competition, credit card fraud, poor telecommunications support that make connectivity
difficult for the acquiring business, customer service, lack of proper knowledge in query
66
resolution, pricing, public image, growing the market share, cultural change, bad debt on
credit cards, step up standards, customer awareness and high costs both to join the
business and the related running costs after being an issuer/acquirer.
5.1.3 Conclusion
This study is an attempt to investigate the strategies that banks in Kenya use in achieving
the competitive advantage in the credit card business. Hence the researcher concluded
that: firstly, a lot o f customer education should be done so as to take care o f cultural
perceptions, educate on financial management and proper use of credit cards so as to
avoid bad debts, and also education that will eliminate public perception that credit cards
are meant for a certain segment of clients. Secondly, more research should be done on
technological advancements, improvements and innovations so as to fight and avoid
credit card fraud and identity theft. Thirdly a lot needs to be done to come up with better
services and quicker systems. Also, the telecommunication infrastructure needs to be
improved so as to support credit card business at points o f sale.
Additionally, the
government needs to come up with legislation that will introduce harsh punishment to
identity theft offenders as there is no such legislation at the moment, hence they are
usually made to pay a small fine to compensate the merchant (not necessarily the card
holder) but there is no jail sentence that will discourage this crime. Finally, the interest
rates and income level to get a credit card should be revised/lowered so as attract a larger
clientele.
5.2 Limitations
The researcher had several limitations while undertaking the study. To start with, the
period given to carry out the study was not sufficient to allow for extensive research. This
included the time scheduled to find out whether the study was feasible before undertaking
it, and preparation o f the study. There was collection of primary and secondary data, and
its analysis, which was quite strenuous considering the limited time involved to complete
it. There were deadlines to meet at each stage, and this limited time put the researcher
under immense time pressure.
67
Funding of this study has been extremely strenuous since it was done at the researcher’s
expense. One of the expenses involved included data collection - this involved dropping
questionnaires at the various banks and with various card holders, and picking them up at
an agreed date/day, but many times the researcher would find that they were not yet filled
in, forcing her to make more than one trip to the various banks and respondents before
getting the responded to questionnaires. Other expenses included the cost of the research
project itself, and the cost of printing, photocopying and binding.
The researcher
also
encountered
difficulties
while
handling
the
respondent’s
unwillingness to provide some of the sensitive strategy related information, and to
complete questionnaires in time. Some respondents kept the questionnaires for too long
and it is possible that some could have withheld some important information and this may
have introduced some bias in the study. Their fear was that they would be named in the
findings of the research project and probably get in trouble with their employers for
providing sensitive information after having signed a confidentially agreement with their
employers. It took a lot of convincing for them to believe that they would not be named
and that the data obtained would be used solely for academic purposes, and critical
information would remain confidential.
5.3 Suggestions for Further Research
This study has led to identification o f areas that require further research on competitive
advantage in the credit card business. The study has highlighted various challenges faced
by the credit card business hence more research should be done on the effect of the
challenges on the credit card business and how the challenges can be overcome. More
research should also be done on the impact of credit cards in Kenya and appropriate
ways, like technological methods that can make the credit card usage more efficient.
5.4 Implications for Policy and Practice
The policies made by the card issuers have had implications on the number of cards
issued and the number of the card holders. These policies include the requirements for
one to be a credit card holder, which have lead to a very small population of Kenya
68
owing the credit cards. These policies need to be revised if there is to be further and
better growth of this industry.
69
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APPENDICES
Appendix I: L etter of Introduction
Dear Sir/Madam,
REF: REQUEST TO CARRY OUT RESEARCH ON STRATEGIES
BANKS IN KENYA USE FOR COM PETITIVE ADVANTAGE IN TH E
CREDIT CARD BUSINESS
I am a student at the University of Nairobi, pursuing a degree in Master o f Business
Administration. I am undertaking a research project in partial fulfillment of the academic
requirements on the topic “Strategies Banks in Kenya use for Competitive Advantage in
the Credit Card Business” and your bank has been selected to form part of this study.
1have chosen your organization because it is an epitome of excellence o f the best bank in
Kenya. I, therefore, humbly request for license to carry out research on your company by
way of questionnaires. Any assistance accorded to me in my noble cause and information
given shall be treated as confidential and will be used purely for the purpose o f this
research and a final copy of the document shall be availed to you upon request. Your
cooperation will be highly appreciated and thank you in anticipation.
Yours faithfully,
Joyce M.Mbogholi
73
Appendix II: Issuing Bank Questionnaire
We wish to state here that the data obtained by this questionnaire will be used solely for
academic purpose and critical information will remain confidential.
PART A: DEMOGRAPHIC INFORMATION
1. Name of your company
2. Title/position of respondent
3. Geographical area of operation (region)
4. How many customers do you have in your bank?
5001- 10000
()
10001- 15000
()
15001-20000
()
20001 and above
()
5. When was the credit card service introduced?
6. No of card customers
5001 - 10000
()
10001- 15000
()
15001-20000
()
74
20001 and above
()
7. No of type of cards offered by the bank
Visa card
( ) Specify................................................................
Master Card ( ) Specify................................................................
Other
( ) Specify...............................................................
SECTION B: ATTRIBUTES IN COMPETITIVE ADVANTAGE
8. a) Does your bank have a business strategy (ies)?
Yes
[ ]
No
[ ]
b) If yes which one
9. Are you aware of it (them)
Yes
[ ]
No
[ ]
10. Are your strategies more aligned to customers or to competitors?
Customers
[ ]
Competitors
[ ]
11. Do you find your strategies as being proactive or reactive?
Proactive
[ ]
Reactive
75
12. What do you consider to be the rate of the credit card growth in Kenya?
Very Good
[]
Good
[]
Moderate
[]
Low
[]
13. Has issuing credit cards helped in customer retention and attraction of prospective
customers
Yes
[]
No
[]
14. To make sure that your bank retains the market share it has in the industry which
strategies do you employ?
Knowing your current competitor
[]
Market segmentation
[]
Product differentiation
[]
Creating products to meet customer needs
[ ]
15. How have environmental factors affected your strategy?
16. Is your pricing proactive or reactive?
Proactive
[ ]
Reactive
[ ]
17. Would you say you have competitive advantage and do you perceive yourselves
as market leaders?
Yes
[ ]
No
[ ]
76
18. What are your greatest challenges in this industry both internally and externally?
19. How would you rate yourselves in terms of response to those challenges?
(overcoming them)
Very Good
[]
Good
[]
Satisfactory
[]
Poor
[]
20. Are you also an acquirer in addition to being an issuer?
Yes
[]
No
[]
If not, why not; and do you have such plans in the future?
Yes
[ ]
No
[ ]
21. How does your bank ensure customer retention and attraction of prospective
customers?
Strategic operational plans/responses
[ ]
Anticipating changes in the market
[ ]
Forecasting shifts in the demand patterns
[ ]
22. Which strategy does your bank use in coping with competition within the
industry?
Cost leadership
[ ]
Differentiation
77
[1
[]
Cost Focus
Differentiation Focus
23. To what extent do the following environmental factors influence competitive
advantage in your bank? Rate the options by ticking in the appropriate box:
Very
great Great
extent
extent
Moderate
Little
Not
extent
extent
all
at
Economic factor
Socio-cultural
factor
Political factor
Technological
factor
Legal factor
24. To what extent do the following industrial factors influence competitive
advantage? Rate the options by ticking in the appropriate box:
Very
Great
Moderate
Little
Not
great
extent
extent
extent
at all
extent
Rivalry among firms using tactics
like price competition, product
introduction
Barriers to entry in the industry
Threat o f substitute products
Bargaining power o f suppliers and
buyers
Legal factor
78
25. To what extent do market factors influence competitive advantage? Rate the
options by ticking in the appropriate box:
Very
Great
Moderate
Little
Not
great
extent
extent
extent
at all
extent
Positioning branches at
accessible locations to the
customers
Few competitors in the field
Consistent
market
due
to
customers loyalty in the bank
transactions
Wider market created by opening
up several branches across the
region
Long market experience
26.
To what extent do managerial factors influence competitive advantage? Rate the
options by ticking in the appropriate box:
Very
Great
Moderate
Little
Not
great
extent
extent
extent
at all
extent
Effective corporate governance
Recommendable code of ethics of
the bank
High
accountability
of
the
managers in the bank’s business
79
transactions
Business processes are reformed
to favor customers’ needs
The bank managers have long
experience in the field
27. To what extent do services offered influence competitive advantage? Rate the options
by ticking in the appropriate box:
Very
Great
Moderate
Little
Not
great
extent
extent
extent
at all
extent
Customer oriented services
Few
legal
requirements
in
registration o f new members and
customers
Special offers and promotions
Quick response to the customers’
needs, comments and suggestions
Efficient communication channels
between workers, members and the
customers
Any other comment(s)
Appendix III: Customers’ Questionnaire
The researcher would like to assess the effectiveness of the strategies used by the bank to
achieve a competitive advantage in the credit card business. We wish to state here that the
data obtained by this questionnaire will be used solely for academic purpose and critical
information will remain confidential.
General information
1. What is your age?
Below 30
[ ]
31-50
[ ]
Over 50
[ ]
2. What is your monthly income?
10,000-30,000
[ ]
30,000 - 60,000
[ ]
60,000-100,000
[ ]
Over 100,000
[ ]
3. Who is your banker?
4. State the period you have been served by your banker
Less than lyear
[ ]
2-5 yrs
[ ]
81
5-10 yrs
[ 1
More than 10 years
[ 1
5. Type of credit card
6. Who is the issuer of the card?
7. Why did you pick/choose this card?
8. Do you feel you get best services from your issuer?
Yes
[ ]
No
[ ]
9. Is there anything you would like them to do better?
Yes
[ ]
No
[ ]
If yes (in 8 above), kindly specify.
10. Is there anything you feel the competitors do better?
Yes
[ ]
No
[ ]
If yes above, kindly specify.
82
11. Do you use your card for shopping/on point o f sales or ATM withdrawals mostly?
Shopping
[ ]
ATM withdrawals
[ ]
12. Do you use it for emergencies only or frequently?
Emergencies only
[ ]
Frequently
[ ]
13. Do you use it for entertainment?
Yes
[ ]
No
[ ]
14. What challenges do you face with regard to your credit card?
15. Do you have the limit you want or were you denied the limit you wanted?
Yes
[ ]
No
[ ]
16. What are the challenges you face at point of sales (POS) when you go shopping?
83
17. What do you want issuers/acquirers to improve on?
18. Any other comments
THANK YOU FOR YOUR TIME.
A ppendix IV: List of the Members Banks of the Kenya Credit and Debit Card
Association (KCDCA)
1. Barclays Bank (K) Ltd
2. Commercial Bank o f Africa Ltd
3. Co-operative Bank o f Kenya Ltd
4. Fidelity Commercial Bank
5. Imperial Bank Ltd
6. Kenya Commercial Bank Ltd
7. National Bank of Kenya Ltd
8. NIC Bank Ltd
9. Post bank Ltd
10. Prime Bank Ltd
11. Senator Card (Southern Credit Bank Corporation)
12. Standard Chartered Bank Ltd
13. Stanbic CFC Bank Ltd
14. Equity Bank Ltd
15. Diamond Trust Bank
16.1 & M Bank Ltd
(KCDCA, 2009)
85