Pricing Strategies And Profitability Of Commercial Banks In Kericho County, Kenya

ABSTRACT

Profitability of banking sector in Kenya has been declining since 2013. Some of the factors include high competition, capping of interest, pricing strategies among others. Pricing strategies in banking has not been considered despite underlying symptoms of declining growth in assets, loan and deposit. Therefore, there is need to investigate the pricing strategies used in commercial banks in Kenya. The study sought to establish the influence of pricing strategies on profitability of commercial banks in Kericho County, Kenya. The specific objectives of the study were: To find out the influence of Cost-plus pricing strategy, to determine the effect of value-based pricing strategies, to establish the influence of the Price Skimming strategy and to examine the role of competition based pricing strategy on profitability of commercial banks in Kericho County. The study would benefit the bank managers in Kenya since they would gain additional knowledge in relation to the pricing issues that need to be addressed to enhance the banks’ profitability. The study was guided by four theories: The economic theory, Marketing view theory, Capital Asset Pricing Theory and Efficient-Structure theory. The study adopted a descriptive survey design. The design is chosen because the target population was dispersed over a wide geographical area. The design was useful in helping the researcher to obtain both quantitative and qualitative data from the target population. The target respondents were 62 comprising of members of the pricing committees, who include the heads of strategy and planning, the general managers, marketing managers, sales managers, and finance managers in KCB, Equity, Standard Chartered, Co-operative, SBM Bank, Barclays, Trans-national bank, Sidian, DTB, National bank and Family Bank Kenya. The researcher used census sampling design to select 62 respondents representing the whole targeted population. Both closed and open ended questionnaires were utilized in data collection. Data analysis was done using ANOVA and multiple regression analysis with the help of Statistical Package for Social Science version 21.0. The study found out that there was significant relationship between pricing strategies and profitability of the commercial banks. It found out that cost-plus pricing strategy allowed the banks to recover cost on labor and opening branches. Value based pricing strategy enabled the banks to gain profit. Price skimming strategy provided new product to commercial banks and hence increased profitability. Competitive pricing was not significant on profitability of the banks. The research concluded that banks should use cost-plus pricing, skimming and value addition to increase profitability of the organization. It recommended that banks should avoid competitive pricing because it would lower the price and reduce profitability. It also recommended that banks should adopt pricing strategies that give more value for their money especially cost plus pricing strategy. The findings would assist the commercial banks as well as the government in setting policies. It is crucial in a competitive environment to guide the banks growth and increase performance.