Influence of Customer Segmentation Strategy and Corporate Culture on Performance of Commercial Banks in Kenya

Abstract

Globally and locally, financial institutions enhance economic growth through financial assistance to business fraternity, which in turn facilitates to improvement in the standard of living of people. However, with liberalization of the banking industry in Kenya in 1995, commercial banks have experienced reduced profit margins and loss of customers. This is attributed to increased competition, rising financial costs and increased customer expectations. Previous studies have focused on how isolated customer segmentation strategy relates to performance of a firm, forgetting the multiple effects that several customer segmentation strategies can have on firm performance. Whereas several studies have been conducted on customer segmentation strategies, and their influence on firm performance, status on how multiple customer segmentation strategies influence commercial banks' performance in Kenya, remains unknown. Studies on how corporate culture influences firm performance has revealed conflicting results. Consequently, the studies failed to appreciate that different firm strategies require specific corporate culture for efficient implementation. Further, information on how corporate culture moderates the relationship between customer segmentation strategy and performance of commercial banks in Kenya is not known. This study sought to investigate the influence of customer segmentation strategy and corporate culture on performance of commercial banks in Kenya. The specific objectives of the study were; to establish the influence of customer segmentation strategy on performance of commercial banks in Kenya; to determine the influence of corporate culture on banks' performance; to find out the influence of corporate culture on the banks' customer segmentation strategy and to examine how corporate culture influences the relationship between customer segmentation strategy and banks' performance. Study adopted; Functional Theory of Attitude, Black-Box Theory, TAT and Schein's Theory to derive the conceptual framework of interaction of customer segmentation strategy, corporate culture and performance of commercial banks in Kenya. Correlational research design was employed and population of 136 managers used. A census study was adopted with response rate of 89.5%. Customer segmentation strategy had a significant R 2 of 0.565 indicating that it accounts for 56.5% of variance in bank performance. Corporate culture had a significant R 2 of 0.637 implying that it accounts for 63.7% of the variance in bank performance. Further, corporate culture had a significant R 2 of 0.469 revealing that it explains up to 46.9% of the variance in customer segmentation strategy. R 2 change was 0.028 implying that corporate culture moderates the relationship between customer segmentation strategy and bank performance. , Conclusions are that customer segmentation significantly and positively influence banks' performance. Corporate culture influences banks' performance as well as customer segmentation strategy' formulation and implementation. Further, corporate culture moderates the relationship between customer segmentation strategy and banks' performance. Recommendation are that banks should ensure continues customer segmentation and build strong corporate culture which together facilitate to improved performance in terms of customer retention, customer loyalty and enhanced company image. The contribution of this research is that it has established how both customer segmentation and corporate culture influence banks' performance. It has further determined how corporate culture influence customer segmentation strategy. In addition, the study found out that corporate culture moderates the relationship between customer segmentation strategy and banks' performance. The results of this study provides useful information for decision making to managers in the banking industry, future scholars and practitioners in other business oriented disciplines.