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INTERNATIONAL JOURNALS OF ACADEMICS & RESEARCH ISSN: 2617-4138 IJARKE Business & Management Journal DOI: 10.32898/ibmj.01/2.1article19 www.ijarke.com 201 IJARKE PEER REVIEWED JOURNAL Vol. 2, Issue 1 Aug. – Oct. 2019 Effects of Competitive Strategies on Competitiveness of Insurance Companies in Mombasa County Kenya Dennis Makadina, Jomo Kenyatta University of Agriculture & Technology, Kenya Dr. Eric Lewa, Jomo Kenyatta University of Agriculture & Technology, Kenya 1. Introduction Creating a sustainable competitive advantage is one of the most important goals of any Organization. This is because the demands and needs of the environment are very dynamic. According to Tumbo (2012), competitive strategy is critical to the attainment of competitive advantage in all companies. The management should therefore be more concerned with adjusting the company according to the needs and demands of the environment. This is an important attribute on which a firm must place its most focus on. Competitive strategies refer to the action plan an organization adopts in a bid to attract more customers, endure pressure from competitors and enhance their market performance (Thompson, Strickland & Gamble, 2010). It entails developing a favourable competitive positioning in the industry. It focuses on assessing unique strengths, identifying growth opportunities, collecting competitive intelligence, and responding to competitive threats. This concept has been underscored by various management scholars and practitioners. According to Ogutu and Nyatichi, (2012), competitive strategy specifies the distinctive approach which a firm intends to use in order to succeed in each of its strategic business areas. Porter (1985) defined competitive strategies as the search for a favorable competitive position in an industry, the fundamental arena in which competition occurs. He developed four generic strategies that can be viable in the long term business environment. They are cost leadership strategy, differentiation strategy, cost focus strategy and differentiation focus strategy. In order to remain competitive and make profits, insurance companies need to constantly improve on processes that respond to increase in the size and number of competing firms. This is because when there is competition, market share and consequently profitability of the competing companies is reduced. Insurance companies are thus forced to be proactive by formulating successful response strategies to changes in the competitive environment. Firms having appropriate competitive strategies stand a good chance of exploiting available opportunities which guarantee them a ready market over their rivals (Atikiya, 2015). It is INTERNATIONAL JOURNALS OF ACADEMICS & RESEARCH (IJARKE Business & Management Journal) Abstract The insurance industry in Kenya has been in existence for decades. However, to this day, there is cutthroat competition among various players. Each player in the industry to have a greater share of the market. This has further been complicated by the low insurance penetration in the country. This research work focuses on effects of competitive strategies adopted by insurance companies to remain successful in an industry with a market that all players are struggling to achieve. The main purpose of the research is to establish the effects of strategies on competitiveness of insurance companies, specifically in Mombasa County. To achieve this, the research will be guided by the research question. These are how the focus strategy, cost leadership strategy, differentiation strategy and innovative strategy affect the competitiveness of insurance companies in Mombasa County. The descriptive research technique was used for this study. The population targeted for this research was be made up of 224 managers from the insurance companies and a stratified sampling technique was undertaken to come up with the sample. Data was collected through questionnaires and analyzed. Analysis was done quantitatively and qualitatively by use of descriptive statistics. These include frequency distributions, tables, percentages, mean mode, median etc. In addition, advance statistical techniques (inferential statistics) were considered. The results indicated that majority of the firms used focus or niche and market penetration strategies to create and sustain competitive advantage. They also indicated that all players depend on their quality of service and brand loyalty as their main sources of competitive advantage. Recommendations were made that the firms should investigate their managerial policies and practices to ensure they stand out among other key players in the industry. Further studies can be carried out to determine how firms can adopt and use the strategies that are not widely used in the industry to their advantage. The study can also be extended to other industries to see if the same strategies are used across other industries. Key words: Competitive Strategy, Focus Strategy, Cost Leadership, Leadership Strategy, Differentiation Strategy, Innovative Strategy, Insurance

INTERNATIONAL JOURNAL OF ACADEMICS & RESEARCH (IJARKE) · 2019. 9. 24. · 203 IJARKE PEER REVIEWED JOURNAL Vol. 2, Issue 1 Aug. – Oct. 2019 that there was a close relationship

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  • INTERNATIONAL JOURNALS OF ACADEMICS & RESEARCH ISSN: 2617-4138 IJARKE Business & Management Journal DOI: 10.32898/ibmj.01/2.1article19

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    201 IJARKE PEER REVIEWED JOURNAL Vol. 2, Issue 1 Aug. – Oct. 2019

    Effects of Competitive Strategies on Competitiveness of Insurance

    Companies in Mombasa County – Kenya

    Dennis Makadina, Jomo Kenyatta University of Agriculture & Technology, Kenya

    Dr. Eric Lewa, Jomo Kenyatta University of Agriculture & Technology, Kenya

    1. Introduction

    Creating a sustainable competitive advantage is one of the most important goals of any Organization. This is because the

    demands and needs of the environment are very dynamic. According to Tumbo (2012), competitive strategy is critical to the

    attainment of competitive advantage in all companies. The management should therefore be more concerned with adjusting the

    company according to the needs and demands of the environment. This is an important attribute on which a firm must place its

    most focus on.

    Competitive strategies refer to the action plan an organization adopts in a bid to attract more customers, endure pressure from

    competitors and enhance their market performance (Thompson, Strickland & Gamble, 2010). It entails developing a favourable

    competitive positioning in the industry. It focuses on assessing unique strengths, identifying growth opportunities, collecting

    competitive intelligence, and responding to competitive threats. This concept has been underscored by various management

    scholars and practitioners. According to Ogutu and Nyatichi, (2012), competitive strategy specifies the distinctive approach which

    a firm intends to use in order to succeed in each of its strategic business areas. Porter (1985) defined competitive strategies as the

    search for a favorable competitive position in an industry, the fundamental arena in which competition occurs. He developed four

    generic strategies that can be viable in the long term business environment. They are cost leadership strategy, differentiation

    strategy, cost focus strategy and differentiation focus strategy.

    In order to remain competitive and make profits, insurance companies need to constantly improve on processes that respond to

    increase in the size and number of competing firms. This is because when there is competition, market share and consequently

    profitability of the competing companies is reduced. Insurance companies are thus forced to be proactive by formulating

    successful response strategies to changes in the competitive environment. Firms having appropriate competitive strategies stand a

    good chance of exploiting available opportunities which guarantee them a ready market over their rivals (Atikiya, 2015). It is

    INTERNATIONAL JOURNALS OF ACADEMICS & RESEARCH (IJARKE Business & Management Journal)

    Abstract

    The insurance industry in Kenya has been in existence for decades. However, to this day, there is cutthroat competition among

    various players. Each player in the industry to have a greater share of the market. This has further been complicated by the low

    insurance penetration in the country. This research work focuses on effects of competitive strategies adopted by insurance

    companies to remain successful in an industry with a market that all players are struggling to achieve. The main purpose of the

    research is to establish the effects of strategies on competitiveness of insurance companies, specifically in Mombasa County.

    To achieve this, the research will be guided by the research question. These are how the focus strategy, cost leadership

    strategy, differentiation strategy and innovative strategy affect the competitiveness of insurance companies in Mombasa

    County. The descriptive research technique was used for this study. The population targeted for this research was be made up

    of 224 managers from the insurance companies and a stratified sampling technique was undertaken to come up with the

    sample. Data was collected through questionnaires and analyzed. Analysis was done quantitatively and qualitatively by use of

    descriptive statistics. These include frequency distributions, tables, percentages, mean mode, median etc. In addition, advance

    statistical techniques (inferential statistics) were considered. The results indicated that majority of the firms used focus or

    niche and market penetration strategies to create and sustain competitive advantage. They also indicated that all players

    depend on their quality of service and brand loyalty as their main sources of competitive advantage. Recommendations were

    made that the firms should investigate their managerial policies and practices to ensure they stand out among other key players

    in the industry. Further studies can be carried out to determine how firms can adopt and use the strategies that are not widely

    used in the industry to their advantage. The study can also be extended to other industries to see if the same strategies are used

    across other industries.

    Key words: Competitive Strategy, Focus Strategy, Cost Leadership, Leadership Strategy, Differentiation Strategy, Innovative

    Strategy, Insurance

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    202 IJARKE PEER REVIEWED JOURNAL Vol. 2, Issue 1 Aug. – Oct. 2019

    therefore prudent for any firm to understand the underlying sources of competitive pressure in its industry in order to formulate

    appropriate strategies to respond.

    Insurance has been practiced for a long period of time world all over. Despite this, it is still a fact that insurance uptake is still

    low world over. A global insurance outlook in by Ernst and Young pointed out that due to slim profit margin in 2011. Overall

    gross premium declined by 0.8% in real terms. Statistics show that Global life insurance premiums shrank by 2.7% in 2011.

    Advanced markets contracted by 2.3%, with the sharpest decline observed in Western Europe (9.8%).The US market recorded

    moderate growth of 2.9%. Global non-life insurance premiums rose by 1.9% in 2011. Many insurers therefore opted to look for

    opportunities for growth. One way to enable this was to develop customer-focused products based on distinctive needs for the

    buyers (AKI report 2011).

    Over the last few years, the insurance industry has undergone a series of changes through financial reforms, advancement of

    communication and information technologies, globalization of financial services and economic development. Those changes have

    had a considerable effect on efficiency, productivity change, market structure and performance in the insurance industry. Low

    insurance penetration is still one of the challenges hindering the development of the insurance industry in terms of market share,

    product diversification among other measures.

    1.1 Insurance Firms in Kenya

    The main players in the Kenyan insurance industry include insurance companies, reinsurance companies, insurance brokers,

    insurance agents and finally the risk managers. The statute regulating the industry is the Insurance Act; Laws of Kenya, chapter

    487. The insurance industry in Kenya comprises of 55 licensed insurance companies at the end of 2017(IRA, 2017). The insurance

    industry is governed by the Insurance Act and regulated by the Insurance Regulatory Authority (AKI report, 2015).

    Kenya‟s insurance sector is among the most developed and growing in Sub-Saharan Africa. It, however, has one of the lowest

    penetration rates with insurance companies facing intense competitions (Mudaki, Wanjere and Ochieng, 2012). The players in

    insurance industry in Kenya today are struggling to stay afloat, challenged by the increase in threat of new entrants, low insurance

    penetration, and increase in fraudulent claims as well as being overwhelmed by high claim costs. Competition has further been

    aggravated by price wars that have seen many companies undercut to unsustainable levels. Many of the players have been placed

    under statutory management over the last decade. This being largely attributed to poor management, increase in fraud as well as

    ineffective strategies.

    Over the past few years, the insurance industry in Kenya has had a series of transformations through financial reforms,

    advancement of technologies and increase in distribution channels for the various insurance products. These changes have had

    significant effects on market structure and performance in the insurance industry. Reduced market share as well as profitability is

    affected by low insurance penetration, product diversification among other measures. Insurance growth in Kenya was 2.7% in

    year 2017(IRA, 2017). Thus, insurance firms in Kenya have to formulate competitive strategies for each to have credible market

    share. The level of market penetration in Kenya demonstrates that there are numerous market opportunities for insurance firms.

    Hence, ways to permeate the market must be identified in order to increase growth and profitability for firms through increased

    uptake of insurance as well as improve the lives of people by cushioning them from the impact of various risks in today‟s ever-

    changing environment.

    2. Statement of the Problem

    There exists a close connection between competitive strategies and competitive advantages (Kiamburi, 2013). It is vital for

    firms to perform better than their competitors in the industry. In a growing economy, many firms wish to gain the largest market

    share to ensure they can generate enough profit to serve purpose for their existence (Sumer & Bayraktar, 2012). Unique and right

    competitive strategies in any organization that are well implemented provide a business environment that enables it to face

    challenges from its competitors.

    There are a total of 55 licensed insurance companies in Kenya (IRA, 2017). These companies compete for a limited market

    share of 2.7 percent. This is because the insurance penetration expressed as a percentage of the Gross Domestic Product is at 2.7

    compared to a world average of 6.1 and 3 in Africa (IRA, 2017). This therefore provides a platform for stiffened competition for

    the limited market share amongst insurers. Consequently, insurance firms have been forced to formulate competitive strategies so

    as to have significant market share and in order to remain relevant (Arasa & Gathanji, 2014).

    Several studies have been done to investigate the concepts of competitive advantage of insurance companies. Akotey, Osei and

    Gemegah (2011) studied competitive strategies of insurance companies in Ghana and found that they use premium flexibility and

    modal agency. Nyaguthii (2014) studied the competitive strategies adopted by AON Insurance Company in Kenya and established

    that product innovations was the highest ranked competitive strategy. Ombati (2012) investigated the core competencies and

    competitive advantage of insurance firms in Kenya and established that the core competencies were in products, services and

    processes. Mutimu and were (2013) researched on the relationship between strategy and competitive advantage and established

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    that there was a close relationship between strategy and competitive advantage. However, the research by Waweru (2011) did not

    find any significant relationship between strategy and competitive advantage.

    The studies that have been done focused on surveys within the insurance industry in general in the country. Different

    companies use different competitive strategies to gain competitive advantage in a given market. Insurance companies operate in a

    very competitive environment competing with each other. This study focuses on assessing the effects of strategies on

    competitiveness of insurance firms in Mombasa County to gain competitive advantage.

    3. Objectives of the Study

    3.1 General Objective

    The main objective of the study was to determine the effect of strategies on competitiveness of insurance companies in

    Mombasa County, Kenya.

    3.2 Specific Objectives

    The study was guided by the following specific objectives:

    i. To determine the effect of cost leadership strategy 0m the competitiveness of insurance firms in Mombasa. ii. To evaluate the effect of differentiation strategy on the competitiveness of insurance firms in Mombasa.

    iii. To assess the effect of focus strategy on the competitiveness of insurance firms in Mombasa. iv. To evaluate the effect of innovative strategy on the competitiveness of insurance firms in Mombasa.

    4. Literature Review

    4.1 Theoretical Framework

    4.1.1 Porters Theory of Competitive Advantage

    Generic strategies were first presented in two books by Professor Michael Porter. Porter states that strategy targets focus,

    differentiation or cost leadership and that a firm must only choose one of the three strategies or risk waste of precious resources.

    Porter (1980, 1985) suggested that some of the most basic choices faced by companies are essentially the scope of the markets that

    the company would serve and how the company would compete in the selected markets. Competitive strategies focus on ways in

    which a company can achieve the most advantageous position that it possibly can in its industry. Anupkuma (2005) states that

    Porter‟s (1980) strategic theory postulates that to succeed in business a firm needs to adopt generic competitive strategies

    comprising of cost leadership, differentiation and focus.

    According to Porter (1980) as cited in Kamau (2013) differentiation strategy is a business strategy intended to increase the

    perceived value of the firm's products or services compared to competitors so as to create a customer preference due to its distinct

    features. This implies that differentiation can be done specifically for a product to make them attractive, or for a service through

    utilization of after sales services like consideration of quality, incentive programs, increased operating hours and so on (Kamau,

    2013). A company can differentiate itself by offering innovative features, providing superior service, launching effective

    promotions, and developing a strong brand name (Li & Zhou, 2010).

    According to Sumer (2012) cost leadership targets to minimize and eliminate costs in fields including expenditure in research

    and development and additionally advertising. This strategy tends to follow certain concepts, namely economies of scale, cost

    saving efforts through the experience curve, strict control over costs and overhead costs (Sumer, 2012). Cost leadership strategy

    enables companies to create a low-cost operation in their market niche with the core objective of attaining advantage over

    competitors; this is done by reducing operating costs below that of other players in the market.

    According to Porter (2001) as cited in Kamau (2013) focus strategy is described as strategies that pursue specific market

    segments through overall cost leadership and differentiation as opposed to engaging in the whole market. It involves segmentation

    of the market followed by specialization on a certain segment that would help the firm achieve competitive advantage. A

    successful focus strategy depends upon an industry segment large enough to have good growth potential but not of key importance

    to other major competitors (Atikiya, 2015). Focus strategy is seen as favourite and most efficient when customers have distinct

    preferences and when the position has not been pursued by rival firms (Kiamburi, 2013).

    The theory is relevant to the study since the development of competitive strategies helps manager‟s pinpoint critical tasks that

    need to be performed in order to define an organization's strategic thrust and outperform their competitors successfully. Porter‟s

    theory of competitive advantage informs this study of the key role of strategy in helping to secure an enduring competitive

    advantage over competitors. Based on Porter‟s theory, strategy is the foundation of competitiveness.

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    2.2.2 The Resource Based View

    The resource-based view contends that in strategic management the fundamental sources and drivers to firms‟ competitive

    advantage and superior performance are mainly associated with the attributes of their resources and capabilities which are

    valuable and costly-to-copy (Mills, Platts & Bourne, 2003; Peteraf & Bergen, 2003). The theory posits that a firm can gain

    competitive advantage by being in possession of distinctive resources or capabilities which are valuable, difficult to imitate and

    rare in the marketplace (Baark, 2011). Based on the assumptions that these strategic resources are heterogeneously distributed

    across organizations and that the differences are stable overtime, Hoopes, Madsen and Walker (2003) investigate the link between

    firm resources and sustained competitive advantage. Four empirical indicators of the potential of firm resources to generate

    sustained competitive advantage can be value, rareness, inimitability, and non-substitutability.

    A firm resource includes all assets, attributes, information, firm capabilities, organizational processes, knowledge, etc.

    controlled by a firm that enable the firm to conceive and implement strategies that improve its efficiency and effectiveness. Firm

    resources and processes are important to firms since they influence its behavior and activities. It is the distinctive resources that

    lead to sustained competitiveness and superior returns in firms (Barney, 2011). Moreover, 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 of this strategy (Hoopes, Madsen & Walker

    (2003).

    Firms with valuable resources that are rare and not easily copied, achieve a sustainable competitive advantage in form of

    innovative new products. The theory is relevant in the objective of the study on how differentiation strategy affects

    competitiveness of insurance firms. This theory is useful in explaining the role of differentiation and how it leads to firm

    competitiveness through the production of innovative products and services in the market with improvement in processes. The

    theory affirms the role of process innovation in firm competitiveness.

    5. Conceptual Framework

    A conceptual framework provides the relationship that the researcher feels exists between the study variables so as to establish

    the effect of innovation practices on organizational performance in health insurance service providers in Kenya. This relationship

    is represented graphically or in a diagram (Mugenda & Mugenda, 2008).

    Independent Variables Dependent Variable

    Figure 1: Conceptual Framework

    6. Discussion of Key Variables

    Cost Leadership

    Competitive premium pricing

    Economies of scale

    Low operational costs

    Focus Strategy

    Speciality insurance products

    Market Segmentation

    Product Segmentation

    Competitive Advantage Reduction in operational costs

    Increase market share

    Increased profitability

    Timely delivery of services

    Differentiation Strategy

    Product Innovation

    Alternative Distribution Channel

    Brand Image

    Innovative Strategy

    Customer service

    Premium payment

    Claims handling

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    6.1 Cost Leadership Strategy

    Cost leadership strategy refers to gaining competitive advantage through charging sustainably lower prices than other

    competitors (Porter, 2001). Sources of cost advantage are varied and depend on the structure of the industry. They may include the

    pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors. This is achieved by

    lowering operating costs beneath those of others in the same business in order to lower the overall price of commodities. In

    markets where there is price control, this is still possible through automation, flexibility and improved production thereby

    eliminating large percentage of inefficiencies in the production process. When a company keeps lowering prices without a

    reduction in operating costs, it runs the risk of depletion of resources and consequently becoming insolvent especially in a fiercely

    competitive market (Woodruff, 2007).

    This strategy faces many challenges in different sectors. If perceptions of quality become too low, business will suffer. Also,

    large volumes of sales are a must because margins are slim. The need to keep expenses low might lead cost leaders to be late in

    detecting key environment trends. Low-cost firms‟ emphasis on efficiency makes it difficult for them to change quickly if needed.

    It is only applicable in certain environments such as in the manufacturing where the level of output is higher as compared to the

    market size thereby being able to achieve economies of scale. Marrison and Roth (1992) advanced the view that, for

    manufacturing firms to be competitive, they need to adopt cost leadership, characterized by tight control of overhead and variable

    costs, optimal use of production capacities and pricing below competitive price levels. This is aimed at achieving superior results.

    Zahra (2000) posits that, outsourcing is a popular method of reducing salary costs while maintaining workforce size and

    productivity. Products that are constantly improved are particularly important for long term business growth and performance

    (Bayus, Erickson & Jacobson, 2013).

    6.2 Focus Strategy

    In focus strategies, the attention of the firm will be on one segment of the market. In this case the attention would be a certain

    customer group, a certain product, a certain region, or a certain service (Porter, 1987). In adopting a narrow focus, the company

    ideally focuses on a few target markets (also called a segmentation strategy or niche strategy). These should be distinct groups

    with specialized needs. The choice of offering low prices or differentiated products/services should depend on the needs of the

    selected segment and the resources and capabilities of the firm.

    An empirical analysis performed by Kwasi and Acquaah (2008) on firm performance, competitive strategy, and manufacturing

    strategy in Ghana, points out that the sector should shift to competitive and customer focused strategy by enacting measures which

    enhances quality, develop customer-suppliers relationship, and enhance delivery and distribution of products. Kiragu (2014) focus

    on Kenya insurance states that both cost and differentiation focus strategies have been minimally initiated in a shallow market

    segment.

    Cost aligned strategy initiates companies which intend to adopt a lower cost opportunity in a few or just one market segment.

    On the contrary, differentiation aligned strategy initiates firms that intend to differentiate within few targets or just one market

    segments. According to Kimani and Juma (2011) recommendation on “sustainable competitive advantage in the insurance

    industry in Kenya,” players in the sector ought to constantly review their strategies in alignment to their objective that focuses on

    leading the competitors in the market. This according to Ilovi (2011) as cited by Kimani and Juma (2015) could only be realized

    through firms adopting a focus strategy, cost reduction strategies, as well as getting involved in resource investment.

    6.3 Differentiation Strategy

    According to Porter (1980) as cited in Kamau (2013) differentiation strategy is a business strategy intended to increase the

    perceived value of the firm's products or services compared to competitors to create a customer preference due to its distinct

    features. Differentiation involves differentiating the services or products offered by a specific organization by developing a

    product that is viewed institutional wise as being innovative. The element of differentiation is reflected through brand name,

    design, technology, dealer network, customer service, and features. Differentiation involves making your products or services

    different from and more attractive than those of your competitors. How you do this depends on the exact nature of your industry

    and of the products and services themselves, but will typically involve features, functionality, durability, support, and also brand

    image that your customers value.

    The existence of product differentiation is always a matter of customer perception, but firms can take a variety of actions to

    influence these perceptions. This implies that differentiation can be done specifically for a product to make them attractive, or for

    a service through utilization of after sales services like consideration of quality, incentive programs, increased operating hours and

    so on (Kamau, 2013). To add to this, Olegube (2014) states that differentiation also includes physical aspects which would cover

    location, space, design and display/layout and stores atmosphere. Acquaah and Yasai-Ardekani (2008) under took a study to

    determine the benefits of executing differentiation strategy. Atikiya et al., (2015) examined the relationship between

    differentiation strategy and manufacturing firm performance in Kenya. The study adopted both descriptive and exploratory

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    research design. Simple random sampling technique was used to select 170 respondents. The differentiation strategy was

    attributed as being mindful of product differentiation, by having customized products as compared to competitors, continuous

    development of new products, innovative product, continuous and faster introduction of new products, quick response to

    competitor's product innovation, heavy reliance on research and development of reputable products on the market in a bid to

    create value to the customers.

    A thriving differentiation will need the strategy taken to be costly to imitate and rare to find. Differentiation elements such as

    costly and rare form a foundation for sustainable competitive opportunity. This aspect is supported by Barney and Hesterley

    (2006) who acknowledges that “the rarity of a differentiation strategy depends on the ability of individual firms to be creative in

    finding new ways to differentiate their products.” Therefore, firms which are more creative are usually able to differentiate

    themselves from their rivals. This is because competitors always attempt to mimic those institutions last move, but the more

    innovative firms will have already taken an advanced product thus always being ahead of its competitors.

    Insurance firms should therefore, initiate unique elements such as reputation, timing, location, support, service, and

    distribution channels in their functions to edge out rivals from catching up with their operations. One positive of a successful

    differentiation strategy is that the company may charge a premium for its product or service. The company does so with

    confidence because of a highly developed and strong corporate identity. The company can readily pass along higher supplier costs

    to its customers because of the lack of substitute or alternative products on the market. Having a loyal customer following helps

    stabilize the company's revenue and lessens the impact of market downturns because of customer loyalty in good times and bad

    (Barney and Hesterley 2006).

    7. Research Methodology

    The study adopted a descriptive survey research design. According to Kothari (2014), descriptive survey is structured to

    examine a number of logical sub-units or units of analysis within organizations.

    The population target for this study comprised of the managers from registered insurance companies in Kenya with a presence in Mombasa

    County. According to the insurance regulatory authority there are 55 registered insurance companies as at June 2018. These have a total of 224 managers in the county. They mainly comprise of branch managers, regional managers, unit managers and sales managers. It is from these registered companies that the respondents were drawn from.

    Table 1 Target Population

    Population Category Population Frequency Percentage (%)

    General insurers 116 51.7

    Long term insurers 56 25.0

    Composite insurers 36 16.1

    Reinsurers 16 7.2

    Total 224 100.0

    For the data collection, an appropriate sample size was computed to achieve the true proportion at 95% confidence level. To

    calculate the sample size of the respondents, the Yamane‟s formula (1967) was employed.

    n = N ÷ (1 + Ne2)

    n = 224 ÷ (1 + 0.052)

    n = 143.589

    n = 143

    Where n is the sample size, N is the population size, and e is the level of precision or sampling error (0.05).

    8. Research Findings

    8.1 Descriptive Statistics

    8.1.1 Level of Competition

    The respondents were asked to respond to various questions addressing the level of competition and how they would rate it

    within the industry and various issues relating to the different competitive strategies employed with a view of establishing which

    strategies were being significantly employed in the industry and among them which ones were more popular amongst the players

    in the industry.

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    Respondents were asked to rate the level of competition in the industry and the outcome was as represented in Table 2. The

    results in Table 2 indicate that approximately 66% of the respondents thought that there is very high competition in the insurance

    industry. 33% thought of the competition in the industry as being relatively high. The results show that the industry experiences

    stiff competition among the existing players.

    Table 2 Rating of the Level of Competition

    Level of Competition Frequency Percent

    Very High 75 66

    High 37 33

    Low 1 1

    Very Low 0 0

    Total 113 100.0

    8.1.2 Impact of Threats to the Firms

    The respondents were asked to indicate the impact of external threats to their operations.

    Table 3 Descriptive Statistics

    Impact of Threats N Mean Std. Deviation

    Impact of Existing rivalry to organization 113 3.57 .935

    Impact of Threat of substitute products to organization 113 3.31 1.039

    Impact of Bargaining power of buyers to organization 113 3.23 1.040

    Impact of Threat of new market entrants to 113 3.00 1.017

    Impact of Bargaining power of suppliers 113 2.69 1.105

    The results from the Table 3 above indicate that the existing rivalry between organizations and the threat of substitute products

    in the industry were ranked as having the greatest impact to organizations at a mean score of 3.57 and 3.31 respectively. However,

    the bargaining power of the suppliers and the threat of new entrants into the market had the least impact to the organizations

    within the industry with a mean score of 2.69 and 3.00 respectively.

    8.1.3 Consideration of Competitors to the Firms

    The respondents were also to indicate the level to which they considered other firms within the industry as competition to their

    business. The responses were as represented in Table 4.

    Table 4 Descriptive Statistics

    Competition faced N Mean Std. Deviation

    Firms that have existed locally for more than five years 113 3.37 1.098

    Regional based firms 113 3.37 .850

    Firms owned in Partnership 113 2.76 1.023

    Firms that have entered the market recently 113 2.40 1.070

    Individually owned firms 113 2.28 .841

    The results in Table 4 above indicate that firms that have existed locally for more than five years and regional based firms

    posed the greatest competition to organizations in the industry with a mean score 3.37 each. However, firms that have recently

    entered the market with a mean of 2.40 and individually owned firms with a mean of 2.28 were not considered as big threats in

    terms of competition.

    8.2 Competitive Strategies Employed

    In considering the competitive strategies employed the respondents were asked to respond to the various issues under

    consideration when implementing the given strategies with a view of evaluating which issues were being heavily employed.

    Means and standard deviations were used to evaluate the extent of appreciation in a given issue and consistency of responses for

    each of the issues addressed.

    8.2.1 Differentiation as a Competitive Strategy

    The evaluation of responses with respect to differentiation strategy yielded the results presented in Table 5

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    Table 5 Descriptive Statistics

    Differentiation Strategies N Mean Std. Deviation

    Our Products are designed to suit the customers‟ needs 113 4.59 .682

    our products are available to the customer at the right 113 4.39 .567

    time

    Our products are of very high quality 113 4.28 .797

    Our organization ensures that our products are reasonably priced 113 4.25 .752

    Our organization has invested in training and technology in a bid to

    improve service quality 113 4.23 .858

    We always seek to improve on specific attributes of our product 113 4.10 .673

    Our organization uses Marketing and promotional campaigns to

    enlighten the customer about our products 113 3.97 .765

    In our organization we offer products that are unique as compared to

    other players in the industry 113 3.73 .868

    Our organization invests in research and development in order to

    come up with innovative products 113 3.67 .802

    The results in Table 5 indicate that insurance companies in adopting the differentiation strategy, they design products to suit

    customer needs, they ensure that products are available to the customers at the right time and provide products of very high

    quality. This is shown by their high mean scores of 4.59, 4.39 and 4.28 respectively. However, the issue of distribution channels

    with a premium price, client involvement in product improvement and investment in research and development were least

    adopted within the industry in respect to differentiation at a rate of 3.22 and 3.67 respectively.

    8.2.2 Cost Leadership as a Competitive Strategy

    The evaluation of responses with respect to cost leadership as a strategy yielded the results represented in Table 6.

    Table 6 Descriptive Statistics

    Cost Leadership strategies N Mean Std. Deviation

    Our organization has invested in advanced Technology 113 3.70 .837

    that has reduced costs of operation

    Most of the policies adopted by our organization are 113 3.60 .932

    geared towards minimizing operation costs

    Our clientele is large thereby minimizing the costs of 113 3.53 .900

    operation per client

    Our organization has a large branch network 113 3.47 .860

    We are located closer to the customer thereby reducing 113 3.03 1.117

    transport costs

    The results in Table 6 indicate that insurance firms invest in advanced technologies (3.70) and adopt policies that are geared

    towards reducing daily operations costs (3.60). The results however indicated that the companies may not be close to the

    customer to warrant a reduction in transport costs and most of the organizations did not have a large branch network as shown by

    their mean scores of 3.03 and 3.47 respectively.

    8.2.3 Focus and Niche as a Competitive Strategy

    The evaluation of responses with respect to focus and niche yielded the results presented in Table 7. The results indicate that

    the insurance firms to a great extent tailored their products to customers‟ needs and that the existing product lines were expanded

    by introducing new products to serve different market segments as shown by the mean scores of 4.10 and 3.87 for each

    respectively. They however focused the least on selling their products through complementary firms (2.68) and focusing on very

    specific segments of the industry (3.63).

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    Table 7 Descriptive Statistics

    Focus and Niche strategies N Mean Std. Deviation

    We have products that are tailored to specific customer 113 4.10 .618

    We have expanded the existing product line by 113 3.87 .973

    introducing new products to serve different market segments

    Our organization has expanded the existing product line by

    introducing additional new products 113 3.83 .950

    Our organization focuses on very specific segments of the industry 113 3.63 .999

    Our organization sells some of our products through complementary

    firms acquired recently complementary firms acquired recently 113 2.68 .905

    8.2.4 Product Development as a Competitive Strategy

    The evaluation of responses with respect to diversification yielded the results presented in Table 8. In respect to product

    development as a strategy, the results in Table 8 indicate that organizations mainly focused on coming up with new products to

    meet the emerging needs of new customers in the market and that additional features were being added to the existing products to

    meet extra customer demands. There was however indication that no rebranding or repackaging of products had taken place in the

    recent past among the different organizations in the industry.

    Table 8 Descriptive Statistics

    Product Development Strategies N Mean Std. Deviation

    Our organization comes up with new products meant to meet new

    customer needs. 113 3.90 .885

    Our products now have Additional features that meet the extra

    customer demands. 113 3.70 .915

    We offer Additional complimentary services to all our Clientele. 113 3.33 .844

    We have Rebranded/repackaged our products recently 113 3.07 1.258

    8.2.5 Market Development as a Competitive Strategy

    The evaluation of responses with respect to market development yielded the results presented in Table 9.

    Table 9 Descriptive Statistics

    Market Development Strategies N Mean Std. Deviation

    Our products are modified to suit the needs of the new markets 113 4.00 .707

    Our organization always seeks to enter and invest in new markets 113 3.97 .718

    We have increased the points at which customers can access our

    products 113 3.80 .925

    We have moved our operations to new geographical locations 113 3.07 1.258

    Our organization charges different Prices for different segments 113 2.93 1.230

    The results in Table 9 indicate that with respect to market development as a competitive strategy, firms focused on modifying

    products to suit the needs of the new markets and seeking to create avenues for accessing or investing in new markets with a mean

    if 4.00 and 3.97 respectively. The different markets were however enjoying similar rates in terms of pricing industry wide at a

    mean of 2.93.

    8.2.6 Market Penetration as a competitive strategy

    Responses concerning market Penetration were evaluated and yielded the results presented in Table 10

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    Table 10 Descriptive Statistics

    Market Penetration strategies N Mean Std. Deviation

    We engage in aggressive marketing campaigns 113 4.00 .830

    Our distribution strategies are superior to those of our competitors 113 3.73 .868

    Our prices are Competitive compared to our competitors 113 3.69 .806

    Our organization engages in community activities in a 113 3.60 1.070

    We offer discounts and other promotional offers to our 113 3.47 .860

    clients

    Our organization has experienced Increase in the number of

    branch networks number of branch networks 113 3.37 1.273

    The results in Table 10 indicate that the firms engaged in aggressive marketing campaigns and there was great focus on getting

    the product to the customer faster and better than the competitors. However, there was an indication that the number of branch

    networks did not increase among the different organizations within the industry.

    8.2.7 Competitive Advantage

    Competitive advantage was evaluated based on the responses given and the outcomes were as indicated in Table 11. The

    results indicate that insurance firms mainly depend on loyalty of customers and a stronger brand to remain competitive within the

    industry at a rate of 4.17 and 4.07 respectively. The size of the market share they command and the product portfolio that they

    have was however not a key consideration as a competitive advantage gaining a mean of 2.90 and 3.28 respectively.

    Table 11 Descriptive Statistics

    Competitive Advantage N Mean Std. Deviation

    Our organization prides itself in loyal customers over the years 113 4.17 .711

    We pride ourselves in a stronger brand name 113 4.07 .753

    Our organizations has seen our profits grow over the years 113 4.03 .865

    We have very strong technological capability

    that makes our organization better than the rest 113 3.93 .530

    Our operations regularly result in huge returns on investment 113 3.69 .850

    We are stronger financially than our competitors 113 3.41 .780

    We have a wider and better network of customer

    access points

    113 3.34 1.045

    Our product portfolio is superior to that of our competitors 113 3.28 .922

    8.3 Inferential Statistics

    8.3.1 Beta Coefficients

    A multiple regression was conducted so as to determine the extent of influence of the independent variables on the dependent

    variables and also to determine the significance of the relationship using the p values. The regression equation showed that if the

    independent variables (cost leadership strategy, focus strategy, differentiation strategy and innovation strategy) were held to a

    constant zero, competitiveness of insurance companies would be 13.753. A unit increase in cost leadership would lead to

    increase in competitiveness of insurance companies providers by 0.330 units. The findings supported Ana-María, Francisco and

    Bernardino (2014) findings that there was a positive on firm‟s performance competitiveness.

    A unit increase in focus strategy would lead to a rise in performance of health insurance service providers by 0.879 units.

    O‟Brien (2013) that focuses strategy achieves quality function deployment and business processing reengineering.

    The results supported Barney & Clark, (2017) the competitiveness of most firms majorly depends on strategies employed. At

    5% level of significance and 95% level of confidence, all the variables were significant (p

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    Table 12 Beta Coefficients

    Unstandardized Standardized

    Coefficients Coefficients

    Model B Std. Error Beta t Sig.

    1 (Constant) 13.753 3.639 3.779 .000

    Cost Leadership (X1) .330 .100 .196 3.299 .001

    Focus Strategy(X2) .879 .114 .486 7.721 .000

    Differentiation Strategy (X3) .468 .111 .274 4.231 .000

    Innovation (X4) .393 .108 .216 3.628 .000

    The regression model is presented as below:

    Y= 13.753 + 0.330 X1 +0.879 X2 + 0.468 X3 + 0.393 X4

    8.3.2 Correlation Analysis

    A correlation analysis was carried out to establish whether there is a significant relationship between the competitive strategies

    and competitive advantage. The results were as presented in Table 13. The results indicated a strong positive correlation between

    each of the competitive strategies and competitive advantage. The relationship with focus strategy was the strongest while cost

    leadership had the weakest relationship.

    Table 13 Correlation Analysis

    Competitive

    Strategy

    Cost

    Leadership Differentiation Focus Innovation

    (Y) (X1) (X2) (X3) (X4)

    Competitive Pearson

    1

    Strategy Correlation

    (Y) Sig. (2-tailed)

    N 113

    Cost Pearson

    .404**

    1

    Leadership Correlation

    (X1) Sig. (2-tailed) .000

    N 113 113

    Focus Pearson

    .685**

    .275**

    1

    Strategy Correlation

    (X2) Sig. (2-tailed) .000 .003

    N 113 113 113

    Differentiation Pearson

    .583**

    .237*

    .401**

    1

    Strategy Correlation

    (X3) Sig. (2-tailed) .000 .011 .000

    N 113 113 113 113

    Innovation Pearson

    .390**

    .044 .163 .314**

    1

    Strategy Correlation

    (X4) Sig. (2-tailed) .000 .647 .085 .001

    N 113 113 113 113 113

    **. Correlation is significant at the 0.01 level (2-tailed).

    *. Correlation is significant at the 0.05 level (2-tailed).

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    8.3.3 Coefficient of Determination (R2)

    The model summary sought to determine whether the correlation coefficient was significant at 5% significance level and also

    the extent that each independent variable explained the dependent variable through the coefficient of determination. The table

    displays R at 0.810 showing the correlation between the observed and predicted values of the dependent variable. The relationship

    between the two values is deduced to be average the adjusted R squared value is 0.643 meaning that 64.3% of the variation

    retention (dependent variable) can be explained from cost leadership, focus strategy, differentiation strategy and technological

    strategy at 95 percent confidence interval. Table 14 presents the findings on model summary so as to determine whether the

    correlation coefficient was significant.

    Table 14 Model Summary

    Model R R Square Adjusted R Square Std. Error of the Estimate

    1 .810a

    .656 .643 4.29270

    8.3.4 Analysis of Variance

    An Analysis of Variance (ANOVA) was tested so as to determine whether the model was significant at a confidence level of

    95%. The overall model relationship was considered significant since F calculated (51.515) is higher than the F critical (value =

    2.44) 4 df, 112 df and 0.001 < 0.00 at 5% level of significance.

    Table 15 ANOVA

    Model

    Sum of

    Squares df

    Mean

    Square F Sig.

    1 Regression 3797.123 4 949.281 51.515 .000b

    Residual 1990.141 108 18.427

    Total 5787.264 112

    9. Discussion of Key Findings

    The researcher sought to find out which were the major challenges the firms within the insurance industry faced in the

    implementation of their strategies and their daily operations. The data was collected by was requesting respondents to highlight

    the major challenges.

    The data findings indicated that the main challenge was price undercutting by the different firms where most prices are

    deliberately set below that which has been given by the regulator with an aim of attracting customers. This has led to major price

    wars that have left small firms struggling to survive within the market. Another challenge has been the inability to reach

    customers especially within the rural areas. Many of the firms in industry do not have a wide branch network and they have not

    built their distribution channels and therefore their reach is limited to only the major towns. This has made it difficult to get the

    products closer to the customers and in some cases forcing the customers to travel long distances to access the products and

    services.

    The literature review explored the different types of competitive strategies that firms can adopt and the models for this

    competitive strategy with a focus on the porter‟s generic strategies and the Ansoff‟s growth matrix. Porter argues that competitive

    strategy means taking offensive or defensive actions to create a defendable position in an industry, to cope with the competitive

    forces and thereby yield a superior return for the firm. He highlights three generic strategies that are cost leadership,

    differentiation and the focus strategies. Various aspects of these strategies have been utilized within the insurance as shown by the

    research findings. The cost leadership strategy is the least popular in the industry while differentiation and focus strategies are

    more utilized.

    Dynamic capabilities refer to the firm‟s ability to integrate, build and reconfigure internal and external competencies to

    address rapidly changing environments (Teece, Pisano, & Shuen, 1997). Firms within this industry focus their resources and

    capabilities on ensuring customer needs have been met and their products have been tailored to those needs. By utilizing these

    capabilities, they have been able to ensure there is customer loyalty and have built their brand name which is the major sources of

    competitive advantage especially since the level of competition is very high in the industry.

    Ansoff on the hand argues that for a firm to grow it should adopt one or a mix of four growth strategies. He put forward four

    growth strategies that include market penetration, product development, market penetration and diversification. The different

    players within the insurance industry have adopted various aspects of each of these growth strategies to gain an edge on their

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    major competitors. From the research findings market penetration is the most popular strategy while product development is the

    least popular.

    Kiragu, (2014) in his study found out that majority of the respondents indicated that distribution channel affected service

    delivery levels and that the insurance industry should adopt internet marketing and distribution and recruit more agents

    respectively to improve its competiveness through the distribution channels. This is consistent with the research findings of this

    study where the researcher found that insurance firms place very little resources and capabilities on developing their distribution

    channels for their products. Investment in technology has also not been significantly employed in the industry to aid in

    distribution. The insurance industry is facing stiff competition especially among the firms that have been in existence for over five

    years and the competition is driven by the existing rivalry. The products in insurance firms are not very varied in terms of their

    features and benefits and there is therefore a need for the existing firms to adopt the strategies that will make them superior to

    their competitors. This may involve the adoption of one or more competitive strategies that give the firm competitive advantage.

    The insurance industry has mainly focused on differentiation, focus and niche strategy and market penetration to gain competitive

    advantage.

    10. Conclusions and Recommendations

    10.1 Conclusions

    The study concluded that the competition within the insurance industry is very stiff with most of the respondents rating the

    level of competition to be very high. This led to the need for the organization to adopt competitive strategies that will enable them

    to remain very competitive in the industry.

    The study concluded that due to the nature of the product offering and the industry in general, the focus and niche strategy

    seemed to be employed most with most of the products being tailor made to customer needs. Due to the fierce competition the

    market development was also employed a lot in a bid to open up new markets for the firms and the industry at large. Being a

    service industry, technology was not considered as a competitive advantage but was a major driver in reduction of costs.

    The large number of players in the industry and the coming up of new and better products every day meant that price could not

    be used as a competitive advantage but there was the challenge of price undercutting that was rampant in the industry. The price

    undercutting led to customer hoping from one organization to the other and this made it impossible to determine the actual market

    share of the firms. The firms relied more on the loyal customers and a strong brand name as their competitive advantage. The

    study also concluded that whichever competitive strategy that an organization employed had a strong relationship to the

    competitive advantage that organization would have.

    The insurance industry in general should investigate ways of addressing the problem of price undercutting which was pointed

    out as one of the major challenges as it meant that the profits were being eroded. The price undercutting also means that the firms

    must strive to reduce costs and this may affect the quality of the product offering or the services that accompany it thereof. The

    firms should also look into ways of accessing the rural markets or bringing services closer to the people in a bid to increase the

    demand side of the business. This would also increase on the product offering taking into account that the needs of this markets

    may be different from the current conventional markets being served by the firms.

    10.2 Recommendations

    The study seeks to make recommendations that will contribute to the body of knowledge, managerial practice and managerial

    policy.

    10.2.1 Contribution to Body of Knowledge

    The study adds more knowledge to existing theories by providing more literature on the market competition and enhances

    more information theoretically concerning the effects of strategies on competitiveness of insurance companies in Mombasa,

    Kenya. This will enable future researchers to build on the existing research and carry out further research on the same industry or

    across another industry.

    This study will further increase the knowledge base because it will facilitate the capability to adopt and shift the knowledge

    gained from theory into practice through implementation of the competitive strategies not only in the insurance industry but also

    across other industries.

    10.2.2 Contribution to Managerial Practice

    The researcher recommends that management within these insurance firms should delve more in identifying how the strategies

    that are least adopted into the industry such as cost leadership and product development can be used to gain an edge over their

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    competitors. This is through identifying which aspects of the strategy can be exploited to gain competitive advantage over their

    competitors.

    This study would also recommend that the firms within this industry should invest more in technology due to the major

    developments occurring globally. This will ensure an easier and wider reach of existing and new customers such that they are able

    to have access to the products online. Firms can also utilize the social media to create awareness about their products because it

    has been widely accepted around the globe as a huge marketing platform.

    10.2.3 Contribution to Managerial Policy

    The insurance industry has experienced consistent price undercutting among the different players within the industry. This

    study recommends the adoption of stricter policies by the regulators such as IRA and AKI that will completely stop these practices

    and provide a level playing field especially for the small organizations in the industry.

    The study also recommends that organizations within this industry should develop strategic plans that aim at reaching more

    customers and creating new markets through establishing more branch networks, partnerships and geographical expansion into

    other regions. This will address the issue of the small market share that the industry players are currently fighting for.

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