AN INVESTIGATION INTO THE MARKETING STRATEGIES USED BY COMMERCIAL BANKS
IN MANAGING SERVICE BREAKDOWN AMONG SME CUSTOMERS. SOME EXPERIENCES IN KENYA
ABSTRACT
This study sought to establish the strategies used by ccommercial banks in Kenya in Managing Service Breakdown among SME Customers. The study focused on five commercial banks namely Barclays, Kenya Commercial Bank, Standard Chartered, Equity and Fina  bank which currently offer services to SME customers. A self-administered open and closed ended questionnaire was utilized in collecting primary data from the field. Data collected was analyzed using descriptive statistics. The study found that lack of clear communication with customers, long procedures; intrusive documentation and lack of flexibility are some of the causes resulting in service breakdown. It also established that the main strategies used by banks to deal with services breakdown include; designing services to fit the needs of customers; ensuring that services are always oh high quality without compromise; putting relevant systems in place; having competent employees in place; on time delivery of services and ensuring that services are driven by customers to increase acceptance and satisfaction.
 Key words: Services Break down, strategies
 CHAPTER ONE
INTRODUCTION
This study sought to examine the strategies used by Commercial banks in Kenya to deal with Service brieakdown. The study had two objectives, namely To identify the causes of service breakdown in commercial banks in Kenya, and To establish the specific marketing strategies used by commercial banks in Kenya in managing service break down
A company’s strategy consists of the business approaches and initiatives it undertakes to attract customers and fulfill their expectations, to withstand competitive pressures and to strengthen its market position. These strategies provide opportunities for the organization to respond to the various challenges within its operating environment. Firms also develop strategies to enable them seize strategic initiatives and maintain a competitive edge in the market (Porter, 1985). The competitive aim is to do a significantly better job to its customers. The success of every organization is determined by its responsiveness to the customer needs.
The competitive aim is to do a significantly better job of providing what customers are looking for, thereby enabling the company to earn a competitive advantage and outsmart rivals in the market place. The core of a company’s marketing strategy consists of its internal initiatives to deliver satisfaction to customers but also includes offensive and defensive moves to counter the maneuvering of rivals, actions to shift resources around to improve the firm’s long term competitive capabilities and market position, and tactical efforts to respond to prevailing market conditions. Assuming that there are a number of providers, customers will choose which offering to accept on their perception of value-for-money.
  Finance has been identified as the most important factor determining the survival and growth of small and medium sized enterprises in Kenya. Access to finance allows Small and Medium Enterprises (SME’s) to undertake productive investments to expand their businesses and to acquire the latest technologies, thus ensuring their competitiveness and that of the nation as a whole. Poorly functioning financial systems can seriously undermine the microeconomic fundamentals of a country, resulting in lower growth in income and employment (Griliches, 1998). Landes (1998) argues that despite their dominant numbers and importance in job creation, SME’s traditionally have faced difficulties in obtaining formal credit or equity. These difficulties are what the commercial banks call service breakdown. For example, maturities of commercial bank loans extended to SME’s are often limited to a period far too short to pay off any sizeable investment; secondly SME’s are regarded by creditors and investors as high-risk borrowers due to insufficient assets and low capitalization, vulnerability to market fluctuations and high mortality rates; thirdly information asymmetry arising from SME’s’ lack of accounting records, inadequate financial statements or business plans makes it difficult for creditors and investors to assess the creditworthiness of potential SME proposals; and lastly is the high administrative/transaction costs of lending or investing small amounts do not make SME financing a profitable business.
 To compete effectively in the SME financing sector, and faced with this service breakdown, commercial banks need to provide financial services that meet the specialized needs of SME’s while coping with the high risks and costs associated with servicing them (Landes, 1998). To achieve this, an increasing number of banks have adopted separate strategies to service SME customers. The current trend is to shift from a product-based focus to a more customer oriented focus of providing packages of financial services tailored to their needs. This has the potential of considerably improving the banks’ relations with the SME sector, as well as increasing the profitability of providing financial services to it (Landes, 1998).
  The Small and Medium Enterprises in Kenya
In Kenya, the rise of SME’s has been hindered by financial challenges and political instability (Carrier, 1999).  Kenya has created conditions for private-sector growth but is still held back by an inadequate financial system. Kenya’s private sector consists of mostly informal micro enterprises, operating alongside large firms. Most companies are small because the private sector is new and because of legal and financial obstacles to capital accumulation. Between these large and small firms, SME’s are very scarce and constitute a “missing middle.”
 Financing is necessary to help SME’s set up and expand their operations, develop new products, and invest in new staff or production facilities (Gomez-Mejia, 1988). Many small businesses start out as an idea from one or two people, who invest their own money and probably turn to family and friends for financial help in return for a share in the business. But if they are successful, there comes a time for all developing SME’s when they need new investment to expand or innovate further. That is where they often run into problems, because they find it much harder than larger businesses to obtain financing from banks, capital markets or other suppliers of credit. This “financing gap” is all the more important in a fast-changing knowledge-based economy because of the speed of innovation (Groke and Kreidle 1967).
 Innovative SME’s with high growth potential, many of them in high-technology sectors, have played a pivotal role in raising productivity and maintaining competitiveness in recent years. But innovative products and services, however great their potential, need investment to flourish (Carrier, 1999). If SME’s cannot find the financing they need, brilliant ideas may fall by the wayside and this represents a loss in potential growth for the economy. The “bagless” vacuum cleaner and the “wind-up” radio or flashlight which need no batteries are now common household items, but nearly failed to see the light of day because their inventors could not find financial backing to transform their ideas into production. Already, differences are emerging between countries in terms of how easy it is for innovative SME’s to grow and develop. This sector has been very dynamic in the United States and a few other countries, but has lagged in many continental European countries and Japan, to the detriment of job creation and competitiveness (Gomez-Mejia, 1988).
 Improving  access to finance of small and medium enterprises is crucial in fostering entrepreneurship, competition, innovation and growth in Kenya. Access to sufficient and adequate capital to grow and further develop their activities is a difficulty faced by many Kenyan SME’s. This situation is compounded by the difficulties in accessing finance as SME financing is considered by many financial providers as a high risk activity that generates high transaction costs and/or low returns on investment. Moreover, SME’s need to meet the challenge of adapting to the changing financial environment and the increasing complexity and extent of financial acquisition. In an effort to access banking services, SME’s face the challenge of service products availed by their banks failing to meet their expectation leaving them helpless and frustrated to achieve their business objectives (Carrier, 1999). These are events of service breakdown.
  Several scholars have carried out extensive studies in the area of banking in Kenya and especially on competitive strategy. For instance, Warugu (2001) in his research, found out that focus and product differentiation are some of the major strategies that the banks have employed in their quest to outdo each other. Similarly Kiptugen (2003) looked at the strategic responses to a changing competitive environment in the case study of KCB, he established that proactive rather than reactive strategies such as research on changing customer needs and preferences forms the basis of its strategic planning. Mbwayo (2005) focused on the strategies applied by commercial banks in Kenya in anti money laundering compliance programs. He concluded that strict adherence procedures and standards have been implemented to ensure that money laundering is contained in Kenya.
 These studies have looked at competitive strategies among commercial banks and response strategies at various levels in an attempt to gain a competitive edge over rivals in the banking industry but none has investigated marketing strategies used by these industry players to address the rampant service breakdown being experienced by SME’s in commercial banks in Kenya. Since there is a massive service breakdown in commercial banks in Kenya, there was a compelling need to investigate the strategies used in managing this problem.
 This study is of significance in that Executives in the banking industry will be able to use the findings of this study in drafting strategies on how to operate in the Kenyan market. It will help them understand better the problems facing SME’s as they relate with financial institutions in their pursuit for survival. As a result, it is expected that the executives will be able to formulate policies that are more benign to the sector.
 Also, investors in the SME sector will use the information from this study to make decisions regarding investing in the area. The findings of the research will expose some of the challenges they are likely to encounter in their attempt to get banking services in Kenya. As a result, the investors will be more endowed with knowledge and prepared to fit in the prevailing banking environment.
 Scholars in the field of strategic management and marketing will use the information to understand the state of the sector better. They will also use the information as a reference point to research on the strategy formulation and innovations in other industries.
 Finally, the Government will find the information useful in diagnosing the problems affecting the SME sector and come up with regulative solutions that would protect and help the SME’s thrive.