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Mobile Banking Industry in Kenya


1.1 Background of the Study

Mobile banking in Sub-Sahara Africa offers millions of people a potential solution to financial inclusion solely through access to a cell phone, this has been truly experienced in Kenya but majority still remain outside the financial mainstream. The adoption of mobile banking has made the basic financial services more accessible and convenient to millions of customers.

The term mobile banking is used to refer to the access of banking services and facilities that use an electronic device such as Personal Digital Assistants (PDAs) and cell phone (Porteous, 2006). However, this term has competing labels and definitions when it comes to the discussion of financial services through mobile phone networks. This study uses the term “mobile money” to refer to the convergence of mobile telephone and financial services.

According to Tiwari, Buse, and Herstatt (2006), mobile banking is any form of transaction that entails the transfer of ownership of rights to use a good or service, and is initiated or completed by using a mobile device through an electronic device via computer-mediated network. Furthermore, mobile banking is the delivery of bank-related financial services with the help of a mobile telecommunication device(s). The usage of mobile telecommunication devices to offer banking services is what encompasses mobile banking. For example, instances of customers using their mobile phone or a PDA to withdraw money from their bank’s (Saleem & Rashid, 2011)

In the developed and developing countries, the cell phones have become the primary form of telecommunication (Bhavnani, Janakiram, Chiu, & Silarszky, 2008). There has been an unprecedented financial revolution in progress witnessed in the last decade. It is not happening on the streets of London or under the skyscrapers of New York. It is not taking place in Frankfurt or Shanghai but rather in Nairobi and the markets of Kisumu (Mas, 2010). In the process it’s creating considerable uncertainties and ripples in the financial sector as well as in the telecommunication since it exists in-between the two industries; it’s, therefore, imperative that a company finds a balance on how to handle this scenario.

Kenya has experienced dramatic changes in the financial sector over the last decade. These changes in the financial sector have been facilitated by factors including; policy and regulatory reforms, development in the wider economy, increased competition and new technology. The country currently has a mobile penetration level of 87.3% down from the previous rate in the 2015/2016 FY of 90%, a decrease of 2.7% percent recorded in the preceding quarter. However, compared to the last financial year, there was a growth of 6.1% increase in mobile penetration which is good news to mobile money penetration as there is a positive correlation between the two.

Figure 1.1: Illustrates the trends in mobile subscriptions and penetration levels.

Source: CA, Operators’ Returns, Penetration has been computed using the latest population figure of 44.2 million as per Economic Survey 2016.

As witnessed in the financial quarter under review, mobile subscriptions stood at 38.5 million down from 39.7 million subscriptions registered in the previous period, indicating a decline of 3.0 percent. The change was as a result of the revision of mobile subscriptions data by Telkom Kenya Limited. The figures however when compared to the similar period of the previous financial year, a growth of 1.9 percent was realized.

This exponential growth in the industry requires that a firm should design coordinated relationships with other actors in the business environment so as to access the much-needed resources. According to Hakansson and Snehota (2007), they argued that a business is not an island and thus there is an imperative need for companies to be involved in a long-term relationship, keeping in mind how they relate within and without the enterprise. A company ought to understand how the business environment ultimately affects the internal operations of the enterprise and be able to act amicably in response to barriers and opportunities presented (Aaker, 2006).

Companies are formed to either produce a product or deliver services that meet demands of customers. In the production of goods and services companies perform different functions. These include production, marketing, financial activities, and the management of human resources.

Organizational characteristic is an open question with few studies using consistent definitions and measures (Kirby, 2005). The usage of the word organizational characteristics refers to the factors that have an impact on a firm’s performance. Such factors include the age of the firm, size of the firm, organizational culture, the board of directors and ownership form of the company.

Performance is also another type of effectiveness indicator; this goes without saying that it has its advantages and disadvantages. Therefore, it is imperative to distinguishing between organizational performance, and the general construct of organizational effectiveness is paramount (Venkatraman & Ramanujam, 1986).

Organizational effectiveness is a broader construct that encompasses corporate performance, but with footing in organizational theory that entertains other performance goals (Cameron & Whetten 1983). The term performance itself is likely to be somewhat firm-specific: this is because performance measure employed will be dictated by the strategic choices a firm adopts geared towards reflecting the underlying performance constructs (Steers, 1975). The correlation between performance and actions is significantly influenced by the initiatives the firms adopts within and how these are incorporated into incentives and control systems with the particular company. In simple terms, the internal measurement systems used by a business will influence performance at the individual and organizational level (Levenson et al., 2006).

Market segmentation is part of the traditional 4Ps of place, product, promotion, and price that have been used over time to position a firm in a strategic point in a market. The aspect of market segmentation has been written by several scholars (Johnson 1971, Cohen 1988, and Kimandi 2002). Smith (1956), states that market segmentation is the ability to view a heterogeneous market as some smaller homogeneous markets in response to differing customers preferences, attributes to the desires of customers for a more precise satisfaction of their different wants. Wedel & Kamakura (1988) points out that even if a market can be partitioned into homogeneous segments, market segmentation will be useful only if the effectiveness and manageability of marketing activities are influenced substantially while discerning separate homogenous groups of customers.

Kenya’s mobile banking industry is poised for increased changes as a result of competition in the market and the volatility that exists in the market. The industry is services oriented, and hence the customer is the pivot between the company and the other players. Firms having realized the need for value derived from their services, have had to focus on market segmentation practices with the purpose of helping to determine a target market, the preferences and needs of users when developing products, and understating how to deliver the said products to the end users.

The study will be relevant in various ways. Management and policy makers of mobile banking firms in Kenya may use the findings in designing strategies that will assist in identifying customer needs and market opportunities that will help them remain competitive in the industry. It is anticipated that this study will also help management and leaders of mobile banking firms to become aware of the market segmentation practices and their effect on a company’s performance. Importantly, it is expected that when these suggestions are made and applied in the organization, they will enhance improvement in performance.

Besides, it is hoped that the research findings will help the government in formulating strategic policies for effective management and shaping of the industry. This study will contribute to policies formulation that will help promote local mobile banking sector.

The study is also expected to be of importance to academicians in that the knowledge generated will enable other researchers to improve and develop a better understanding of market segmentation in the mobile banking industry and its effect on performance.

1.1.1 Concept of Organizational Characteristics

Organizational characteristics refer to those aspects of the firm that have a negative or positive effect on the performance of a company. They range from the size of the company, the age of the firm, ownership, organizational culture and board of director characteristics, all of which have an impact on the overall performance of the company. According to Kirby (2005), the definition of organizational performance is an open question with few studies using consistent measures and definitions. In management research, performance is quite common as its structure is rarely justified; rather its appropriateness is no matter what form, is unquestionably assumed (Sutton & March, 1997).

1.1.2 Organizational Performance

Organizational performance refers to the degree of achievement of the mission at a workplace that builds up an employee job (Cascio, 2006). Organizational performance comprises three specific categories of firm outcomes; market performance, financial performance and shareholders returns on investment. Therefore organizational performance has become a vital aspect of empirical research in the field of business policy. Researchers often take into account organizational performance when investigating organizational phenomena such as structure, strategy, and planning. Ford and Schellenberg (1982) examined three major frameworks that are frequently used to conceptualize organizational performance. The goal approach seeks a definition based upon explicit goals which can be implied from the behavior of organizational members. The system resource method (Yuchtman and Seashore, 1967) provides a framework to assess organizational performance regarding key internal and external factors upon which organizations depends on survival. The constituency approach perceives the organization as being in existence to benefit both the inner and external constituencies, with organization performance assessment focused on fulfillment of constituent needs (Thompson, 1967).

1.1.3 Concept of Market Segmentation

Kotler, (2001) states that there is a three-step procedure for identifying markets, namely: survey, analysis, and profiling. On the other hand, Mc. Donald (2001) contents the same number of stages for identifying market segments.

Market segmentation states that a company should segment or divide the market in such a way as to achieve a set/niche of users (Howard & Sheth, 1969). This set(s) of users, or sub-segments of the market, would then become targets for the company’s marketing plans. Some have perceived this idea as the process that a company adopts so as to divide the market into distinct groups by wants, needs, taste or behavior for its different services or products (Day, 1984). Instead of providing the same marketing mixes to a wide array of customers, market segmentation enables a firm to design product/service for a particular target market and thus will substantially satisfy customers’ needs better.

Kotler et al. (1999) defined market segmentation as dividing a market into distinct groups of buyers/users with different characteristics, needs or behaviors, who might require separate products/services or marketing mixes. According to Dibbet al. (2001), this is the process of grouping customers in markets with some heterogeneity into smaller, similar or homogeneous segments; the identification of target customer groups in which customers are clustered into groups with similar requirements and buying habits.

The principle aim of market segmentation is to group customers with similar needs and buying/spending behavior into segments hence facilitating each segment being targeted by a unique product and the desired marketing offerings to be developed so as to suit the requirements of different customer segments (Wind, 1978). There is also a primary aim of segmenting, which is to focus on a niche/subset that is most likely to be attracted to the offering. According to Salami and Adewoyi (2008), market segmentation when done properly will maximize returns for the desired marketing expenditure. In essence, a business’ need for segmentation is often determined by the need to match the benefits offered by the product/service and requirements of the customers.

1.2 Mobile Banking Firms in Kenya

The Kenyan government liberalized the telecommunications sector in 1998. At the time the government owned the monopoly firm, Telkom Kenya which was split into various entities to boost competition in the sector. There was a drastic effect as four players were attracted into the market by 2016 namely, Airtel Kenya, Safaricom, Essar Telecom (also referred to as Yu Mobile) and Telkom Kenya/Orange Mobile. The intense competition in the market saw Yu Mobile exit the market leaving three players to compete.

There are currently five mobile network operators in the country, namely; Safaricom, Airtel, Finserve Africa Limited (Equitel), Telkom Kenya (Orange) and Sema Mobile Services. Market share of each company as of September 2016, Safaricom’s Limited market share stood at 69.0%, Airtel had a market share of 17.5%, Telkom Kenya (Orange) at 7.6% while Finserve Africa limited controls 5.9% of the market Sema Mobile, a new entrant during the financial year 2015/2016, recorded a market share below 0.0 percent.

Figure 1.2: Mobile Network Operators market share

During the FY 2015/2016 period, Safaricom Limited’s market share increased by 3.8 % to stand 69.0% from last quarter’s market share of 65.2%. Airtel Network Limited gained 0.9% to reach 17.5% of the market share. Similarly, Finserve Africa Limited (Equitel) marked increase in market share of 0.8% to stand at 5.9%. Telkom Kenya Limited recorded a drop of 5.6% in its market share presence to be at 7.6%. Sema Mobile Services’ market share continued to remain at below 0.0%.

Entrant of new firms into the industry is limited because the sector is highly regulated. A firm is required to make a significant investment with license fees in billions of dollars so as to participate. The Communications Authority of Kenya which is the industry regulated also sets wholesale prices (interconnection rates) and has imposed on the players the disclosure clause, that regulates market promotions by putting it that a company has get a written approval from the authority before launching a product(s).

Due to the hard economic conditions being experienced in the country at the moment mobile subscribers due to price sensitivity, lack loyalty to service providers by having more than one SIM card registered in their names for use depending on the nature of service the customer requires.

Macro-economic forces, coupled with competitive forces that exist in the telecommunications industry, were limited firms’ ability to grow and be profitable. Therefore the evolution of mobile banking in the industry was a big boost for the firm’s in the industry.

The genesis of this mobile banking was that Safaricom launched M-Pesa in Kenya in March 2007. From inception the growth has been tremendous and thus can be termed as the most successful implementation of mobile money to-date. There is no need for a new SIM card or handset because it uses Sim Toolkit (STK) technology, whereby with STK the user has an application on the SIM card which is accessed from the phone’s menu. M-Pesa is quite simple because to send money one hand over cash to a registered agent who in turn credits the recipient’s virtual account.

Initially, Safaricom rolled-out a minute sharing service for her prepaid mobile phone subscriber. The sole purpose of this was so as to enable users to share minutes with friends and family members in rural areas who couldn’t buy prepaid mobile phone scratch cards. However with time Kenyans saw an opportunity of converting the prepaid airtime into currency to pay small bills or settle debts, this, therefore, ended up being used as a ‘surrogate for currency.’

The use of prepaid airtime for surrogate currency created an opportunity space in which Safaricom maximized on by rolling out M-PESA. Safaricom’s executives were confident that growth would be strong in Kenya and later across Africa as a whole. Michael Joseph, chief executive officer of Safaricom, is quoted saying the adoption of M-PESA is like giving users ATM cards without them having to open an actual bank account. Safaricom became the biggest bank in East Africa (Kenya, Uganda, Tanzania, Rwanda and Burundi) within one year of being in operation. This tremendous growth has been phenomenal and has been dubbed as the “big thing” in the mobile banking industry.

After that other Telco’s followed suit. Mobile banking registration is free, same as making deposits into the system. Customers are charged based on the amount of money being transferred for person-to-person (P2P) transfers and bill payments, $0.27 for withdrawals (for transactions under $25) and $0.13 for balance inquiries.

Sema Mobile regards herself as ‘Kenya’s leading community network.’ It majorly focuses on ‘closed-user groups’ such as communities and churches. This platform has the potential of enabling communities to collaborate and connect around the things in which they care about through a customized mobile solution. The company is owned by Mobile Decisioning Africa Group (MODE) a FinTech company that operates in association with Chase Bank. The platform of MVNO is piggybacked by Airtel Kenya Network.

Individual customer accounts are maintained on a server that is owned and managed by the Telco Company, but Telco’s deposit the full value of its customers’ balances in the system in pooled accounts in regulated banks. Therefore while it is the Telco’s company that issues and manages the mobile banking accounts, the accounts are fully backed by commercial banks. However, the company doesn’t pay interest to her customers on their balance in their accounts; Safaricom sets aside a small percentage of the account balance in a not-for-profit trust fund.

Mobilcom German mobile operator acknowledges that mobile banking will be the killer application for the next generations of mobile technology.

1.2.1 Mobile Money Transfer in Kenya

The total number of mobile money transfer subscriptions stood at 31.0 million during the quarter of FY 2016/2017, while the number of mobile money agents stood at 169,698. A total of 400.6 million transactions (deposits and withdrawals) were made during the period valued at $10 Billion. Transactions of mobile commerce were recorded at 247.9 million valued at $4.473 Million. Person to person total value transfers were recorded at $4.745 Million during the quarter review.

Table 1.1: This shows the details of mobile money transfer and mobile commerce services

Table 1.1: Mobile Money Transfer Service

Service Agents Subscriptions Number of transactions3 Value of transactions4 (USD) Mobile commerce transactions 


Value of mobile commerce (USD) 


Person to Person transfers (USD) 


M-pesa 114,282 20,670,134 326,802,051 8,510,713,883 183,041,789 3,595,019,492 3,890,965,856
Airtel Money 16,377 5,861,480 9,083,467 108,213,026 9,083,467 108,213,026 45,791,640
Orange Money 20,694 194,228 31,000 1,625,600 1,033 42,458 296,111
Equitel 2,090,284 63,962,934 2,195,781,943 55,788,492 770,583,844 807,813,11,0
Mobikash 16,749 1,772,696 815,881 1,270,328 6,430 92,271 228,766
Tangaza* 1,596 503,556      
Total 169,698 31,092,378 400,695,333 10,817,604,780 247,921,211 4,473,951,093 4,745,095,485 


1.2.2 Trend in Mobile Banking in Kenya

Currently, Safaricom is working with over 40 banks, which translates to over 3.1 million customers using the platform of M-Pesa on a monthly basis. According to Safaricom’s director of corporate affairs, Mr. Steve Chege he states that the firm is operating in a highly competitive environment with both local and international players.

Banks having realized that they were spending about $22 million to mobile money providers yearly at the time, Equity Bank decided to launch Equitel which is Mobile Virtual Network Operator (MVNO) upon the realizations of the mobile money market value as well as the desire to keep proceeds within the industry. Kenyan banks through Kenya Bankers Association have come up with “The Kenya Interbank Transaction Switch” which is a digital platform for mobile money transfer meant to rival the Telco’s longstanding dominance in the industry for the scramble for cashless payment in the country. This platform will enable mobile phone users to send and receive money without depending on Telcos.

The mobile money industry is very lucrative in Kenya, according to the Central Bank, the value of transactions stood at $ 26 Billion in the nine months to September 2016. The exponential growth experienced in the sector has motivated industry players to pursue market dominance.

1.3 Statement of the Problem

Many institutions spend a lot of time in trying to remain relevant as a result of changes in the environment. According to Kotler (2003), firms often pursue a market segmentation approach to meet today’s market realities. Michael et al. state that a company cannot serve all customers in a broad market because customers are diverse in their habits or requirements. The concept of segmentation helps in distinguishing buyers/users for instance who want low-cost essential items and those who opt for expensive items.

According to Perreault et al. (1996), the first step in market segmentation starts with the idea that client is unique but that it may be possible to aggregate some similar people in a product market. Firms design and develop different marketing mixes for each and every identified segment so as to accommodate the entire heterogeneous markets. This has the effect of customer satisfaction as well as retention in the long-run. The Chartered Institute of Marketing (2002) reiterates that consumers are becoming increasingly sophisticated and empowered in today’s consumer environment. Therefore, this implies that they have more control than ever, in deciding how, when and where to purchase goods and services. Hence, with appropriate segmentation approach, which ensures that it addresses the requirements of individual customers or a group of clients, the ever changing sophisticated demands of a customer(s) will be met.

According to Wind et al. (2003), it is imperative that marketers have to research further on every new prospective customer so as to better understand their service requirements in assigning segments. They argue that segmentation is crucial and should be examined on all aspects of the ongoing process. Segmentation leads to more satisfied customers, this is because it offers practitioners several benefits including; appropriate allocation of resources, improved understanding of customer needs, positioned marketing programs and clearer identification of market opportunities.

The mobile banking industry in Kenya has seen intense competition as firms enter the industry to get a stake in the market. The mobile banking industry has international as well as local players. With heightened competition, the companies within the industry need to devise strategies that will help them remain relevant in the long run.

In Kenya, market segmentation has also received a considerable focus from researchers. Various scholars have reviewed market segmentation in different contexts. Ng’anga (1992) investigated market segmentation practices by banking firms in Kenya. Gitau (2012) conducted a study on the effect of market segmentation on banking and SME’s companies in Kenya. Otike et al (2013) studied market segmentation on financial firms. From their findings, it emerged that market segmentation is an important tool in the efficient provision of products and services. Though these researchers touched on market segmentation in the financial sector, none focused specifically on the mobile banking industry. Given the gap existing in this area of market segmentation and performance in mobile banking firms, this study aims to answer the following question; do market segmentation practices affect performance in the mobile banking firms in Kenya?

1.4 Purpose of the Study

The main purpose of this study is to establish the relationship between market segmentation practices, and organizational characteristics on performance in the mobile banking industry.

















2.1 Mobile Banking

This section will examine the theory guiding this study as well as the importance of market segmentation, the basis of market segmentation, challenges of effective market segmentation strategy, market segmentation, organizational characteristics that affect firm performance and throughput as well as determinants of performance and performance measures.

There has been a phenomenal market penetration of mobile phones in developing countries all over the world. This is quite the case in Kenya where in every household you are bound to have at least one or both parents owning this essential gadget. Indeed, across the developing world, there are probably more people with mobile handsets than with bank accounts (Porteous, 2006). This has created an environment for the explosion of interest in cell phones on how they can contribute to socio-economic development (Singh, 2007).

Ferber (1974) argues that the origin of mobile banking can be traced back to the Second World War when the field cash officers were provided with the relevant currency of the country to all units and individual officers on whom they were based and would in effect receive money from officers’ shops and army post offices. Porteous (2009), argues that the genesis when an army banking system that was conducted in a tent that was mobile but housed in a three-ton truck so as to access remote regions. This is named mobile banking in the sense that they used vans that were mobile to provide banking facilities in remote locations, and later on, this idea spread to Europe, Africa, India, Israel, and even to the USA. On the other hand, Schoefield & Kubin (2002) holds the argument that the beginning of mobile banking dates back to 1946 when the then National Bank of Scotland introduced to the world which is now commonly referred to as the commercial mobile banking.

However Stephen (2007) claims that contemporary mobile banking came into existence towards to the end of the 20th century, 1999 to be precise when banks in Europe offered banking services via SMS through a mobile smartphone with WAP support (Wireless Application Support), but this was limited to bank account holders. Peltomen and Dholakia (2002) claim that the roots of the development of telecommunications industry took place in the 19th century, during which time the first telecom was built in Finland. Suoranta (2003) points out that Finland is the pioneer in mobile banking there is a formidable mobile phone industry and very rapid development of that industry.

In 2008 the Global System for Mobile Communications Association (GSM) confirmed that mobile banking initiative picked up pace when the world became integrated as a result of the fast paced development in the telecommunication industry. GSM subscribers having reached 3.5 billion in the world there was the need to launch the Mobile Money Transfer program as there was a need to utilize the potential of using the mobile network to bank the unbanked. The emergence of a cell phone in the market changed the way financial institutions conduct their business, as the banks realized that there a new opportunity to offer financial services through a mobile phone (Lonie, 2010).

Trends in the industry such as information-driven economy have compelled banks to comply with technological changes (Gutierrez & Singh, 2013). According to Lonie (2010), the coming into existence of smartphones was a game changer to the business with new business models with was of offering accessibility to consumers. With increased mobile subscribers worldwide financial institutions are becoming innovative with regards to ways of providing better services to the customers.

This has significantly picked pace in developing countries and in particular in Africa, where the number of mobile phone owners has exploded in less than a decade. In 2009, Standard Chartered unveiled mobile banking in seven countries in Africa by offering a user-friendly platform referred to as the Unstructured Supplementary Data which was embedded on the GSM carrier enabling her customers to access banking services via their mobile phones (Okiro & Ndungu, 2013). Barclays bank followed immediately by introducing ‘hello money’ mobile service in which her customers could access their accounts using their cell phones.

There have been various initiatives to use mobile phones to provide financial services to the millions of the “the unbanked.” These services take a variety of forms such as micropayments, long-distance remittances, and informal airtime bartering schemes and are referred by various names such as mobile transfers, mobile payments, and mobile banking.

The terms m-transfers, m-payments, m-banking refer collectively to a set of applications that enable people to use cell phones as a ‘financial institution’ as well as to link their mobile phones to their bank accounts, store value and be able to transfer funds (Karjaluoto, 2002).

2.2 Theoretical Foundation

The consumer behavior is a process that involves various activities that people engage in when they want to choose, buy, use, evaluate and dispose of products and services with the aim of satisfying needs, wants and desires (Belch & Belch, 2004). There are various factors; internal and external which have been found to influence consumer behavior. Short-term and long-term emotional concerns are factors that are put into consideration (Hirschman, 1985; Hoch & Loewenstein, 1991). The foundation for understanding the process of how a decision is reached is fundamental in analyzing a given product or service.

Researchers have for a long period developed an interest in the consumer decision making. This can be traced back to 300 years ago when early economists such as Nicholas Bernoulli, Oskar Morgenstern, and John von Neumann started to explore the basis of consumer decision making (Richarme, 2007). According to Loudon and Della (1993), this early work on the subject matter approached the topic from an economic perspective and placed emphasis on the act of purchase. The ‘Utility Theory’ is the most common model in this point of view. This proposes that consumers make choices based on the expected outcomes of their decisions. Finally, the users are viewed as rational decision makers whose primary concern is their self-interest (Schiffman & Kanuk 2007, Zinkhan 1992).

Contemporary research, on the other hand, does not hold on to the idea of utility theory which views the consumer as a rational economic man but rather considers a broad range of factors influencing the consumer, and hence acknowledges a broad range of consumption activities beyond purchasing. These activities include but not limited to; need recognition, evaluation of alternatives, information search, the building of purchase intention, and the act of acquisition, usage and finally disposal. This theory has evolved through a series of stages over the last century in light with advancements in research methodologies as well as paradigmatic approaches being adopted.

2.2.1 The Consumer Decision Model

In 1968 Kollat, Engel, and Blackwell theorized and developed the Consumer Decision Model (also known as the Engel-Blackwell-Miniard Model). However, with advancement in research, this has undergone numerous revisions. However, many of the elements are similar to those presented in the ‘Theory of Buyer Behavior” (Howard & Sheth, 1996) with the only difference being the structure of presentation and relationship between the variables. The figure below shows how the model is organized around a seven point’s decision process; need recognition, the search of information both externally and internally, evaluation of available alternatives, actual purchase, post-purchase reflection and finally divestment.

Two major factors influence decision making; the first is that stimuli are received and processed by the consumer while putting into consideration memories of previous experiences and secondly external variables which come into play in the form of individual or environmental experience(s). The individual influences include Motivation and involvement, consumer resource, attitudes, knowledge, personality, values, and lifestyle. While the environmental influences include: Social class, personal influence, culture, situation and family (Blackwell, Miniardet et al. 2001).

Input   Information process  Decision Process   Variables Influencing Decision Process

Problem Recognition

Individual Characteristics:






Internal Search










Social Influences:


-Reference Group


Stimuli: Marketer- 


Alternative Evaluation





Comprehension Perception






Situational Influences



External Search




Figure 2.1 Decision Making Model


2.2.2 Criteria for Effective Market Segmentation

Shapiro and Bonoma (1984), states that consumer markets are much easier to segment than industrial ones. Both of them agree that an industrial product has different application forms. Despite this, they have some reservations that B2B marketers do not count with real instruments to determine the best variables to segment the markets.

In figure 2.2 the Nested Approach, which is also referred to as a ‘Multi-Step’ market segmentation model can be categories into five different layers depending on the amount of investigation and information that the company requires in evaluating different market segmentation criteria (Shapiro & Bonoma, 1984).

                     Personal characteristics

                                                  Situational factors

                                                  Purchasing approach

                                                     Operating variables



Figure 2.2 Nested Approach Criteria

Source: Adapted from Shapiro and Bonoma (1984)


The Nested Approach has an established hierarchy. The main idea of this model is engage in market segmentation from the outer layers to the inner layers. The outside layers require less information than the inner layers. As a consequence, marketers can move from readily observable information to the more accurate one, depending on the company’s capabilities to gather market information. The usage of this approach may not be necessary for every stage hence there is a possibility of skipping irreverent criteria (Bonoma & Shapiro, 1984). Situational factors, personal characteristics, purchasing approach, operating variable and demographics.

Table 2.1 Nested Approach criteria, description, and variables

Criteria        Description      variables

Demographics     General and easy information     Industry Information

of the company, customers and    Company Size

industry. Do not need to visit the  Customer Location

customer or other complicated

information sources

Operating variables     Enables more precise           Technology

information of customers          Product and brand use

within demographics             Customer Capabilities

status categories

Purchasing Approach    Involves the company             Purchasing function

philosophy,  their            Buyer-seller relationship

purchasing method and

buyer  organization


Situational factors       In this point is important the         Urgency of order

buying situation. These are          Product application

operating variables, but are          Size of order

temporary and need a better

understating of the customer

Personal characteristics  Segment the market according     -Buyer motivation

to the individuals involved in the   – Individual perception

purchasing process              – Risk management


Source:Adapted from Shapiro and Bonoma (1984)


According to Shapiro & Bonoma (1984), the approach of using a hierarchical structure is easy to use. Marketers, start working on the outer nest to the inner nest systematically so as to identify the critical factors which might otherwise be neglected. The system doesn’t follow a specific way of usage. Manager(s) can start in segmenting the market in any later or, less probably, going from inside out.

However, other authors have different opinions on this model. According to Mitchell & Wilson (1998), the Nested Approach pays microscopic attention to customer needs (this has the exception of the catch-all phase labeled situational factors) which are apparently driven by supplier convenience. Furthermore, they argue that in addition to this such illustrative models are helpful in reminding the different issues and aspects involved in segmentation process as well as provide some structure to the segmentation process. In some way, the model provides a desired starting point for a market research plan. However, according to Plank (1985), this model assumes that the markets can be segmented thou this is not real in all markets.

These models are meant to provide a good starting point for market segmentation. The outer layers of the model help to have a good overview of what is happening in the market. At the same time, it is imperative to carry out an economic evaluation of the segmentations arising during the process (Wind & Thomas, 1994). In this manner, managers will be able to know at what stage to stop market segmentation, so as to avoid going further to the inner layers in which information required is more expensive and complicated to retrieve.

2.2.3 Benefits of Market Segmentation

As already stated, segmentation is the basis to develop targeted and effective marketing plans. It is also worth noting that, analysis of market segments enables decisions about intensity of marketing activities in particular sections. A segment-oriented marketing approach provides for a range of advantages to the businesses and customers. Kotler (1994), points out that market segmentation is important in understanding the needs of clients as it offers a company knowledge on how to improve her understanding of customer needs so as to allocate resources appropriately, to identify opportunities in the market as well as to come up with better positioning strategies. It is often difficult to change prices for the whole market. This, therefore, requires the development of premium segments in which customers accept a relatively higher price level. Such attributes could be used to distinguish such segments from the mass market with features such as additional services; exclusive higher price level in the major cities.

The usage of targeted marketing plans for particular segments makes it easy to approach customer groups individually that would otherwise require specialized niche players. Organizations can create their own ‘niche products’ by segmenting markets so that they can attract additional consumer groups. Furthermore, a segmentation strategy that is based on the loyalty of customer groups offers the opportunity to attract new customers by using starter product(s) as the company moves these customers on to premium products. Communicating with customers in a segment-specific way is necessary even if brand identity and product features are identical in all market segments. This targeted communication is crucial in providing a similar market strategy which targets all customers in the whole market, thereby reducing customers’ preferences to the smallest everyday basis.

Market segmentation provides a firm with information on smaller units (niche) in the market that have a universal need. The identification of these needs is important in planning development of new or improved products, so as to better meet the needs of the desired customers. However, with a similar marketing strategy, the segmentation supports only the development of niche strategy. Marketing activities will, therefore, be targeted at highly attractive market segments in the beginning. The adoption of market leadership in selected segments will eventually improve on the competitive position of the whole organization in her relationship with channel partners, suppliers, and customers. This will ultimately strengthen the firm’s brand as well as increasing profitability.

2.3 Mobile Banking Business Models

There has been an evolution of a broad spectrum of Mobile/Branchless banking models coming up. There is, however, a fundamental principle of mobile banking that no matter what business model is adopted to attract low-income populations in often rural areas, the business model will heavily depend on banking-agents, i.e. postal outlets retails stores or mom-and-pop stores that will process financial transactions on behalf of Telco’s or banks. The most important aspect for the success of this business model is the banking agents since they handle the customers at the end of the line hence customer care, service quality, and cash management will depend on them.

The main distinguishing feature of this model is the question of who will establish the relationship (account opening, withdrawals, deposit-taking, and lending) to the end of the chain (customer), the Non-Bank/Telecommunication Company (Telco’s) or the Bank. Another primary difference is the nature of agency agreement between the Non-Bank and the Bank. There are two broad categories of the branchless banking; Bank-focused and Non-Bank focused model.

2.3.1 Bank -Focused Model

The model provides a clear alternative to the traditional branch-based banking in the sense that a customer has the convenience of conducting financial transactions via retail agents or via a mobile phone as opposed to having to visit a bank branch. The advantage of this model is that it increases access to financial service by taking banking to localized points of transactions which are cheaper than bank-based. This model may be implemented by either using correspondents such as mom and pop stores or by creating a JV (Joint Venture) between a bank and the Telcos. Customer account relationship rests with the bank that has initiated the model.

The adoption of this Mobile Banking in Kenya started with the creation of value-added services by banks which made it possible for her customers to use their cell phones for accessing information relating to their accounts in the form of a text message (Oluwatayo, 2012). This was a transformative idea that boosted the growth of access to a bank account as they could now open accounts using their mobile accounts (Suoranta, 2013). The pioneers of this service were the elites or those who had the means to get hold of a smartphone as from 2007 when they were launched (Porteous, 2006).

2.3.2 Non-Bank Focused Model

Non-Bank focused model is a business model where a financial institution (bank) does not come into the picture except as a safe-keeper of funds being transacted by the customers of the Telcos. This, therefore, implies that the Telcos will perform all the functions.

The model was rapidly adopted in Kenya so as to answer the question of why the vulnerable groups remained unbanked (Garrett, 2011).  This prompted African telecommunications companies to adopt mobile banking: Kenya’s largest cellular phone provider Safaricom introduced M-Pesa which allowed users to send and receive money using their cell phones.

2.4 Organizational Characteristics and Organizational Performance

The sole purpose for the existence of an organization is to get things done. Therefore the people working for an organization are the one’s tasked with this responsibility. Work responsibilities and decision making are given to individual members’ or teams and arrangements are made to plan, direct, coordinate and control those (Stephens & Armstrong, 2008). Stephens & Armstrong (2008) state, organizations are open systems which transform input into outcome and are continuously dependent on and influenced by their environment. Fundamental issues faced by organizations are those relating to structure, ownership of firms, the size of the company, the age of the firms, and board of director characteristics and culture of the organization.

2.4.1 Ownership of Firms

Ownership (public versus private versus co-operative versus mutual, etc.), which determines property rights within an organization and hence its internal power distribution, resource control and internal incentive systems; and the openness of information and decisions to scrutiny. In corporate governance, more attention is paid to the issue of shareholder identity (Shleifer & Vishny, 1997; Welch, 2000; Xu & Wang, 1997). The above authors argue that the cost of exercising control and the objective functions over managers in a firm vary substantially for different types of owners. The implication of this is that, it weighs in on not only how much equity a shareholder owns, but also who this shareholder is; whether financial institution, private individual, manager, non-financial institution enterprise, multi-national corporation or the government.

Investors have varied prioritize that they attach to their shareholder value regarding risk aversion, and wealth management. Shleifer and Vishny (1997), in their analysis of political control of state-owned firms’ decision-making process claim that shifting the control rights from the politicians to managers, will ultimately improve the company’s financial performance, because the managers are primarily concerned with the performance of the firm than the politicians. Financial institutions and banks are concerned with profit maximization hence are very risk-averse in nature. This will limit an organization’s pursuit for risky investments that might be profitable due to the fact that such a pursuit might jeopardize honoring loan repayment schedule, which might lead to liquidity problems and perhaps insolvency (Hansmann, 1988). On the other hand, public companies have the capacity to support further indebtedness, as long as there is a probability of improving on shareholder value and the financial position of the organization in the long-run.

There is unanimity in the academic circles that government ownership is characterized by bureaucratic and inefficiency. A government (state) owned enterprise is a political firm with the general public as a joint owner (De Alessi, 1982). The main feature of this ownership is that individual citizens have no direct claim on their residual income or the ability to transfer their ownership rights. Bureaucracy levels, limits improvement of the firm’s overall financial performance. According to Vickers and Yarrow (1988), the lack of incentives in the firms is the primary argument against state ownership. Other factors against it are the price policy (Shapiro & Willig, 1990), human capital problems and political intervention (Shleifer & Vishny, 1994).

2.4.2 Board of Directors Characteristics

There are six boards of directors’ characteristics being studied, including managerial ownership, board size, board independence, CEO duality, gender diversity and ethnic diversity. A survey carried out by Morck, Shleifer, and Vishny (1988), confirmed that a firm’s performance increases when the managerial ownership is driven by the director-shareholder increase. When managers of a firm hold more shares, there will be less conflict of interest because the managers want to see the company succeed which will translate in the increase in their share value resulting from proper management of the business operation. There is a positive correlation between improved performances of the company with an increase in shares being held by the managers, as this will translate into an increase in the firm’s profit.

A larger board has the expertise in knowledge and access to information as opposed to a smaller board and therefore this will improve the company’s performance. According to Druckeriv, (1992) a larger board is tougher to manipulate other members and hence better monitoring on the firm’s financial performance. The argument is that a larger board can extract critical resources such as funding, increased external linkage, expertise or experience in running the business entity and with these attributes in place comes’ improved performance.

A firm ought to ensure that there is the separation of power of the two designations so as to avoid conflict of interest arising. In the absence of separation of decision control and decision management, the board of directors will be unable to effectively evaluate and monitor the Chief Executive Officer (CEO) regarding how he is handling the organization (Mary, 2005). The CEO is more likely to use his power as board chairman to select 19 directors of his favor. Also, a board controlled by the CEO is likely to lead to more agency problems and poor performance.

Fama and Jensen (1983) argue that management problem can be avoided by adopting outsiders into the board as they do not hold any active role in the organization except for the directorship which gives them an unbiased position to judge managerial decisions objectively. A firm having a high percentage of outsiders on the board means that they can better control and monitor the opportunistic behavior of the incumbent management, hence maximize shareholders’ wealth while at the same time minimizing the agency problem. According to a study conducted by Sanda, Garba, and Mikailu (2008), they examined the board independence of 205 public listed companies in Nigeria from the year 1996 to 2004 by using financial based measurement included ROA and ROE. The finding of the study was that there was a positive effect on independent directors to firm performance. The results derived from this study support that outside director’s representation has a positive relation with return on assets and the risk-adjusted stock returns.

According to Smith, Smith, and Verner (2005), female directors may understand a particular market condition better than men; this brings more quality and creativity to the board’s decision-making. Therefore, having larger gender diversity improves a firm’s performance and may generate a better public image of the company to the public. Further studies conducted by Hambrick, Cho, and Chen (1996) point out the advantages of having ethnic diversity on the board. A diverse board broadens ideas, knowledge, and experience through the wide range of information resources coming from different cultural backgrounds of the board members. A firm that has a high level of cultural diversity in the management level can share ideas and reach a decision based on the different thinking, and this will, in turn, improve the performance of the management.

2.4.3 Size and Age of Firm

The economic size of a firm significantly affects its performance in many ways. Features of a large firm are the abilities to exploit economies of scale and scope and the formalization of scope as well as its diverse capabilities. Having fun characteristics, allow more major firms to generate superior performance about smaller firms, and making the implementation of operations more efficient (Penrose, 1959). The large firms enjoy higher negotiation power over their clients and suppliers and also exploit economies of scale hence cutting down on costs (Serrasquero & MacasNunes, 2008; Mansfield, 1962; Singh & Whittington, 1975). They also have less difficulty accessing credit for investment or expansion, the ability to have a broader pool of human capital that will propel the firm to achieve greater strategic diversification (Yang & Chen, 2009). However, smaller firms have certain characteristics which help counter the attributes that come with smallness. They are characterized by more flexible non-hierarchical structures and suffer less from the agency problem, these helps the firm cushion herself from changing business environments (Yang & Chen, 2009).

Small economy size may limit the capacity of managers to implement a growth strategy and to some extremes challenge the long-term viability of the firm (Amstrong et al., 1998). Small economies are characterized by market sizes and their lack of economies of scale affects firms particularly in sectors where substantial fixed and sunk costs are prerequisites for operation. Moreover, their limited scope of skilled labor substantially reduces firms’ procurement options (Castello and Ozawa, 1999). Small economies may sustain only a subtle number of large firms, about the overall market size. This makes them focus on monopolistic markets.

According to a stream of research on the age of a company, older firms are more experienced, are not prone to the liabilities of newness, and enjoy the benefits of learning this provides them with superior performance (Stinchcombe, 1965). However, other researchers suggest that older firms are more prone to inertia and the bureaucracy that comes with age; hence they are unlikely to be flexible in making rapid adjustments to suit the changes in the business environment. Hence, are likely to lose out in performance to young firms due to flexibility (Marshall, 1920).

2.4.4 Culture and Structure of the Organization

Organizational culture is a set of shared values, beliefs, and norms that influence the way employees think, feel, and behave in the workplace (Schein, 2011). Organization culture primarily has four functions: increasing member’s commitment, giving members a sense of identity, serving as a control mechanism for reinforcing organizational values and shaping behavior (Quick & Nelson, 2011). It further provides a means for an acceptable solution that assists in problem identification, through which employees get to learn, set and feel the principles, expectations, behavior, norms and patterns to promote high levels of achievements (Heck & Marcouldies, 1993; Schein, 1992). A company having a strong culture is considered a driving force to improve the performance of employees. Saffold, (1998) argues that it enhances self-confidence and commitment of employees as well as reduces job stress while at the same time improving the ethical behavior of employees. Moreover, he states that studies on culture in an organization often tend to focus on a single organizational culture.

Organizational culture has a boundary-defining role; that is creation of a distinction between organizations by conveying a sense of an organization’s identity. Organization culture facilitates the generation of commitment to that which is of a higher value than an individual’s self-interest. Culture is defined as the social glue that helps hold organizations together by providing what employees ought to do or say and also provide appropriate standards of how to relate within the firm.

Organization culture is meant to create a sense of control mechanism that shapes and guides attitudes and behavior of employees. However, this may become a liability if the shared values do not match and thus may affect the organization’s effectiveness. This is prone to occur if the organization’s environment is dynamic; hence the organization’s culture may not adopt thus no longer be considered appropriate.

Child, (1977) refers to organizational structure as the tangible regularly occurring features that help shape the members’ behavior. Stephens & Armstrong (2008), states that an organizational structure provides the framework for registered organizational goals to be effectively achieved. Furthermore, they clarify and define the way by which the set activities required are clustered together into units, departments, functions and the lines of responsibility power and authority emanating from the top of the organization. Basically, organizational structures can be classified as divisional sized, centralized, unitary, process and matrix (Armstrong and Stephens, 2008).

2.5 Determinants of Firm Performance

Performance is a set of non-financial and financial indicators which offer information on the extent of achievement of objectives and results (Lebans & Euske, 2006). Various factors have an impact on a firm’s performance in that they negatively or positively influence the overall performance of a firm. These determinants of firm performance vary from organizational factors, people factors, environmental factors, individual factors, organizational climate to personal behavior.


(Structure, systems, size, history)

Environmental factors

(Sociological, political, economic) technological)


(Skills, personality, age)


Decision-making process

Communication flows

Goal emphasis

HR emphasis




Figure 2.3 Determinants of Firm Performance

Source, Hansen, and Wenerfelt (1989)

Organizational factors such as structures and systems placed in organizational theory, the term ‘structure’ is used, depending on context, to refer to either or both (Fombrun, 1986) of the physical structures associated with an organization (Donabedian, 1980) and the social structures by which an organization produces collective action. An organization’s environment restricts what action it can take what structures and processes it can establish to accomplish that action, and what outcomes that action can produce.

Hubbard & Watkin (2003), argue that high-performing organizations have conditions with particular measurable characteristics. These have shown ways in which an organizational state can directly influence it, accounting for up to 30% of the variance in primary business performance measures. This assertion is supported by research that examined the relationship between the manner in which employees describe their work environments and the performance relative to the success of these business environments (Willey & Brooks, 2000). Individual behavior may actively obstruct an organization’s operations or activities. For this reason, it requires legitimization in the eyes of others. This legitimization occurs through ‘value’ systems, of which the most powerful for practical purposes is the law.

According to Cardy and Dobbins (cited in Williams, 2002) the people factors are the abilities and personalities of an individual that may affect ones performance level.” Van Scotter & Motowidlo (1994), in their study, argue that personality has an impact on the employees’ contextual behavior while abilities and experiences relate to the employees’ task performance. Person factors can be enhancing if employees have the proper motivation. People factors include skills, personality and age of employees among other. These factors influence the performance of an organization as employees effectiveness is reliant on the skills they bring on board, each individual’s personality, their age and other human factors.

2.6 Organizational Performance Measures

The aspect of performance measurement is traditionally regarded as an element of the control cycle and planning that captures performance data, influences work behavior, enables control feedback as well as monitor strategy implementation (Flamholtz, Das, and Tsui, 1985; Simons, 1990). This is based on performance measures as well as non-financial measures. Financial measures portray the results of decisions in a comparable measurement unit while capturing the cost of trade-offs between resources as well as the opportunity cost of spare capacity (Manzoni & Epstein, 1997).

Non-financial performance measures (NFPM) are parameters used to evaluate non-financial performance aspects of an organization. Continued research in the field has found out that NFPM are important value drivers for organizations and they are predictive of the financial results. There are intangible assets that are not accounted for on the organization’s balance sheet, especially if they are developed internally; therefore usage of NFPM aids in tracking them.

2.7 Market Segmentation and Organizational Performance

It is important to identify whether market segmentation provides companies with enough value to justify the investment and effort required. Smith, (1956) conceptualized that market segmentation outcome should be “depth of the market position in the segments are defined and effectively penetrated,” indicating a measure of market performance. However, according to Douglas and Wind (1972) and Winer & Douglas (1982) describe market segmentation as a price discrimination scheme, which effectively leads to higher profits which are a measure of financial performance. Another financial implication of segmentation is cost. According to Shapiro & Bonoma (1984), they state that this underlines marketing cost reductions due to systematic and selective resource allocation to get a marketing mix element for the target segments. On the other hand, Cardozo & Wind (1974) highlight the increased costs of targeting different segments as comprising service/product modification, advertising costs as well as selling.

Dibb (2005) argues that businesses have found market segmentation useful as customer needs are too diverse to be satisfied by a mass marketing approach, hence focusing on meeting the needs of selected segments should lead to higher purchase rates, customer satisfaction and loyalty which are measures of customer performance. Thus these conceptual arguments seem to suggest that implementing market segmentation can have an effect on market, customer and financial performance of a firm. These three particular dimensions of performance have been considered as dimensions of firm performance in the marketing literature (Hooley et al., 2005).

Evidence is found in practitioner journals and publications that some firms consistently have seen performance improvements from adopting segmentation strategies (Waaser, 2004; Jacques, 2007; Harrington and Tjan, 2008). This assertion has lead to the suggestion that pursuing a segmentation strategy should enhance an organization’s performance (Hunt and Arnett, 2004; Christensen et al., 2007). Also, descriptive studies show that the criteria most commonly applied to evaluate the impact of market segmentation strategies are financial performance measures such as sales volume/growth, profit, cost and market share (Craft, 2004). Other, non-financial, evaluation measures used by practitioners include successful brand building, reputation (Craft, 2004), customer feedback (Schuster and Bodkin, 1987) and the ability to meet customers’ needs (Wind and Cardozo, 1974). On the other hand, Bailey et al. (2009) found that the large organizations considered did not evaluate the effectiveness of the segmentation schemes adopted and that any assessments of effectiveness were likely to be based on subjective managerial perceptions, which may or may not be accurate.

Peterson (1991) finds that firms who employ segmentation strategy have a higher return on invested capital than those who did not pursue this strategy. However, this does not prove the efficiency of segmentation strategy but still provides a presumption of effectiveness. Similarly, Verhoefet al. (2002), established that organizations that use segmentation have better results and are more satisfied with their marketing performance as opposed to those firms that do not. Dibbet al. (2002) state that practitioners consider segmentation to enhance better matching between the organization and its customers, greater understanding, better identification of gaps and better new brand development. According to Panayides (2004), market segmentation strategy has a positive correlation to market share but not to other measures of performance. The above studies bring some empirical support to the argument that market segmentation has a positive influence on performance.




























This section entails describing the method that was used in carrying out the study. It includes research design, population, instruments/tools of data collection and data analysis.

3.1 Research Design

The study adopted the exploratory survey research design. In the preliminary stage exploratory survey design was employed to allow the researcher gather information, summarize, present and interpret it for purposes of clarification (Orodho, 2002). The exploratory study was used because it is the most appropriate valuable means of finding out ‘what is happening, seeking new insights, to ask questions and to gain access in a new light’ (Robson, 2002).

3.2 Population

A population is a group of objects, individuals or items from which samples are taken for measurement (Kombo and Tromp, 2006). This study used a census approach, and thus the participants will consist of the five mobile banking firms in Kenya. (See Appendix 3)

3.3 Data Collection

The study collected primary data using a questionnaire. The questionnaires will be used as research instruments to aid in data collection. The researcher will design the questionnaire with the same questions, clearly structured and stated, allow the respondents to fill in their answers on their own so as to avoid being depicted as biased. The questionnaire had four parts; Section A covered a background of the respondents and the mobile banking industry, section B covered market segmentation in mobile banking firms, section C covered organizational characteristics, and part D covered market segmentation and performance in the mobile banking firms in Kenya. Respondents for the study comprised of the marketing managers and production managers from each mobile banking company. The method used to administer the questionnaire was sharing the survey online with the target respondents. Secondary data was also useful in the study. The data was derived from company records, as well as company bulletins.

In quantitative research, the primary aim is to determine the relationship that exists between an independent variable and an outcome or dependent variable in a population. The quantitative study designs are either descriptive (subjects usually measured once) or experiment (subjects measured before and after treatment).

For accuracy in the estimation of the relationship between these variables, a descriptive study usually requires a sample of hundreds or if possible thousands of population; while on the other hand experiment survey primarily needs tens of respondents. To avoid bias in estimating the relationship that exists between the two, a high level of participation rate in a sample selected randomly from a population is important. In a survey, bias is also less likely if the respondents are randomly selected. In my research, the method used was quantitative research method. Surveys from the respective firms were employed in data collection. The survey respondents were a small group but informative and accurate.

Errors may occur during research design. Errors can affect research design. Therefore a good research design attempts to control various sources of error. These include:

Non-response error: This sort of mistake occurs when some of the respondents covered in the sample do not respond. This can cause the resulting sample or net to be different in size or composition from the original sample.

Random sampling error: This error occurs when a particular selected sample is an imperfect representation of the population of interest. This is commonly referred to as the variation between the true mean value for the population and true mean value for the original sample.

Non-sampling error: This error can be attributed to other sources other than sampling, and they may be random or non-random. They arise from various reasons such as errors in scales, problem definition, approach, interviewing methods, questionnaire design, data preparation, and analysis.


Total error

Random sampling errors

Non-sampling errors

Non-response errors

Response errors

Research errors

Interview errors

Respondent errors

Figure 3.1 The run-down of errors in research design

3.4 Data Analysis

After collecting the data, the researcher edited the raw data to free it from inconsistencies and incompleteness. This involved a scrutiny of the completed instruments to detect and reduce errors as much as possible, incompleteness, misclassifications, and gaps in the information obtained from the respondents. Collected data was coded to establish how possible answers would be treated by assigning numerical values to them. The data was captured and stored in soft and hard copy formats. Data was tabulated into sub-samples for common characteristics. The simplest way to present data is in percentage tables or frequency, which aids in summarizing data on a single variable. Descriptive statistics was used to analyze the data. The researcher primarily sought to identify and measure the objectives by conducting a correlation analysis to establish the relationship between dependent and independent variables.  The results were presented using percentage charts and frequency tables.

The process of data analysis was conducted through the use of Microsoft Excel spreadsheets and Statistical Package for Social Science.


4.1 Introduction

This chapter presents the analysis of data and discussion of the research findings based on the research objectives. The purpose of this study was to determine the effect of organizational characteristics and market segmentation practices on performance in Kenya’s mobile banking industry. The findings were presented using graphs, tables and charts. Data tabulation helped to summarize whereas charts and graphs were used to show the results of the study.  The researcher targeted a sample of 100 respondents from which 83 filled in and submitted the questionnaires making a response rate of 83%. This response rate was good and representative and conforms to Mugenda and Mugenda (1999) stipulation that response rate of 50% is adequate for data analysis and reporting; a 60% rate is good, and a rate of 70% or above is considered excellent.

4.2 Background Information

The study sought to establish the demographic information of the respondents including their organization, the number of years an employee has worked in the company, the years the enterprise has been in existence and the ownership form of the organization.

The respondents were asked to state the organization in which they are employed; there are currently five dominant players in the mobile banking industry.

Figure 4.1 The name of the company

The respondents were asked to identify the number of years that they have worked in the firms.

Table 4.1 Years worked at the company
Frequency Percent Valid Percent Cumulative Percent
Valid Less than 1 year 18 21.7 21.7 21.7
Between 1-3 years 45 54.2 54.2 75.9
Between 4-7 years 16 19.3 19.3 95.2
Between 8-10 years 4 4.8 4.8 100.0
Total 83 100.0 100.0

The respondents were asked to identify the number of years that their firms have been in existence. The results are indicated in Figure 4.3

Figure 4.2 Number of years the organizations has been in existence


The figure above shows that three organizations have been in existence for more than ten years representing 60%. These firms are Safaricom, Airtel Kenya Limited and Telkom Kenya Limited while Sema Mobile services and Finserve Africa Limited have been in existence for less than ten years representing 40%.

The respondents were asked to state the ownership of mobile banking firms.

Table 4.2 Form of ownership of the organizations

Table 4.4 shows that Safaricom and Telkom Kenya Limited are parastatals therefore owned by the government, local and international shareholders representing 40%. Sema Mobile services and Airtel Network Limited are foreign-owned companies owned by foreign multinational companies representing 40%, while Finserve Africa Limited is locally owned by Equity Bank by a share percentage of 20%.

4.3 Market Segmentation Practices in the Mobile Banking Firms

The study sought to identify market segmentation practices among the mobile banking firms in Kenya. Respondents were asked to determine whether they engage in market segmentation. The results are indicated in Table 4.3

Table 4.3 Do you segment your market
Frequency Percent Valid Percent Cumulative Percent
Valid Yes 79 95.2 95.2 95.2
No 4 4.8 4.8 100.0
Total 83 100.0 100.0

On the question of whether the company engages in market segmentation 95% of the respondents stated that they engage in market segmentation while the remaining 5% being held by Finserve Africa Limited indicate that they don’t pursue the practice.

4.3.1 Criteria used by Mobile Banking Firms to Segment their Market

Respondents were asked to identify the criteria used by their firms to segment the market and the bases used in segmentation. The results are indicated in Table 4.4

Table 4.4 Criteria used by mobile banking firms to segment their markets
Frequency Percent Valid Percent Cumulative Percent
Valid Size of the market 22 26.5 26.5 26.5
Characteristics of the consumers 27 32.5 32.5 59.0
Differentiating users 6 7.2 7.2 66.3
Stability of the market 7 8.4 8.4 74.7
Accessibility of consumers 11 13.3 13.3 88.0
Responses of the consumers to the products 9 10.8 10.8 98.8
Others 1 1.2 1.2 100.0
Total 83 100.0 100.0


Table 4.4 shows that majority of the firms use characteristics of the consumers to segment their markets indicated by 32.5%%, followed by the size of the market at 26.5% and the then accessibility of users at 13.3%. The least used is the stability of the market and differentiating users.

4.3.2 Bases used by Mobile Banking Firms to Segment their Market

The respondents were asked to identify the bases used by their firms to segment the market.

Table 4.5 Bases used by Mobile banking firms to segment their markets
Extent of using demographics variable Extent of using operating variables Extent of using purchasing approach Extent of using situational factors Extent of using personal characteristics
N Valid 83 83 83 83 83
Missing 0 0 0 0 0
Mean 1.8193 1.9880 1.9398 2.3735 2.0361
Std. Deviation .78312 .81889 .81674 .99647 1.06434

According to the above data most convenient base used by banking firms to segment their market is the extent of using situational factors with a mean of 2.3735, followed by the extent of using personal characteristics at 2.0361 and then operating variable, purchasing approach, and lastly demographic variable respectively.

4.4 Organizational Characteristics and Firm Performance

The respondents were asked to indicate which organizational characteristics affect their firm performance.

Table 4.6 Organizational characteristics and firm performance
Influence of firm ownership on performance Influence of board of directors characteristics Influence of size of firm on performance Influence of age of firm on performance Influence of culture of firm on performance Influence of structure of firm on performance
N Valid 83 83 83 83 83 83
Missing 0 0 0 0 0 0
Mean 2.0361 2.0602 1.7229 2.1446 2.3133 2.1807
Std. Deviation .95567 .97966 .73772 .97696 1.02324 .96455


As shown in Table 4.6, majority of the respondents indicated that organization characteristics impact the performance of the organization. These organization characteristics include firm’s culture as shown by a mean score of 2.3133, structure of the firm as shown by a mean score of 2.1807, age of the firm as shown by a mean score of 2.1446, board of directors firm as shown by a mean score of 2.0602, ownership form of the firm as shown by a mean score of 2.0361, and structure of the firm as shown by a mean score of 1.7229.

4.5 Determinants of Firm Performance

The respondents were asked to indicate determinants of firm performance that apply to their institutions.

Table 4.7 Determinants of firm performance
Frequency Percent Valid Percent Cumulative Percent
Valid Organizational structure 27 32.5 32.5 32.5
Organizational internal environment 20 24.1 24.1 56.6
People factor 20 24.1 24.1 80.7
Organizational behavior 15 18.1 18.1 98.8
Individual behavior 1 1.2 1.2 100.0
Total 83 100.0 100.0


Table 4.7 shows that majority of the respondents indicated that organization structure affects firm performance as represented by 32.5% response. Organizational internal environment and people factor share the same factor of 24.1%, organizational behavior comes closely at 18.1%, and the least of the determinants is individual behavior at 1.2%.

Table 4.8 Performance measure used by organization
Frequency Percent Valid Percent Cumulative Percent
Valid Financial measurements only 19 22.9 22.9 22.9
Non-performance measures only 4 4.8 4.8 27.7
A balance of financial and non-financial measures 60 72.3 72.3 100.0
Total 83 100.0 100.0

As shown in Table 4.8, on the questions of performance measure used by the organizations. The majority of the respondents at 72.3% believe that a balance of financial and non-financial measure is ideal while 22.9% of the respondents prefer the financial measurements to determine performance and 4.8% would opt for non-performance measure to determine a firm’s performance.

4.6 Effect of Market Segmentation on Performance of Mobile Banking

The study sought to establish the effect of market segmentation on the performance of mobile banking firms. The respondents were asked to indicate to which extent each statement applied to their firm.

Table 4.9 Effect of Market Segmentation on Performance of Mobile Banking Firms

Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .784a .615 .585 .16785

  1. Predictors: (Constant), Effect of market segmentation on accurate market forecasting, effects of market segmentation on cross-selling opportunities, effect of market segmentation on organization competitive position, effect of market segmentation on creation of products for product value, effect of market segmentation on market opportunities, effect of market segmentation on improved efficiency in customer serving.
  2. Dependent variable: Adoption of market segmentation on performance



Model Sum of Squares df Mean Square F Sig.
1 Regression 3.425 6 .571 20.261 .000b
Residual 2.141 76 .028
Total 5.566 82
a. Dependent Variable: Adoption of market segmentation on performance
  1. Predictors: (Constant), Effect of market segmentation on accurate market forecasting, Effect of market segmentation on cross-selling opportunities, Effect of market segmentation on organization competitive position, Effect of market segmentation on creation of products for customer value, Effect of market segmentation on new market opportunities, Effect of market segmentation on improved efficiency in serving customers
Model Unstandardized Coefficients Standardized Coefficients T Sig.
B Std. Error Beta
1 (Constant) .751 .072 10.483 .000
Effect of market segmentation on improved efficiency in serving customers .318 .081 1.091 3.933 .000
Effect of market segmentation on organization competitive position -.078 .082 -.266 -.951 .345
Effect of market segmentation on cross selling opportunities -.053 .058 -.124 -.905 .368
Effect of market segmentation on new market opportunities -.022 .080 -.076 -.277 .782
Effect of market segmentation on creation of products for customer value .014 .051 .064 .270 .788
Effect of market segmentation on accurate market forecasting .015 .091 .048 .163 .871
a. Dependent Variable: Adoption of market segmentation on performance

As indicated in the above table, segmentation improved on efficiency in serving customers with a sig. of .000

Adoption of market segmentation on performance
Frequency Percent Valid Percent Cumulative Percent
Valid Yes 77 92.8 92.8 92.8
No 6 7.2 7.2 100.0
Total 83 100.0 100.0

This shows that there is a positive relationship between performance and segmentation based on the response of 92.8% agreeing with the adoption of segmentation on performance


5.1 Summary

This study sought to find out market segmentation practices, and organizational characteristics on performance of mobile banking firms in Kenya. The study targeted the marketing and strategic departments of the mobile banking firms. It used primary data which was collected using questionnaires that were sent online to the respondents. Secondary data was also used to guide in reaching the objectives of the study. An analysis of the respondent’s profiles indicated that two firms have been in existence for less than five years. Two of the firms are foreign owned (Airtel Network Limited and Sema mobile services), one is locally owned (Finserve Africa Limited) and the remaining two are parastatals (Telkom Kenya Limited and Safaricom) with local and foreign investors on board.

The research outcome showed that majority of the respondents used characteristics of consumers as criteria to segment their market, most of the mobile banking firms use size of the market as criteria to segmentation. A higher percentage of them use accessibility of consumers as an effective measure; other firms use the stability of the market and users differentiation. Most of the mobile banking firms use accessibility of the consumers as a segmentation criterion. However, a significant number of respondents felt that responses of consumers and differentiating users were not as much effective a criteria to use while segmenting their markets. The survey shows that all the five mobile banking firms use purchasing approach variable to segment their market. Personal characteristics variables are also considered when a firm decides on whom to target their products. Purchasing approach and operating variables are also considered as an important basis for segmentation in the mobile banking industry. Most of the firms use personal characteristics as a basis to segment their market(s). The majority of the mobile banking firms felt that demographics variable is not so important and therefore they do not use this basis for segmenting the market.

The majority of the respondents indicated that organization characteristics impact the performance of an organization. These organization characteristics include ownership of firms, board of director characteristics, size of the firm, age of firm, culture of firm, and structure of the firm. These organizational characteristics have had an influence in each of the mobile banking firms, with some being affected by some of the characteristics more than others. Organizational structure, an organizations internal environment, its organizations external environment, people factor, organizational behavior and individual behavior have all been noted as determinants of firm performance as seen by the outcome of this survey. The effect of these performance determinants as indicated in this study vary from one firm to another.

Market segmentation practices are seen to have an effect on the performance of mobile banking firms. Most of the respondents felt that market segmentation has improved efficiency when serving customers, it has improved competitive position of the organization, it has increased cross selling opportunities for the organization, it has provided the organization with insight into market opportunities and that it has provided the organization with more accurate forecasts (future market trends).

5.2 Conclusion

From the findings of the study, the study concludes that improvements have been witnessed in the mobile banking industry as a result of effective market segmentation by the industry players. The study also concludes that all the firms within the industry practice market segmentation. These firms use consumer market segmentation practices to segment their markets as other institutions form a larger share of their clientele base. The study concludes that mobile banking firms in Kenya use Kotler’s criteria to segment their market. The organizations use size of the market, characteristics of the consumers, and market accessibility to a great extent.

From the findings, the study concludes that there has been an improvement in the mobile banking industry as a result of effective segmentation practices. 92% of the respondents agreed that segmentation improved the competitive position of their organization. The study also concludes that market segmentation practices have improved cross selling and provide insight to new product/ market for the mobile banking firms. The study also concludes that the mobile banking firms engage other financial institutions such as banking institutions and as a result, they focus on B2B market segmentation.

The study further concludes that organizational characteristics also influence firm performance and as a result, the performance of these firms are different in as much as they all practice market segmentation. The study also concludes that organizational structure such as; the board of director characteristics, ownership and size of firm are the organizational characteristics that affect mobile banking firms to a large extent. The study finally concludes that the firms use both financial and non-financial performance measures.

5.3 Limitations of the Study

The study was faced with various challenges which the researcher endeavored to overcome. Obtaining full cooperation and appropriate responses from respondents was difficult. This is because most respondents felt that giving information may lead to victimization. Some heads of the targeted offices were also suspicious of the researchers’ motives and wanted to withhold information, hence most of them delegated this to their juniors in their offices. The researcher overcame the limitation by having a letter of introduction from the University that assured the respondents that the information provided would be used for academic purpose and would thereby be treated with confidentiality.

5.4 Suggestions for Further Study

Foremost the study established that market segmentation has an effect on performance, therefore the study recommends that to enhance performance, the management should understand market segmentation and explore on how to effectively utilize this strategy so as to remain relevant to their customers. The management should ensure that they are aware of who their market is and how best to serve it. Secondly, the study has established that organizational characteristics affect performance of cement manufacturing firms.

The study concentrated on market segmentation, organizational characteristics and performance of mobile banking firms in Kenya. However, this is not conclusive for Kenya considering that there are other major mobile banking platforms operated by banks either through MVO’s or apps. This makes the findings of the study to be limited to the mobile banking industry in Kenya. Further studies should be undertaken in all other mobile banking companies so as to come up with exhaustive findings on market segmentation, organizational characteristics, and performance in Kenya and thus give conclusive recommendations that would be adopted countrywide. Secondly, further studies should also be done on the factors that affect performance among mobile banking companies in Kenya.

This study, therefore recommends that the organizations should conduct an audit to determine each organizational characteristics contribution to performance. By doing so, they will be in a better position to effect changes within their respective organizations that will result in an increase in performance. Finally, the study established that other factors like organizations factors, environmental factors, people factor individual behavior and organizational climate affects performance. The study, therefore recommends that the management of the above firms determine which of these determinants of firm performance largely affect their firm and embark on measures to ensure that they come up with strategies to reduce their effect on performance.

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