Download the effects of penetration pricing strategies on performance of firms

THE EFFECTS OF PENETRATION PRICING STRATEGIES ON PERFORMANCE OF
FIRMS IN THE MOBILE TELEPHONY INDUSTRY IN KENYA
In Kenya‟s mobile telephony industry, the supporting conditions to perform penetration pricing
consist of low product differentiation, minor product revision, elastic demand, and low factor
capacity utilization. Penetration pricing is most commonly associated with a marketing objective of
increasing market share or sales volume. Competition has intensified in the telecommunication
sector in Kenya especially in the voice segment. The adoption of a low cost strategy by Airtel Kenya
ignited price wars in the voice market. Airtel lowered its on-net calling rate first from Ksh 6.00 to
Ksh 3.00 and now Ksh 1.00 for on-net calls and their SMS charges to a flat rate of Ksh 1.00. To
defend their respective market share, the other players have also had to follow suit. The main
objective of the study was to determine the effects of penetration pricing strategies on
performance of firms in the mobile telephony industry in Kenya using specific reference to Airtel
Kenya, Safaricom Kenya Limited, Telkom Kenya and Yu mobile. This study was a descriptive survey
that employed a survey research design. The study surveyed the penetrative pricing strategies
employed by Safaricom limited, Airtel Kenya, Telkom orange and Yu mobile. The respondents
consisted of departmental heads in the department of research and statistics and the regulation
and access team (RAT) at the Communication Authority of Kenya (CAK) headquarters. The SPSS
(version 22) computer program was commanded to produce frequency tables, graphs, pie charts
and the necessary measures of variances for interpretation. Correlation and regression was used to
analyze the degree of relationship between the variables in the study. The respondents agreed that
elements of innovation should be considered together, not in isolation, for success in fostering
innovation as shown by a mean of 4.12 and a standard deviation of 0.054. The respondents also
agreed as indicated by a mean of 3.16 and a standard deviation of 0.958 that innovation is about
more than just developing new products, “it is about reinventing business processes and building
entirely new markets that meet untapped customer needs. The respondents indicated that price
wars commonly start with one firm trying to take hold of market share (mean=3.81, standard
deviation=0.954) and leads to downward price pressure that eventually drives other competitors
(mean=3.52, standard deviation=1.098). The respondents also strongly agreed that niche marketing
can be applied successfully by telecommunication firms (mean=4.51, standard deviation=0.861)
since it is potentially superior approach for specialized telecommunication firms (mean=4.05,
standard deviation=1.061). From the findings, the following recommendations are made:
Companies in the telecom industry need to continually reinvigorate themselves to remain relevant
in the telecom industry which over the years has proved to be dynamic, complex and turbulent. To
ensure survival, the companies need to respond effectively to the various challenges brought about
by liberalization among them cutthroat competition; The CAK needs to come up with effective and
workable policies and regulations which when implemented will spur growth in the telecom
industry. It is also recommended that while price has been used successfully as a basis of
competitive advantage in the past, today customers seek value and may pay more if they perceive
they are getting more value from the service provider. Hence service managers should adopt a
paradigm shift from penetration pricing strategies to value pricing.