Market_Positioning_Strategies_on_Competition_in_Insurance_Industry_

KWAME NKRUMAH UNIVERSITY OF SCIENCE AND TECHNOLOGY, KUMASI COLLEGE OF ARTS AND SOCIAL SCIENCES SCHOOL OF BUSINESS DEPARTMENT OF MARKETING AND CORPORATE STRATEGY MBA DISSERTATION TITLE MARKET POSITIONING STRATEGY AND COMPETITION IN THE INSURANCE INDUSTRY IN GHANA: A CASE STUDY OF STATE INSURANCE COMPANY LIMITED’S SUSTAINED COMPETITIVE ADVANTAGE – KUMASI BY EMMANUEL KWATIAH GYAMPOH SUPERVISOR: DR. KOFI POKU CHAPTER ONE 1.0 INTRODUCTION 1. BACKGROUND OF STUDY Cause and effect are two inseparable fellows in every activity. Business entities formulate various strategies intended for inter alia: a. Protection and building on current position in the market. b. Product development c. Market development d. Diversification Dess et al, (2005), indicated that these corporate development directions may be pursued through internal development, acquisition and alliances. Additionally, Johnson and Scholes, (1999), asserted that the various broad strategic corporate development directions are market positioning strategies formulated to ensure that a business gets into a competitive position, which enables it to leverage its competitive advantage in its current market(s). Market positioning is a strategic process which seeks to place an organization or business entity ahead of the competition in the industry in which it operates. Essentially, market positioning is a process of making sure that a brand, product or service, occupies a clear, distinctive and desirable place relative to competing brands or products, in the mind of target groups. Market positioning is concerned with the perception customers hold regarding a product or an organization. Johnson and Scholes, (1999), argued that all organizations, public or private, are in a competitive position in relation to each other, in so far as they are competing either for customers or notably in the public sector for resources. It is therefore important that organizations understand their relative positioning and its implications in strategic terms. Similarly, Johnson and Scholes, (1999), reported as well that, positioning as well looks at where an organization stands as regards the five forces, popularly known as Porter’s Diamond. Michael Porter, in his book, Competitive Advantage of Nations, outlined five forces as the Threat of potential entrants, Threat of substitutes, Bargaining power of buyers, Bargaining power of suppliers and the Competitive rivalry within the industry. At the end of story, market positioning strategy is a means to achieving competitive advantage over a firm’s competitive rivals. Strategic decisions are concerned with trying to achieve some advantage for the organization over the competition. As well, firms achieve competitive advantage in a market resulting from competitive positioning due to strategic decisions, (Johnson and Scholes, 1999). Johnson and Scholes further advanced the idea that competitive advantage may be gained through rarely single strategy, but rather through a multiple approach strategy. Market positioning through inter alia cost reduction, low pricing, innovation and differentiation, may eventually lead to a firm gaining competitive advantage over its rivals in the market. Similarly, Dess et al (2005) asserted that sustainable competitive advantage is most desirable. It is possible only through performing different activities from everyone else in the competition or performing similar activities in different ways. Competitive advantage is by and large expressed in terms of how much of an industry’s market has been captured and maintained by a firm. State Insurance Company (SIC) Limited, is the market leader in the insurance industry in Ghana. The Company has consistently over the span of its business life, maintained a steady market leadership. In 2006, the company had approximately forty percent (40%) share of the market of the insurance industry, (SIC Mini prospectus, 2007). As well, the Global Credit Rating Company of South Africa, rated SIC as an AA company in terms of claims payment, making SIC the best company. www.myjoyonline.com/Ghana/joybusiness, March 13, 2010. Competition in the insurance industry has been keen with SIC leading the pack of the 5 leading insurance companies. The other 4 are Vanguard Assurance, Enterprise Insurance, Ghana Union, Provident Insurance and Metropolitan Assurance. There are strong indications that foreign-owned insurance companies may soon outnumber indigenous ones. About 12 of the 39 companies doing business in the country have some form of foreign participation. Within the past three years after the passage of a new Insurance Bill, Act 724 of 2006, seven new companies have been registered. The companies are Industrial and General Insurance Company (IGI); International Energy Insurance Company (IEI); Equity Assurance; Regency Alliance; Capital Express Life; InterContinental WAPIC and NEM Insurance, all from Nigeria. Contrary to the belief by Ghana’s insurance industry players that the market has been saturated, these foreigners still see the market as very juicy. 2. PROBLEM STATEMENT The vision of SIC is to maintain its dominance in the insurance industry and position itself as the most profitable, innovative and customer friendly insurance company. As well, its mission is to provide innovative and competitive insurance and other financial services to its clients. The vision and mission of the company indicates the willingness of the firm to protect and build on its current market position. Currently, SIC is the market leader in the insurance industry in Ghana. In 2006, SIC had approximately 40% of the insurance industry’s total market share over Enterprise Insurance Company Limited’s share of 15% 2nd place status, (SIC Prospectus). The problem however is that, SIC’s market leadership due to its continued competitive advantage over the competition in the insurance industry has been shrouded in controversy as regards the sources of that continued advantage. The controversy emanates from the SIC’s continued competitive advantage, hence its market leadership, being largely attributed to SIC having had the advantage of state protection and use of state resources (to fund its operations). Since 1962, SIC was entirely state-owned until 2007. Thus, the problem to be investigated is the notion that SIC is the market leader and has gained continued competitive advantage largely due to advantage had from state protection and first mover advantage, but not from conscious serious marketing strategies and efforts. 3. OBJECTIVES OF STUDY The broad objective is to identify the sources and assess the extent to which SIC pursued market positioning strategies, to attain continued competitive advantage and market leadership in the Ghanaian insurance industry. 1. SPECIFIC OBJECTIVES 1. To identify and assess the sources of SICs market leadership in the insurance industry in Ghana. 2. To establish or otherwise that SIC’s competitive advantage is to a large extent attributable to conscious market positioning strategies and not unfair advantage from state resources and first-mover advantage. 3. To identify and assess other sources for competitive positioning in the insurance industry. 4. To identify and evaluate strategies to enable SIC exercise sustained competitive advantage in the insurance industry in Ghana. 4. JUSTIFICATION OF STUDY The study has relevance to the improving on the market positioning strategies of SIC in the insurance industry in Ghana. The study in general will add to knowledge on theory and practice as regards market positioning strategies and how they ensure competitive advantage over the competition in an industry. 5. ASSUMPTION OF STUDY 1. That SIC has gained continued market leadership largely due to advantage gained from use of state resources. 2. That SIC has competitive advantage over the competition in the insurance industry because she was a first-mover. 6. SCOPE OF STUDY The study covered activities of SIC in Ashanti Region and how it has carried out its business activities successfully in spite of the competition it faces from other insurance firms in the region. 7. ORGANIZATION OF STUDY The report of the study is grouped into five chapters. Chapter one focuses on the background of the study, the problem statement, the objectives of study, justification of study, assumptions of study as well as the scope of the study. Chapter two reviews existing literature that deal with the subject matter of the study. This chapter examines the key concepts of the study and develops a conceptual framework. The key concepts are market positioning strategies, competitive advantage and insurance. Chapter three focuses on the methodology for the study. This section elaborates on sampling methods, the type of information collected and used, the sources and methods of data collection, as well as how the data collected was analyzed. Chapter four of the study deals with data analysis and presentation. The chapter analyses data collected from secondary and primary sources via questionnaire, and presents information in a coherent manner. Chapter four as well, presents the profile of SIC. Chapter five focuses on the conclusions and recommendations to the study, based on the findings from the research.