AN ANALYSIS OF THE EFFECT OF PRICING STRATEGIES ON PROFITABILITY OF INSURANCE FIRMS IN KENYA

Abstract

Purpose: The objectives of the study were to establish the effect of economy, skimming, penetration and premium pricing strategies on the profitability of insurance firms in Kenya.Methodology:The descriptive research design was preferred to other research designs because it reports the status of study variables. The population of study was the 45 insurance companies operating in Kenya as at 31st December 2012. Data was drawn from a period of five (5) years that is 2008-2012. The sample of this study was 10% of the sales workforce which comprised of 900 employees from the 45 insurance companies. The sample was generated by purposively sampling two employees from each insurance company.The researcher collected primary data with the help of a questionnaire. The primary data obtained from the questionnaires was summarized and analyzed by use of descriptive and inferential statistical techniques.Results:Regression and correlation results indicated that there was a statistically significant and positive relationship between economy pricing, skimming pricing, penetration pricing, premium pricing, price optimization strategies, strategies and profitability. Results show that economy pricing, skimming pricing, penetration pricing, premium pricing, price optimization strategies have a positive effect on the profitability of insurance companies. The correlation between profitability and penetration, premium and price optimization strategies was strong and positive. The regression results indicate that the variables; economy pricing, penetration pricing, premium pricing, price optimization strategy and skimming pricing were satisfactorily explaining profitability.Policy recommendation: The study recommends that insurance companies put in place measures assess the most effective pricing strategy to reduce product costs and thus increase profitability whenever such a strategy is used.