Product Differentiation Strategy and Perceived Financial Performance of Commercial Banks in Uganda: Moderating Effect of Managerial Discretion

Abstract

The moderating effect of managerial discretion on the relationship between product differentiation strategy and firm financial performance has not received necessary empirical attention. The study sought to examine the moderating effect of managerial discretion on the relationship between product differentiation and the perceived financial performance of commercial banks in Uganda. A cross-section survey design was formulated targeting a population comprised of 210 Senior Managers and Chief Executives of 10 selected commercial banks in Uganda, which were chosen because of their relatively consistent superior financial performance in the last five years. A sample of 137 individuals was calculated using Yamane’s (1967) formula, and the technique of stratified proportionate random sampling was used in selecting sample subjects. Data was collected from these individuals using structured questionnaires and analyzed descriptively (using frequencies, percentages, means, and standard deviations) and inferentially using partial least squares structural equation modelling (PLS-SEM). The coefficient of the interaction term between managerial discretion and product differentiation strategy (MD*PD) was found positive and significant (β = 0.3421, ρ<0.05). Accordingly, the null hypothesis was rejected. It is concluded that managerial discretion is an important factor in the adoption of product differentiation strategies for purposes of enhancing the perceived financial performance of commercial banks in Uganda. The study recommends that commercial banks in Uganda should avail Chief Executives with the necessary and adequate latitude to implement product differentiation strategies if they are to maximize financial performance.