Product Diversification Strategies As A Determinant Of Perceived Firm Performance Among Real Estate Companies In Nairobi City County, Kenya

Abstract

The Real Estate industry has increasingly attracted the attention of investors in the recent past. The change in tastes and preferences of the target market has prompted the real estate service providers to significantly diversify its products to fulfill its role in provision of basic need of housing in Kenya and also to increase the performance of the Real Estate Companies. This has not fully been the case and thus this study sought to analyze product diversification strategies as a determinant of performance of Real estate companies in Nairobi City County in Kenya. The objectives of the study were; to determine the effects of concentric product diversification on firm performance; to assess the effects of horizontal product diversification on firm performance; to evaluate the effect of conglomerate product diversification on firm performance; to establish the effect of vertical product diversification strategy on firm performance. The study used Balance scorecard model to inform the study. Explanatory research design was used for it allows for explanations of the nature of certain relationships to be sought between the independent and dependent variable, in this case product diversification strategy and firm performance. The target population was 231 respondents. Structured questionnaires were used in data collection after which data was analyzed using SPSS. Descriptive analysis was employed to describe basic characteristics of the responses and displayed using tables. Factor analysis was used to test for validity of the research instrument. Further analysis using principal component analysis was used to extract variables with higher loading which were then used to develop composite values for further analysis using correlation and multiple linear regressions. Reliability was tested using Cronbach Alpha after which data was transformed to increase sensitivity of statistical tests. The result shows that some concentric and conglomerate diversifications were found to be significantly correlated with firm performance (p=0.031 and p=0.034 respectively). Horizontal and vertical diversifications were found not to be significantly correlated with firm performance (p=0.454 and p=0.177 respectively). The multiple linear regression model was also used for analysis. Results indicated that: Concentric product diversification had (β = 0.123, p = 0.093).Conglomerate product diversification had (β = 0.146, p = 0.051). Horizontal product diversification (β = 0.052, p = 0.501) and finally vertical product diversification (β= - 0.156, p = 0.041). The null hypothesis HO 1 and HO 3 were accepted but HO 2 and HO 4 were rejected. The study concludes that concentric product diversification positively affects firm performance although not statistically significant, Conglomerate product diversification significantly affects firm performance, Horizontal product diversification has no significant effect on firm performance while Vertical product diversification has significant effect on firm performance. The study recommends that real estate companies should come up with good policies such as guidelines on per unit cost allocation of diversified product and risk management strategies to aid in better management of the risks involved in the whole diversification process.