Abstract:
Strategic product diversification has emerged as a critical competitive strategy for commercial banks operating in increasingly dynamic and technology-driven financial environments. This study examined the influence of strategic product diversification on the performance of Tier 2 commercial banks in Kenya, focusing on how diversified product offerings contribute to profitability, customer satisfaction, market share, and overall financial performance. Grounded in the Diffusion of Innovation Theory, the study adopted a descriptive research design targeting management and leadership teams, customer relationship officers, and operations staff drawn from Tier 2 commercial banks in Nairobi. Stratified random sampling was used to select a sample of 296 respondents, of whom 229 participated, yielding a response rate of 77.6%. Primary data were collected using structured questionnaires and analysed using SPSS version 25. Descriptive statistics revealed high levels of agreement that Tier 2 banks offer a wide and innovative range of products, including digital banking solutions, varied loan products, savings plans, and investment services. Correlation analysis indicated a very strong positive
relationship between product diversification and performance (r = 0.886, p < 0.001). Regression results further confirmed that product diversification had a positive and statistically significant effect on bank performance (β = 0.176, p < 0.001). The findings demonstrate that expanding product portfolios enhances market competitiveness, customer satisfaction, and financial outcomes. The study concludes that strategic product diversification is a key driver of performance in Tier 2 commercial banks and recommends continuous innovation, customer-focused product development, and alignment of diversification strategies with institutional capabilities to sustain growth and competitiveness.
