Effect of Product Innovation Practice on Financial Performance of Small and Medium-sized Enterprises in Nyanza Region, Kenya

This study examined the effect of product innovation practices on the financial performance of small and medium-sized enterprises (SMEs) in the Nyanza Region of Kenya. The investigation was motivated by the need to bridge the empirical gap surrounding the impact of entrepreneurial marketing practices—specifically product innovation—on SME performance in semi-urban and rural areas, where research has been limited. Anchored on Schumpeter’s Theory of Innovation, the study adopted a cross-sectional design and positivist research philosophy, utilizing a sample of 364 registered SMEs selected through simple random sampling from Kisii, Migori, and Nyamira counties. Primary data were collected using structured questionnaires and analyzed using descriptive and inferential statistics through SPSS version 29. Regression analysis indicated a moderate positive relationship between product innovation and financial performance (R = 0.65; R² = 0.423), suggesting that 42.3% of the variation in financial outcomes among SMEs could be attributed to product innovation. The results revealed that SMEs engaging in new product development, improving existing products, and diversifying product lines experienced enhanced profitability, increased sales turnover, and expanded market share. However, the study also identified key barriers to innovation, including limited access to technology (38%), legal constraints (22%), low market demand (21%), cultural barriers (10%), and weak intellectual property rights (9%). Despite some respondents expressing skepticism regarding the necessity of product innovation, the majority affirmed its significant contribution to business performance. The study concluded that product innovation is a critical determinant of SME financial success and sustainability in Nyanza. It recommended that SME owners prioritize innovation by fostering a culture of creativity and investing in research and development. Additionally, policy-makers and financial institutions were urged to establish supportive environments through innovation incentives, credit access, and enhanced intellectual property frameworks. The study suggested further research employing longitudinal designs and incorporating other marketing dimensions such as pricing and promotion to gain a holistic understanding of SME growth drivers