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What Is Market Penetration?
Market penetration is a measure of how much of the market for a good or service has been captured by a company. It is calculated by taking the company’s total sales over a given period and dividing it by the total addressable market (TAM) during that same period.
Market penetration is often used as a way to gauge the success of marketing and sales efforts as well as to set goals for future growth. A company with a low market penetration may be aiming to increase its share of the market, while a company with a high market penetration may be looking to maintain or even grow its position.
Definition
Marketing penetration is defined as a measure of the percentage of target consumers who have purchased a product or service. To calculate market penetration, you need to know two things: 1) the size of your target market, and 2) how many people in that target market have purchased your product or service.
There are several ways to increase market penetration. The most common is to lower prices to attract new customers. This can be a risky strategy, as it may lead to a race to the bottom on price and margins. Other ways to increase market penetration include-
- Increasing marketing and advertising efforts
- Introducing new products or services
- Improving distribution channels
- Enhancing the customer experience
Understanding Market Penetration Strategy
When it comes to business, market penetration is key to success. It is the successful selling of a product or service in a given market. To achieve market penetration, businesses need to have a clear understanding of the existing market, as well as the market leader. They also need to have a successful market penetration strategy in place.
Several factors contribute to successful market penetration. First, businesses need to identify their existing customers and understand their needs and wants. They also need to research the competition and find ways to differentiate their products or services. Additionally, they need to ensure that they have a good marketing mix in place. Finally, they need to track their progress and make adjustments as needed.
There are four main growth strategies that businesses can use to increase their market penetration: product development, market development, diversification, and acquisition.
Product development involves creating new products or improving existing ones to appeal to a wider audience. Market development involves expanding into new markets with existing products. Diversification involves developing new products for new markets. The acquisition involves acquiring another company that already has a strong presence in the desired market.
The most important thing to remember about market penetration is that it takes time and effort to be successful. businesses need to be patient and continually track their progress. They also need to be prepared to make adjustments along the way.
How to Increase Market Penetration?
Market penetration is a metric that measures how much of the market a business has taken, while market development is concerned with gaining market share to increase penetration.
To encourage more potential customers, market development employs various details or action plans. Some tactics, for example, may employ advertising alongside social media campaigns and direct sales outreach to target consumers in underpenetrated areas. Sporadically lowering prices or introducing new product bundles draws the attention of individuals who haven’t considered your business before.
An example of a large product sector for women may be an established business with a product that has a significant market share. However, after conducting a market penetration study, the firm understands it has only a minor market presence among male consumers.
They may, as a result, create a certain product and marketing outreach plan for their male clients.
The goal is to increase market penetration by targeting this relatively untapped group.
As your business grows, it’s important to consider ways to increase your market share. Market penetration is one avenue you can take to achieve this goal. If you’re not sure how to get started, Market Development Strategies can help.
Examples of Market Penetration
A good example of market penetration is the brand Coca-Cola. The company sells its products in more than 200 countries and has a 42% market share in the global soft drink industry.
Coca-Cola’s market penetration strategy has been very successful. Some of the company’s key marketing initiatives have included- Investing in advertising, Developing new products, and Expanding its distribution network.
Coca-Cola has also employed several pricing strategies to attract new customers and maintain its market share. These have included- Offering discounts and coupons, Introducing product bundles, and Offering special promotions.
Another example of market penetration is the online retailer Amazon. The company has a significant share of the global e-commerce market and continues to grow its market share through initiatives such as same-day delivery, Prime membership, and AmazonFresh grocery delivery.
How to Calculate Market Penetration
The below-given equation will help you find out how much of a product or service is used by customers in comparison to its total estimated market i.e. market penetration-
(Number of Customers / Target Market Size) x 100 = Market Penetration Rate
To put it simply, take your product’s current sales volume and compare it to the total sales volume of similar products on the market.
It’s critical to check your market penetration regularly to detect any changes. If you’re not sure how often to calculate market penetration, consider doing it after every marketing and sales campaign. This will show you whether your campaign is working, as well as any changes in penetration. You’ll be able to assess the effectiveness of your campaign(s) this way.
Market Development vs. Market Penetration
Market development is a strategy employed to seek out new markets for a product or service. This can be done by-
- Launching new products
- Developing new marketing campaigns
- Expanding into new geographical areas
Market penetration, on the other hand, is a strategy used to increase sales of an existing product or service in its current market. This can be done by-
- Increasing advertising
- Developing new pricing strategies
- Improving distribution
Both Market Penetration and Market Development are important growth strategies for businesses. The key is to understand when to use each one. Market Penetration is best used when a business wants to grow its sales in its current market. Market Development is best used when a business wants to expand into new markets.
Market Penetration Vs Market Share
Market Penetration is a growth strategy focused on increasing sales of an existing product or service in its current market. Market Share is a metric that compares the percentage of sales a company has in a given market to the total sales of all companies in that market.
Market Penetration is a strategy employed to grow sales, while Market Share is a metric used to compare a company’s sales to the total sales of all companies in a given market. Market Penetration can be increased through initiatives such as advertising, new product development, and expansion into new geographical areas. Market Share can be increased through initiatives such as price cuts, promotions, and marketing campaigns.
Market Penetration Strategies
Lowering Price
One of the most common ways to increase market penetration is by lowering the price of a product or service. This can be done through discounts, coupons, and special promotions.
Discounts
Offering discounts is a popular way to lower the price of a product or service. This can be done through coupons, sales, and special promotions.
Revamp your marketing
If you feel that your current marketing strategy is not working, consider revamping it. This could involve changing your target market, your messaging, or your overall approach.
Aggressive Advertising
Increasing your advertising budget can help you reach more potential customers and increase brand awareness. This can be done through traditional methods such as television and print ads, or through digital methods such as online banner ads and social media campaigns.
Identify the need for a new product and launch it
If you identify a need for a new product in the market, you can launch it to increase market penetration. This could involve developing a new product or improving an existing one.
Purchase a small business or competitor in your industry
If you want to quickly increase market penetration, you can purchase a small business or competitor in your industry. This will allow you to quickly enter the market and gain market share.
Increasing Usage
One way to increase market penetration is by increasing the usage of an existing product or service. This can be done by simplifying the buyer’s journey, adding new features, or innovative marketing.
Simplifying the buyer’s journey
Making it easy for customers to purchase your product or service will help increase usage. This can be done by simplifying the buying process, providing free shipping, or offering financing options.
Boost sales rep activity
If you have a sales team, increasing their activity can help increase market penetration. This could involve giving them more leads to contact, providing training on how to sell your product, or setting quotas for them to reach.
Adding New Features
Adding new features to an existing product can help increase market penetration. This could involve adding new functionality, improving the design, or increasing the quality.
Innovative Marketing
Developing an innovative marketing campaign can help increase market penetration. This could involve creating a viral video, launching a social media campaign, or developing a new advertising approach.
Dealerships & Partnerships
Forming partnerships with other businesses can help increase market penetration. This could involve partnering with a complementary business, setting up dealer networks, or partnering with distributors.
Resellers
Working with resellers is a great way to increase market penetration. Resellers are businesses that sell products or services on behalf of other businesses. They can help you reach new markets and increase sales.
Enter Newer Geographies
Expanding into new geographical areas is a great way to increase market penetration. This could involve setting up new offices, opening new stores, or expanding your distribution network.
Influencer Marketing
Working with influencers is a great way to increase market penetration. Influencers are individuals with a large audience who can promote your goods or service to their followers.
Integrated Marketing
Integrated marketing is an approach that uses multiple channels to reach customers. This could involve using traditional methods like television and print ads, as well as digital methods like online banner ads and social media campaigns.
Thwart Competition
If you have competition in your market, it’s important to thwart their efforts. This could involve aggressive advertising, providing discounts, or launching new products.
Field Marketing
Field marketing is a type of marketing that involves interacting with potential customers in person. This could involve setting up booths at trade shows, doing product demonstrations, or conducting customer research.
There are many ways to increase market penetration. Which method you choose will depend on your product, your messaging, or your overall approach.
Here is a video by Marketing91 on Market Penetration.
Why Is Market Penetration Important?
Market penetration is an important tool for companies looking to grow their business. It allows for easy diffusion of products or services, creates goodwill, and can lead to fast growth. Additionally, it is often more economical than other marketing strategies. Market penetration can also help to improve a company’s prospects by helping it gain market share and become more established in the market. Let us have a detailed look at all these reasons behind the importance of increased market penetration-
1. Smooth market diffusion
Market penetration is important because it allows for easy diffusion of a product or service in the market. This means that there is less resistance from customers when they are introduced to the product or service.
2. Promoting a favorable image
Market penetration also helps to create goodwill for a company. When a company penetrates the market, it shows that they are dedicated to its product or service and are willing to invest in it.
3. Effective growth
Market penetration can lead to fast growth for a company. This is because penetrating the market can help a company reach new customers and grow its customer base quickly.
4. Economical
Market penetration is often more economical than other marketing strategies. This is because it requires less investment and can be done quickly.
5. Future prospects
Market penetration can also help to improve a company’s prospects. This is because it can help a company gain market share and become more established in the market.
Tactics for Marketing Penetration
Here are 6 tactics to increase market penetration.
1. Price penetration
The oldest trick in the book is to drop the price of the product thereby possible increasing the attractiveness of the product and taking on the challenge of the competitor. However, the implications of price drop are manifold. If you drop the price, than your margins will drop. Otherwise, you have to do some modifications in the product so that the price is less and you don’t suffer in margins. If these modifications are done, is the product still good? Thus, price penetration is not so easy and requires a lot of thinking before the strategy is implemented. Price penetration will also affect the brand and positioning.
2. Increase promotions
Another tactic for market penetration strategy is to increase the promotions for the product and thereby increase the pull strategy for the product. However, just plain old promotions might not work at times. You will have to give offers and schemes to the customer to rope them in. By giving trade discounts, sales promotion discounts, and any such additional benefits to the customers along with promotions will ensure that you penetrate the market better.
3. Increase reach
If your product is channel driven, than increasing the reach of your product is the best market penetration strategy to sell better than the competition. The way to do this is to find more channel dealers and channel partners. The trick here is to keep the channel partner motivated at all times to do business with you. By increasing the reach, and having your products everywhere through channel dealers and retailers, you ensure that the customer does not miss out on your product and is sure to get your product wherever he goes, which is another sure shot way for market penetration.
4. Increase usage
By increasing the usage of a product, you can increase its consumption thereby penetrating the market even further. Thus, if people start eating a packet of chips more often because these chips are marketed heavily in the area, the higher consumption will increase the market penetration. If you look at toothpaste brands, they encourage two time use of toothbrush and toothpaste not only because it is hygienic, because toothpaste consumption will happen double fast if brushing is done 2 times in a day.
5. Attract competition customers and dealers
The cola wars are the best example of attracting competition customers. By dropping the price in a given area for the distributor or targeting the existing dealers of competition products, you can increase your market penetration by decreasing the quantity of products sold by competitor.
6. Non users to start the product
Encouraging non users to start using the product is a tough task and this is where the marketing department steps in. Smaller refrigerators or mini bars in bedrooms where not the norm. But by product placement strategies and by increasing awareness, many people have started keeping mini bars in their bed rooms thereby making non users as “users” of the product mini bar.
Thus, there are numerous market penetration strategies and tactics. However, these tactics will implement best when you use multiple tactics together. Like increasing the reach of the product should like be accompanied with increasing the promotions. By increasing the promotions, you are increasing the usage and also attracting competition customers.
Risks
- Increased competition: As you increase your market share, you will also attract more competitors who will try to take away your market share.
- Lower prices: As you try to attract new customers, you may have to lower your prices, which can eat into your profits.
- Brand dilution: As you try to reach new markets, you may dilute your brand and lose the loyal customers you have built up.
- Market saturation: If you saturate your market with your product, you may find it difficult to grow further.
- Failure to penetrate new markets: If you fail to penetrate new markets, you may miss out on important growth opportunities.
Examples
1. Amazon’s repricing strategy
In order to penetrate new markets, Amazon has used a repricing strategy whereby it changes its prices frequently to match or beat the prices of its competitors. This has helped Amazon to gain market share in new markets and become a market leader.
Its prices are often more competitive and lower than other retailers. Additionally, Amazon has a very generous return policy that allows customers to return most items within 30 days for a full refund. With this plan, product pricing is in a state of flux, changing often due to competitor prices, popular market trends, demand and supply quantities, etc.
2. Apple product versioning
Apple has used product versioning to Penetrate new markets. It has created different versions of its products for different market segments. For example, the iPhone 6 was released in two versions: a 4.7-inch version and a 5.5-inch version. This allowed Apple to reach new market segments that were previously untapped.
3. Tesla Improving product features and benefits
Tesla has used market penetration by improving the features and benefits of its products. It has introduced new features such as autopilot, which is a semi-autonomous driving system, and Ludicrous Mode, which allows the car to accelerate from 0 to 60 mph in 2.8 seconds. These new features have helped Tesla to attract new customers and penetrate new markets.
4. Nike Advertising and promotion
Nike has used advertising and promotion to market its products to new audiences. It has invested heavily in celebrity endorsements, television commercials, and social media marketing. This has helped Nike to reach new market segments and become a market leader.
5. Walmart Entering new market segments
Walmart has used market penetration by entering new market segments. It has introduced a new line of products called “Organic” which are made with organic ingredients. This has helped Walmart to reach new market segments that were previously untapped.
6. Alibaba Expanding into new geographical markets
Alibaba has used market penetration by expanding into new geographical markets. It has introduced a new platform called “AliExpress” which allows businesses to sell their products to consumers in other countries. This has helped Alibaba to reach new market segments and become a market leader.
Conclusion!
Based on the above information, it seems that a market penetration strategy is a good way to have a good market penetration rate, increase sales and grow a business.
It is important to do your research to make sure you are entering a new market wisely, and also to have a solid plan for how you will penetrate that market.
Existing customers can be a great resource for finding new markets, and also for helping to promote your products or services in those markets. Market penetration can be a great growth strategy for businesses of all sizes.
Have you ever used market penetration to grow your business? What tips would you add? Let us know in the comments below.
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