What is Market Penetration Strategy?
Market Penetration Strategy Definition
“Market penetration is one of the product marketing strategies designed to increase market share by lowering the price, creating new products or markets, or dominating existing ones.”
Market Penetration Strategy is the tactic used by any product development team or company to enter and capture a new market. This is applicable to an existing market where products similar to the current one already exist and the company tries to enter the market with a new product.
Market penetration strategy aims at increasing the number of customers for a company’s existing line of business. You can implement a market penetration strategy in the consumer and industrial goods sectors.
The market penetration strategy is also used as a scale to measure the percentage of the market a particular product or service can capture.
A company can also use this market penetration strategy to expand its business or saturate the consumer base in the market.
What Is an Effective Market Penetration Rate?
Market penetration rate measures how much of your product is used or bought by the customers compared to the approximate total market for that product.
To calculate the market penetration rate, you need to know the Total Addressable Market (TAM).
The market penetration formula is as follows:
Market Penetration Rate = (Number of Customers / TAM) x 100
How to improve Market Penetration?
Following are a few strategies that you can use to improve market penetration:
- Use social media and digital marketing to enhance your brand awareness.
- Increase or decrease your rates to strike a difference compared to your competitors.
- Conduct competitor analysis and emphasize your unique selling point throughout marketing.
- Collaborating with established brands and other companies to increase outreach.
- Keep on upgrading or modifying your products to fit the customer needs better.
- Consistency in launching new products helps to attract customers.
Why Is It Essential For Your Business?
Large companies often do market penetration by creating new products or services. They can also penetrate the market through an increase in production, which lowers the price of their product so more people can afford it.
For smaller businesses, a market penetration strategy is critical because there are many competitors in every industry that could be targeting your business’s customers.
To fight back and not lose market share to a competitor, a business can develop a new marketing campaign to put the company in front of the competition.
How To Build a Powerful Market Penetration Strategy?
Each market has its own set of rules that you must follow to penetrate the market, but here are some general guidelines.
You should understand where your business is in terms of competition and how you will adjust based on the current market conditions.
Developing a market penetration plan can help boost product awareness while also increasing sales.
Here are some of the key points to remember:
- For market penetration strategy to work, a marketer must consider the market’s population of potential buyers and determine which segments within this market offer the most significant opportunity for expanding sales.
- When making these determinations, it is essential to assess future trends in population growth and demographics. In addition, marketers need to determine what share of the market they have now and how market conditions might change over time. By understanding market changes, it becomes easier to determine market expansion opportunities.
- The marketer must also consider how market entry barriers might affect market penetration. For instance, when entering a market with high entry barriers, the marketer may target new customers instead of focusing on market share gains in the short term.
- Marketers might also decide to market their product in new market segments, and doing so can create demand for the product through market penetration and development strategies.
What Are The Examples Of Market Penetration?
Examples of market penetration include advertising in print media, TV, or purchasing space in a trade show.
The goal is to expose the product to more potential customers than would be disclosed without market penetration.
The market penetration strategies usually include advertising, public relations, and personal selling to increase awareness of a product, its benefits, market share, etc.
Market penetration marketers also build a market portfolio which helps in increasing market share while spreading the risk among different market segments.
Market penetration enables customers to buy products at cost-friendly prices. Moreover, it creates brand awareness so that more and more clients know that the company exists under a particular niche. It also provides a much-awaited exposure to the company and its product.
You could use strategies like social media and digital marketing, fluctuating your prices, focusing on the unique selling point of your product, constantly launching new products or modifying the existing ones, and collaborating with other established brands.
Market penetration is a strategy that involves increasing a company’s market share by reducing the market share of the leader and competitor. At the same time, Market development is market penetration plus more market growth. In market development, marketers focus on gaining new customers from outside their present trading area rather than existing customers.
There is no ideal market penetration rate, and market share can be increased by reducing the market share of the leader and competitor. A market share above 50% indicates an existing market leader. A market share close to 40% indicates a strong market position, and market penetration may lead to profitable growth for new entrants with less than 10% market share.