Market penetration is a marketing strategy that involves entering a new market by utilizing the same products and services to gain a foothold in the marketplace. Marketers use this technique to join an existing market but don’t have any experience or knowledge. It’s also used when marketers want to sell their product in more than one country at once. In this blog post, we will discuss what market penetrating is and how it works!
Market Penetration Definition
Market penetration indicates the percent of items/services sold about the estimated market value. This theorizes that all branded products want to have an exclusive market share in the market and must completely control them. Market penetration represents the actions taken by organizations to become more competitive over rivals. Calculating market value and assessing how much of that pie you own is invaluable for new and established companies.
An Example of Market Penetration
Penetration rates provide measurable indicators in terms of potential growth. By determining the speed, business executives may evaluate the industry’s performance and estimate whether they can meet their market share and revenue expectations. Laptop manufacturers provide an excellent environment for growth as many people don’t already have the products. This measure is, of course, essential to startups as well as established companies. It helps evaluate and analyze the market and to see if it contributes to the achievement of goals. In simple terms, our example shows that laptop vendors have an industry environment for growth because there’s still untapped growth potential.
Why is Market Penetration Important in Business?
Market penetration is essential because it helps companies find where a potential increase in customers is possible. Similarly, companies with an increased market penetration might have several advantages in marketing their products. For example, stores may offer more shelf space or better positioning for companies in their industry that rank as market leaders because their products are better known and valued by the customers. In addition, market leaders could negotiate better contracts or deals with their vendors to order more inventory at once to meet the high demand for their products. This will decrease the cost of production of their products which could increase their profit margins.
How do I Calculate Market Penetration Rate?
Market penetration is a crucial measure for all new companies to enter the market. Calculating percentage allows them to assess the industry and its potential and estimate their possible market share and income. Business partners can also leverage the formula to determine how actively customers buy products or services compared to their estimated market size. The price is determined by a combination of the numbers of the clients, the size of their target market, etc. Once you have your maximum penetration rates, keep watching for a bit of change. You can estimate this estimate after a commercial campaign. The increase or decrease will show you how successful the campaign has been.
Market Penetration Rate
A simple equation of market penetration: (Number of customers/Size of the market) = market penetration rate. For example, take the assumption that 100 million people in one country are already with their smartphones. Apple’s market penetration is therefore 20-40%. This suggests that 400m people, or the remaining 80% population, will be left for the taking. The market penetration rate on goods is estimated at a level of between 2% and 6%. Some marketers determine market penetration once a quarter, while others use it after any campaign. A good level of penetration can be between 10% and 40%.
What’s a Good Market Penetration Rate?
It depends on the market leader. The more people are already familiar with your product or service, the smaller your potential to grow is. This means that it’s tough for an existing business to gain another 40% of its current clients because many would probably be satisfied with what they’re using at present and don’t want change (i.e., the 80% in the example above). It would be a lengthy and costly process that not all companies can afford or want to do, even if you could.
Market Penetration vs. Market Development
Market penetration is a strategy using a particular product or service in an existing market to increase the customer base and get them to perceive as a leader. To achieve that goal, businesses can lower prices, put more effort into promoting, or increase sales volume. To have more reach, brands may want to include more convenient sites for their audience. The strategy consists of research and development stages and is used in enterprises that are highly aware of market conditions. For example, let’s say our world has become more environmentally friendly. As a result, brands introduce and make the production of electric vehicles accessible for their target audiences.
What is a Market Penetration Strategy?
A market penetration strategy is a strategy to attract new customers and achieve market dominance. It’s an attempt of businesses entering the market for the first time, but also those already present in it who want to extend their customer base by offering better quality products or services than competitors do. The main objective is not necessarily achieved through price wars because high prices could scare away customers. Instead, the strategy focuses on the need of a particular product, its uniqueness, and above all, what benefits it brings to buyers.
Let’s say our world has become more environmentally friendly. As a result, brands introduce and make the production of electric vehicles accessible for their target audiences.
How to Increase Market Penetration?
Increasing market penetration is a tricky process. If your company has been in the industry for decades, it can be hard to increase customer numbers due to their satisfaction with what they’re already using. For example, car manufacturers’ customers might not want to switch from gasoline or diesel cars no matter how environmentally-friendly electric vehicles are because of existing infrastructure and what they’re used to.
Tips for Increasing Market Penetration
To have a booming increase in market penetration, marketers should:
- Use the concept of “need” to get new customers on board, i.e., emphasize that electric vehicles are better for the environment and reduce carbon dioxide emissions
- Increase the number of retail outlets to make electric cars more accessible
- Offer free servicing and repairs to ensure customer satisfaction
- Provide attractive financing options to make electric vehicles affordable for potential buyers
- Provide discounts, freebies, or loyalty programs to promote brand awareness
- Utilize social media channels to create brand awareness through marketing campaigns
- Create awareness about the benefits of electric vehicles
- Be creative and remember that success will not happen overnight.
Marketing Penetration Strategies
There are three major types of market penetration strategies:
Channel Penetration Strategy
Businesses use this strategy to increase their presence in existing channels and penetrate new ones. They can do so by either adding more distribution points or creating a new medium for reaching out to customers. By increasing the number of distribution outlets, businesses make it easy for those who want to purchase their products. Shifting from a single channel penetration strategy to a multi-channel is often necessary as the market expands and becomes more competitive.
Product Penetration Strategy
This type of marketing penetration involves using an existing product or service in new markets, with different features to be adapted for those regions/countries where they’re sold.
Geographic Penetration Strategy
This strategy is used to expand the business domestically and internationally by entering new markets and penetrating them with their existing products or services. For example, if you want to start selling your product online in Europe, it’s advisable that you first research which countries are more likely to convert into sales than others.
Market Penetration Strategies Examples
It’s not only big corporations that use market penetration strategies to attract new customers and increase sales. Small businesses can do so too, but they need to be more creative with their marketing campaigns because of limited resources compared to larger companies. A few examples include:
Creating loyalty programs for existing customers who make repeat purchases
Using social media to build brand awareness and attract new customers through marketing campaigns
Offering free shipping as a bonus for first-time buyers who purchase a certain amount of goods/services from the business. This makes it easy for those on a budget to buy what they want without going over their set limit. By increasing sales and making it easier for customers to purchase from them, businesses increase their chances of getting new ones.
These strategies can help small and medium-sized companies increase customer numbers which in turn boosts revenue growth. They also make it possible for businesses to expand domestically or internationally without much hassle. Market penetration is an essential factor that helps determine whether a business will succeed or fail, and that’s why it’s crucial to choose the right market penetration strategy for your business.
We also recommend you watch this video on “Ansoff Matrix – Business Stretegy & Growth – Simplest explanation Ever”.
Whether you are looking to expand your business or simply want a refresher on the basics of market penetration, we hope this post has been helpful. We will be back soon with more posts about ways to increase sales and grow your company! In the meantime, feel free to browse our other blog posts for even more insight into how marketing can help your bottom line. Have any questions? Let us know in the comments below, and we’ll get right back to you!