Market Penetration

Market Penetration

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How to Calculate Your Market Penetration Rate Market Penetration vs. Market Development 6 Market Penetration Strategies Market Penetration Example

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Get to know 6 market penetration strategies and see an example
Market penetration is a ratio that indicates how successful a product or a service is in the market compared to its total estimated market. Companies use it to increase the market share of their products and services.
We use the term to outline two processes. One defines the strategy a new business implements to enter the market, and the other is for calculating the percentage of a market share a company’s product can capture. In this article, we’ll learn how to estimate the rate, make the difference between market penetration and market development clear, explore six effective strategies, and review an example.
Market penetration is an essential measurement for new companies that plan to enter the market. Calculating this ratio allows them to evaluate the industry and their potential in it and estimate their possible market share and revenue. Business owners can also leverage the formula to determine how actively customers buy their products or services compared to their total estimated market.
To calculate the rate, you need to know the number of your clients and the size of your target market. Below you can see the formula to easily estimate the ratio for your firm.
Once you obtain your penetration rate, don’t forget to constantly monitor it to see some changes. As an option, consider estimating it after you run a sales or marketing campaign . The increase or decrease will show you how successful your campaign is.
To avoid any confusion that may arise when you hear about market penetration and market development, let’s discuss these two terms in more detail.
Market penetration is a strategy that implies using a product or service in the existing market to build a larger customer base, increase market share, and be perceived as a leader. Companies can reduce prices, put more effort into promotion, and increase sales volume t o reach this objective . Brands also consider creating more convenient locations for their target market t o have a wider reach .
Market development involves creating a new product or service to satisfy the existing market. The strategy entails research and development stages and is used by companies with profound knowledge about their market. These firms are ready to bring new solutions to customers’ emerging problems.
Let’s take the automobile industry, for example. As our world changes and becomes more environmentally friendly, people’s needs change too. Conscious drivers want to have cars that don’t harm our environment. As a result, brands launch the production and introduce electric vehicles to their target audience .
The difference is clear, so the next step is to explore our list of the most successful penetration strategies.
Many businesses try to increase their penetration rates to become leaders in their industries, have access to a bigger audience, and increase their market share. For this purpose, they leverage different strategies. Let’s discover the best of them.
Now when you are acquainted with the most popular strategies, let’s proceed to an example.
Let’s imagine that there is a country with a population of 250 million people. If, for example, 50 million citizens of this country have laptops, its market penetration would be 20%. It means that there are still 200 million people (they make up 80% of the population) who don’t have laptops, so they are potential buyers for companies that sell personal portable computers. Therefore, the market penetration rate shows companies that produce laptops the potential for their growth in this country.
Simply put, our example indicates that laptop manufacturers have an excellent environment for growth since there are still a lot of people who don’t have their products yet. By calculating the rate, firms have the chance to evaluate their industry and estimate whether they will be able to meet their market share and revenue expectations.
To conclude, the measure we have discussed is essential both for startups and well-established companies. It helps assess and analyze the market and determine whether it will contribute to the achievement of goals.

Last Updated: 09.08.2022

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A quantitative measure of the sales of a product or service compared to the total estimated market
Market penetration refers to a quantitative measure of the sales of a product or service compared to the total estimated market expressed as a percentage. It is useful in the development of strategies aimed to increase the total share of those products or services.
Calculating market penetration forces managers to ascertain the size of the potential market for their offering. If the total size of the market is large enough, a new entrant may be convinced that it can gain a set percentage of the total number of potential customers in that industry.
Market penetration is also used by established companies to determine the potential to increase their overall revenue by increasing market share.
Consider a situation where the population of a country is 100 million. Out of the given population, approximately 60 million people own cell phones. Thus, the market penetration for the telecommunication industry will be 60%.
In theory, there is still a segment of the population, about 40%, to be exact, that remains untapped. It means that there is still a potential for the telecom firm to grow in that particular country. Similarly, in a country with about 20% of the population being untapped, the growth opportunity is lower.
In such a situation, the market will be referred to as a saturated market, which means that opportunities for growth are small. Existing companies already hold much of the market share, leaving little room for sales growth.
Market penetration is not only applied to an industry or sector. It can also be used by companies to assess the market share of their product.
Also expressed as a percentage, it represents the company’s total sales of that product compared to the total market (company’s and competitor sales).
To calculate the market penetration of an offering, the current sales volume of that product is divided by the total sales volume of all the products with similar features or that fulfill the same needs. They include products sold by the company’s competitors as well. The resultant number is multiplied by 100 to achieve a percentage.
When a company enjoys a high degree of market penetration for its products, it is considered a market leader in that sector. It gives them a unique marketing advantage since they can access a larger pool of potential customers.
A well-established product and a strong brand name promote loyalty and positive word-of-mouth advertising, etc. A market leader can also negotiate better terms from their suppliers because a large sales volume enables them to place bulk orders.
Similarly, they can employ cost efficiency, given the huge scale of their operation. Even in retail, a market leader can have better shelf space and positioning as opposed to competing brands since their products are far more popular among the target audience.
The process of widening a firm’s reach to realize gains that are accessible to a company with a large market share is known as market development. It includes strategies related to advertising, direct sales outreach, social media campaigns, lowering prices, bundling product offerings, etc.
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As soon as a company enters a new market, it strives for market penetration . The main objective behind the market penetration strategy is to launch a product , enter the market as swiftly as possible and finally, capture a sizeable market share. Market penetration is also, sometimes used as a measure to know whether a product is doing well in the market or not.
The technique of Market Penetration usually does not affect the overall marketing strategy of a company, but invariably brings a solid growth potential and an increase in revenue generation. A company trying to adopt the concepts of market penetration must remember to also implement specific plans and tactics to challenge the competitors and boost sales figures. However, it must also be considered that market penetration can be a risky affair and has some disadvantages also.
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More commonly, this technique is useful whenever a business is selling prevailing products in an ongoing market . Marketers must take into consideration the relevant market development or expansion grid data to decide actually, which penetration tactic to adopt? In other words, the market may be saturated or it may be in an intense competition scenario or the products may have low turnaround time. Now, what should be the best tactic for all of these different scenarios? Well, the answer to this question lies in the type of strategy you adopt. And yes, there are quite a few different penetration tactics to choose from. So without further ado, let’s know about a few of them.
Following are the different market penetration tactics:
The strategy of Price Adjustment is one of the most widely used market penetration tactics. A example could be lowering the price of a product or service with the aim of increasing sales is a price adjustment tactic. Furthermore, the alteration (increase or decrease) in the price of a product after analyzing the competitors’ products is also a scenario of price adjustment. But, in the real sense, this marketing strategy should be used very judiciously as overdoing it can lead to adverse results. Like, increasing your price consistently may make the customers believe that you are a company of high-profit motive. Decreasing the price too often would make them to believe that your products are of sub-standard quality.
The drastic increase in promotion of a product (or service) can lead to dramatic results. For example, advertising can be a wonderful tool for increasing brand awareness. Companies do have a choice of making their campaigns long-term or short-term which depends upon their needs and budget. However, the thing to be considered is that whatever be the size of the campaign, it must be well-planned and thought-out. An easy to counter promotional campaign would be simply ruined by competitors in this age of cut-throat competition.
The strategy of Distribution Channels is one of the most constructive market penetration strategies. This strategy typically involves opening of new distribution channels by focusing on a particular distribution channel. For example, if selling through retail outlets is your primary channel, then you can learn to gain new channels like telemarketing , e-mail marketing, online marketing , etc. Such opening of new distribution channels pave the way for more new channels and thus lead to increased market space and overall profitability.
It is true that to really appeal to your customers, you must improve your product quality . However, sometimes by communicating to them about the better standard of the product itself can do the trick and no major improvement in the product may be needed. This is because most consumers are encouraged to buy a product just by its appeal and do not necessarily check whether it proves itself or not. Thus, only by doing slight adjustments with the product and it’s packaging you can appeal more strongly and increase your sales revenue .
A very potent method of market penetration is that of increased usage of any product or service. If a marketing promotion campaign is effectively delivered at a specific area, then it would lead to an upsurge in product use which would thus lead to better market penetration with the increase in sales figures.
Most marketers whenever think of growth, think of new launches. However, it is only partially true. Actually, it can be risky too. When a new product is being launched, there exists the risk of it being successful or not. But, an efficient distribution channel along with a smooth delivery process makes it sure that the product does meet the expectations. Similarly, entering a brand new segment of the market can be risky as well. Therefore, it is absolutely essential to know your market and your product in order to do well and beyond expectations. An effective way to do this is to properly communicate with the customers and be sensitive to their requirements and wants.
When it comes to adopting strategic options, it is crucial to leverage your business’s strengths in a correct and just manner. For example, by minimizing your variable costs, you can boost your sales and establish a barrier to entry for others. This is why many firms with superior technology and distinct processes are able to reduce variable costs and earn better gross margins per item sold. With a substantial share in the market and an efficient marketing process, your business could create a barrier to entry to prevent competitors from coming into your industry.
Although, the entire process of market penetration seems simple and monotonous, yet it’s a big challenge if you perceive it to be. To overcome the challenge, you need to be more unique and highly innovative in your approach. A repetitive selling strategy would yield unsatisfactory results and hinder your growth potential. So, it would be better to think different and modify your penetration tactics as and when required. By being more innovative and adding value to your products you enhance your success chances.
Some actions you could consider to be unique are:
The product penetration tactic of diversification entails manufacturing new products for new markets. The strategy of diversification is usually followed whenever, there is saturation in the current market or when environmental changes such as societal, economic , technological or regulatory make it very hard to generate new sales in those markets. This strategy is most commonly followed by those businesses in the health sector, such as hospitals. Hospitals have now diversified their services in the form of long-term care facilities, reimbursement, network referrals, and utilization. Those firms that have diversified on opportunities of their strengths have been able to gain the most.
For some organizations, it is difficult due to one or more reasons to enter new markets. To solve such an issue, many of these organizations enter into a kind of strategic alliances with one another to operate in a particular market. Although strategic alliances can be formed into many forms, the more common one is the joint venture business, in which each partner business holds an equity position. The most common and natural strategic alliances are found in the pharmaceutical industry.
The Market penetration strategies make benefit of reduced prices to upsurge product demand and increase your market share. As the demand for your product increases, your business saves money on product manufacturing costs due to the larger volume of produce. This strategy isn’t going to work for all products and all types of businesses. So, some companies utilize different marketing strategies than the normal to be more effective.
Here are some advantages of practicing market penetration strategies
If the aim of your business and marketing activities is to expand your customer base, then market penetration is the exact remedy you need. When you propose lower prices than your rivals, tempting their customers becomes possible and you receive what you expected. Thus, fast growth is heavily dependent upon lower prices. The more rational these are the better will be your chances.
Certainly, it’s reasonable to say that penetration leads to cost-efficiency. It can lead to cost advantages if your business processes go in the manner as you anticipated. By keeping low prices, you ensure that customers stay with you and it also mean
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