Market Penetration Strategy
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Market Penetration Strategy
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When a company decides to enter a new market, it’s essential to use market penetration strategy. The aim of market penetration is to effectively use your product, enter the market as quick as possible and seize a large market share.
Furthermore, market penetration is frequently used a measure to determine, whether your product or a service is capable of capturing a fixed percentage of the market.
Although market penetration strategy doesn’t make any radical changes to the firm’s corporate marketing strategy , it has an unbelievable potential to grow profitability and revenue.
Also, if a business plans to increase market penetration, it’s important to implement certain tactics & strategies that will increase your sales and decrease the competitors.
Though, before deciding to use market penetration strategy, it’s crucial to understand the advantages & disadvantages and risks it carries.
Price Adjustment – One of the most frequently used market penetration strategy is price adjustment.
For instance, when a firm aims to increase sales, lowering prices is an effective tactic to attract potential customers.
Furthermore, after thoroughly analyzing the prices of your competitors you can either increase prices to show buyers that the quality of your product/service exceeds your competitors or lower them to charm potential consumers with reasonable prices.
In both cases, don’t overdo it because it may seem suspicious (lowering prices too much may indicate to low quality and high prices might seem as a company that has only one objective-gain profit) and might make customers doubt your quality, fairness, and trustworthiness.
Increased Promotion – Investing more time and strength in a promotion can dramatically increase market penetration.
For example, advertising is one of the most effective ways to increase brand awareness. Moreover, companies can create either short or long-term campaigns and structure them according to their budget and needs.
Note, that the campaign must be well-planned and analyzed because if your ad looks like “XX% off on Y Product for a limited time” can be easily countered by competitors with their own promotional campaigns and also retrieve their lost market share.
Distribution Channels – One of the most constructive components of market penetration strategy is distribution channels. For example, if your organization’s primary source of income is selling through retail outlets, it can open other channels like email marketing, telemarketing, etc.
Also, this way you can increase product sales, distribution channels, gain extra space on the market and overall profitability.
Improving Products – The best practice of engaging and interacting with customers is to inform them that your product has changed to better.
Consumers mostly fall for the trick because the interest and curiosity that the improved product drives are irresistible. Buyers always want better and when the opportunity comes, they always shift towards the best.
So, periodically updating your product (always to better, never lower the quality) and changing its packaging will, most probably, benefit your business.
Increase Usage – Market penetration can be increased through product consumption. For instance, if we use an effective marketing strategy that will increase product awareness in certain areas it’ll result in higher product consumption that will also increase market penetration.
Market penetration strategy takes advantage of low prices to increase product demand and increase market share.
While the demand is increasing, the organization saves money on product creation costs due to the greater volume of production.
Though, market penetration strategy doesn’t work for all products and businesses, so some companies use different marketing strategies that seem to be more beneficial.
Fast Growth – If your business and marketing objective is to enlarge your consumer base, then market penetration is the most effective way to act.
When you offer better prices than your competitors, luring out their customers becomes easier that previously expected. Consequently, fast growth is heavily linked with low prices, and the more reasonable they are, the higher the impact will be.
Economic Advantages – Definitely, it’s a responsible call, but market penetration can bring cost advantages if your business development goes the way you predicted and hoped.
Low prices that guarantee customer base growth, means that you can increase the quantity of products ordered from the supplier, which will result in higher profits gained from low prices.
Furthermore, some companies risk more and first buy products in bulk (for discounts) and then implement the penetration pricing strategy .
Combat Competitors – One of the best parts of the market penetration strategy is combating your competitors.
Imagine, you have numerous competitors that are trying to evolve and progress, they are stealing customers from you that results in lowering your profits and revenue. So, considering that you’re willing to stay as the market leader, the only choice you have is to outplay them.
For instance, low upfront prices will oblige your competitors to shift to alternative strategies with different price regulations. This way, your company will attract the lost consumers and it’ll put competitors on defense or the edge of leaving the market.
Unmet Production Costs – It’s not always possible to lower the product price as you will. Sometimes, products are expensive to create and small businesses tend to struggle while trying to produce enough to lower the production and product price. It becomes more complex when competing with large firms.
Under these circumstances, it would be wiser for small companies to focus on product packaging, marketing campaign, and public image because it has the potential to be as effective as low prices.
Missed Opportunities – Brands that produce luxury products often make mistakes like marketing it as a cheap item.
Customers who love luxury products will definitely avoid the product which was marketed as a “cheap luxury.” So, if you’re focused on luxury products keep in mind that lower prices might make it look disappointing.
Poor Company Image – If your company has several product lines (that includes a luxury line), then using market penetration strategy might be harmful.
For instance, if you implement a market penetration strategy for a single product, it may badly reflect on the rest of your product lines.
For a better understanding, if the large number of your customer base becomes familiar with the cheap product, it’s highly possible that everyone will forget that the firm also produces luxury items. So, the brand’s reputation as a luxury producer will shortly disappear.
Lowering Industry Prices – Market penetration strategy can harm the entire organization.
If competitors sell similar products and one of them decides to lower prices, it’s natural that others will try to match them to create a balance and avoid consumer shifting.
Furthermore, the competitor that was first to lower prices, will have to continue doing the same in order to maintain its market leadership . So, the results can be severe because competitors might end up selling their products at an extremely low price and generate almost no profit.
Lack of Results – Market penetration strategy isn’t always effective, especially when a company enters an industry where prices are already set low.
For example, when prices are already low, it means that consumers have already built trust towards an existing company, so entering the market and trying to beat the price of the competitor is an ineffective way to act.
A new company should concentrate on gaining its worthy place in the industry, rather than trying to beat other’s low prices.
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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.
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 market penetration 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 market penetration 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. Market penetration 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. Market penetration 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 means that you can order more quantity of products from your suppliers that eventually results in higher profit figures. This is why certain companies take the risky route and first buy products in bulk due to discounted prices and then they implement penetration strategy.
One of the more challenging segments of the market penetration strategy is to combat with your rivals. Just try to imagine, you have plentiful competitors who are desperately trying to evolve and slow you down and are stealing your customers which results in lowered profits for you. Now following the rule of survival, your only way out is to fight and defeat them to stay at the top. For example, low initial prices will force your competitors to move to alternative strategies with changed market penetration pricing regulations. By this way, you will appeal to the lost consumers and it will render competitors on the defensive or leaving the market altogether.
Now, let’s look at some of the disadvantages of market penetration strategies:-
Lowering the product price as you will is not always possible. Sometimes, products are costly to manufacture and tiny businesses find it difficult to survive while producing sufficiently to lower the production and price. This becomes more complicated when you have to deal with competing firms. Under such circumstances, it’s best to focus on the marketing campaign, product packaging and enhancing public image because these have the same potential having a low price structure has.
Some firms who produce luxury products commit the silly mistake of marketing it as an inexpensive item. Hence, customers who adore luxury products would avoid it being marketed as an “inexpensive item.” Thus, if you’re concentrated on making luxury products, then do consider that low prices may make your sales thinner and the product might even fail in the market.
When your company has numerous product lines that also include a luxury line then, adopting a market penetration strategy would certainly be adverse. For example, if you apply a particular market penetration strategy on a single product, it might badly reflect on the remaining of the product lines. Therefore, if a big number of customers get familiar with your cheap product, it’s highly likely that they would forget that you also produce luxury items and your brand’s status as a luxury manufacturer will disappear.
Market penetration strategy isn’t going to work at a place where prices are previously set low. For example, when prices are previously low, the consumers have by now built trust on an existing company, and thus entering that market and attempting to beat the competitor would be a highly ineffective manner of action. Rather, a new company should focus on gaining its worth in the business, by trying to create low prices of products.
In the given article, we’ve tried to showcase several market penetration strategies. However, such tactics will be applicable best when you make use of multiple ones together. The increase in reach of your product should be accompanied by a subsequent increase in your promotions. After increasing the promotion, you are bound to grow the product usage and on the other hand, attract competition from your rivals.
This has been a guide to Market Penetration. Here we have discussed the Top 10 Successful Strategies for Market Penetration, You can also go through our other suggested articles to learn more –
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