Penetration Index

Penetration Index

As CEO and Founder of Xotels, Patrick Landman has made it his mission to turn independent hotels and resorts into local market leaders. Xotels´ diverse expertise and deep-knowledge across hotel management , hotel operator , asset management , hotel consulting , and revenue management services , enables them to drive results for independent boutique hotels , luxury eco-resorts, and innovative lodging concepts. Below you will find opinion articles written by Patrick Landman.

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Is your hotel getting its fair market share? Use KPI like MPI, ARI, RGI to benchmark the results of your hotel’s revenue management performance. What is your market penetration index?
Compare regional arrivals statistics with yours. Stats can be obtained from the airport, tourism boards. Are you getting your part or fair share of the pie?
Market share reports help hoteliers and revenue managers to understand your performance versus your competitors, both in terms of occupancy and average rate. They can provide the following information vital to your revenue management decision-making:
Your RGI should be above 100 (Index base 100). If not, that would mean that some of your competitors convert more business than you do. Reading the day by day RGI, when do you achieve the lowest score? Week-days, week-ends, events, low demand periods? Do you have the right market segmentation? Is your price positioning by segment correct? It is also important to compare yourself to the right competitors!
Such reports are built in the following format, with day by day results :
The Bench, MKG and Deloite are among the main suppliers of such reports.

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Measures a hotel’s Occupancy (Occ) performance relative to an aggregated grouping of hotels (i.e., competitive set, market, submarket). If all things are equal, a property's Occ Index or MPI is 100 compared to the aggregated group of hotels (historically described as "fair share"). A MPI greater than 100 represents more than the expected share of the aggregated group’s Occupancy performance. Conversely, a MPI below 100 reflects less than the expected share of the aggregated group’s Occupancy performance.
To calculate MPI: (Subject hotel Occ / Aggregated group of hotels’ Occ) x 100 = Occ Index/MPI
For example, if the subject hotel’s Occ is 80%, and the Occ of its competitive set is 80%, the subject hotel’s MPI is 100. If the subject hotel’s Occ totals 96%, its MPI is 120, indicating the hotel has captured more than its expected share. If the subject hotel’s Occ totals 64%, its index is 80, indicating the hotel has captured less than its expected share.

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The ARA Equipment Rental Penetration Index ™ , a premier feature of ARA Rentalytics ™ , measures construction equipment rental penetration into the market.
Why do I need it? The index provides a way for rental operators to determine how much potential market exists. Manufacturers, investors and analysts also can use it to project demand for machines and identify trends.
Interested? ARA members can access the Equipment Rental Penetration Index ™ through their subscription to ARA Rentalytics , a paid online subscription service that provides rental-specific market information.
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Market penetration is a measure of how much a product or service is being used by customers compared to the total estimated market for that product or service. Market penetration also relates to the number of potential customers that have purchased a specific company’s product instead of a competitor’s product. Market development is the strategy or action steps needed to increase market share or penetration.

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A marketing plan is an operational document that shows how an organization is planning to use advertising and outreach to target a specific market.

A backorder is an order for a good or service that cannot be filled immediately due to a lack of available supply.

Marketing refers to the activities of a company associated with buying, advertising, distributing, or selling a product or service.

A product line in business is a group of related products under the same brand name manufactured by a company. Read how product lines help a business grow.

The 4 Ps are the key factors in marketing a product or service: product, price, place, and promotion.

The brand potential index (BPI) estimates the size of a potential market that a brand may be able to reach.

What Strategies Do Companies Employ to Increase Market Share?

How to Get Market Segmentation Right

How Do I Determine the Market Share for a Company?

Porter's 5 Forces vs. PESTLE Analysis: What's the Difference?

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Market penetration is a measure of how much a product or service is being used by customers compared to the total estimated market for that product or service. Market penetration can also be used in developing strategies employed to increase the market share of a particular product or service.

Market penetration can be used to determine the size of the potential market. If the total market is large, new entrants to the industry might be encouraged that they can gain market share or a percentage of the total number of potential customers in the industry.

For example, if there are 300 million people in a country and 65 million of them own cell phones, the market penetration of cell phones would be approximately 22%. In theory, there are still 235 million more potential customers for cell phones, or 78% of the population remains untapped. The penetration numbers might indicate the potential for growth for cell phone makers.

In other words, market penetration can be used to assess an industry as a whole to determine the potential for companies within the industry to gain market share or grow their revenue through sales. Revisiting our example, the global cell phone market penetration is often used to estimate whether cell phone producers can meet their earnings and revenue estimates. If the market is considered saturated, it means that existing companies have the vast majority of the market share—leaving little room for new sales growth.

Market penetration is not only used on a global and industry-wide scale to measure the scope and for products and services, but also is used by companies to assess their product's market share.

As a metric, market penetration relates to the number of potential customers that have purchased a specific company’s product instead of a competitor’s product, or no product at all. Market penetration for companies is typically expressed as a percentage, meaning the company's product represents a certain percentage of the total market for those products.

To calculate market penetration, the current sales volume for the product or service is divided by the total sales volume of all similar products, including those sold by competitors. The result is multiplied by 100 to move the decimal and create a percentage.

If a company has a high market penetration for their the products, they're considered a market leader in that industry. Market leaders have a marketing advantage because they can reach more potential customers due to their well-established products and brand . For example, a market leader and manufacturer of cereal will have far more shelf space and better positioning than competitor brands because their products are so popular.

Also, market leaders can negotiate better terms with their suppliers because of their significant sales volume. As a result, market leaders can often produce a product cheaper than their competitors, given the scale of their operation.

While market penetration is a metric to determine the level of market share gained and the potential for new sales, market development focuses on the steps to achieving the gains in market share.

Market development is often a strategy of specific details or action steps needed to increase the number of potential customers. Some strategies employ advertising, social media campaigns, and direct sales outreach efforts to prospects of untapped market segments. Lowering prices and bundling product offerings can also help gain traction in previously untapped portions of the market.

For example, an established company might have a product that has a large percentage of the market share for women. However, the company, following its market penetration analysis, realizes they have a small market share with male customers. As a result, they might develop a specific product and marketing outreach campaign designed to increase their male clients.

Market penetration, as a measurement, can be recalculated following the various sales and marketing campaigns to determine their level of success—whether market share increased or decreased. Market penetration provides companies with enormous insight as to how their customers and the total market view their products. The figures can, in turn, be compared to specific competitors to determine how the company is faring in its sales efforts and how its products and services stack up to the competition.

By the fourth quarter of 2017, Apple Inc. ( AAPL ) had amassed a market share of more than 50% of the smartphone market throughout the world. 1 Apple has consistently introduced new versions or their iPhones with added enhancements and upgrades, including releasing its high-end iPhone X. As a result of its market penetration, Apple has a larger market share than all of its competitors combined.

However, the company still has opportunities to add to its customer base by targeting its competitors' clients and woo them over to Apple products and services.

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