Penetration Share
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Penetration Share
Published by MBA Skool Team , Last Updated: May 15, 2020
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Brand Penetration is a measure of the popularity of the brand. Brand penetration is defined as the number of people who buy a particular brand over a specific period of time divided by the size of the concerned market’s population. Brand penetration is a measure of adoption of a brand or the number of sales of a brand as compared to the total theoretical market for that brand.
Brand penetration is a business growth strategy in which several initiatives are being taken to increase the market share for its brand in a particular market segment. It is an effort to dig deeper into an existing market place. Thus, brand penetration is both measurement and projection of how successful a brand has been or will be against the competition & a critical component in brand management. Brand Penetration involves assertive sales force or additional marketing to penetrate deeply into an existing customer base. Increased market share is most of the times, the objective for using “Brand Penetration” as a marketing strategy. It is generally the first step towards business growth and performed by early-age businesses.Importance of Brand Penetration
Brand penetration is calculated as a percentage and is given by the following formula:
Brand Penetration (%) = Customers Who Have Purchased the Brand /Total Population
There are two important metrics which are: Penetration Rate & Penetration Share. Penetration rate is similar to Brand Penetration but Penetration Share is different. Penetration Share is determined by comparing that brand’s customer population to the number of customers for it’s category in the concerned market.
Brand penetration techniques include lowering prices, advertisements, bundling products to gain traction, discounts, increasing the mailing list, enhancing brand recall etc. Brand Penetration is one of the four marketing strategies from the Ansoff Matrix for brand and market growth. The other three strategies are- market development, product development, and product/market diversification.
1. “Brand Penetration” as a growth strategy is very effective in providing faster growth to the brand equity. When a brand offers reduced and better prices than the competitors, their customers tend to switch to this brand. Lower prices are linked to higher growth and the more reasonable the prices are, the higher is the impact.
2. Economies of Scale: With reduced prices and aggressive advertisement, products of that brand tend to sell more. With more sale, the brand compensates for the reduced prices of its products and even earn more profit than before.
3. Combat Competitors: Market Penetration urges loyal customers of other brands to experience this brand's products once. If the quality and price offered are the most reasonable, this strategy provides an opportunity for the brand to capture those loyal customers and become the market leader.
1. Marketplace at some point of time becomes saturated which means that almost all of the existing customers or new customers have used, have been using or satisfied by the brand. At this point, investing heavily in marketing for this strategy may not do just for the investments made. Thus, the cost-benefit ratio has to be kept well in mind before implementing this strategy.
2. Aggressive marketing may help to convert a certain percentage of customers for the brand but the brand has to be ready for the competitor’s responsive attacks for capturing the market share.
3. Brand Penetration often leads to lowering of the industry prices. One brand lowers the price of its products to penetrate deeper in the market and soon other competitors do the same thing to stay in the competition which in turn lower the industry price for that product and brands end up making marginally low profits or even losses at times.
Brand penetration focuses on increasing its customer base (those customers who have shown an interest in the product category but have not purchased this brand’s product or service) amongst the potential customer group. In brand Penetration, the market size is fixed. It focuses on capturing a greater share of the established customer base. On the other hand, brand development incorporates strategies to expand its potential customer group. It focuses on previously untapped market segment using its existing products and services or there may be potential customers in the non-buyer category who need to be introduced the alternated uses of products of that brand.
For example, there is an auto insurance company in a city which has 40,000 licensed drivers. Out of this, the insurance company does not want to give its service to people who had tickets or accidents in the past which is 10,000 in number.
Thus, the remaining 30,000 becomes the target market size for this company.
Out of this 30,000, 3000 drivers have availed the insurance service from this insurance company.
Then, this insurance company’s penetration rate = (3000/30000)*100 = 10%
This article has been researched & authored by the Business Concepts Team . It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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By Kimberlee Leonard Updated February 01, 2019
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Market penetration is a crucial indicator as to whether your marketing and sales strategies are working. Market penetration is the percentage of identified potential customers you have acquired. Not meeting the desired penetration rate could be a strategic issue in marketing or sales, or it could be that you need to take the time with market development to expand the potential consumer base. Here's how you determine your penetration rate.
The penetration rate is easy to calculate if you know your target market size. To calculate the penetration rate, divide the number of customers you have by the size of the target market and then multiply the result by 100.
Penetration Rate = (Number of Customers ÷ Target Market Size) × 100
For example, if you sell auto insurance in a small town that has 25,000 licensed drivers and your book of business has 1,200 drivers, your company's penetration rate is 4.8 percent.
Penetration Rate = (1,200 ÷ 25,000) × 100 = 4.8 percent
The target market should be defined before any marketing campaign. In the auto insurance example, while there are 25,000 licensed drivers, you may only want drivers with a good driving record that have no tickets or accidents. By filtering your research, you can refine marketing efforts. There may only be 12,000 drivers in the town meeting your requirements, which increases the penetration rate of your desired target market to 10 percent.
Defining your market requires looking at demographic data and identifying your ideal prospects. You probably aren't going to sell tree-trimming services to people living in apartments, so marketing to them is a waste of time and money. Instead, you identify homeowners in a designated area to see how big the market is.
Most large industries have national averages for penetration rates. Compare your results to averages to see if you are meeting or exceeding your competitors' rates. Your local chamber of commerce or Small Business Administration office can help you with smaller geographic data you can use to determine how successful you are. The Bureau of Labor Statistics also provides industry insights about growth trends on a national level.
At some point, if you are successful at marketing, selling and retaining clients, your company becomes saturated in your market: You have hit the high end or maximum penetration rate. To continue to grow, you need to expand the prospective market size. You do this through market development.
The insurance company that is saturated with drivers with clean records may either expand its geographical territory to look for more clean driving records or expand the criteria to people who have only one ticket in the past three years to increase the target market size.
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