Marketing Penetration Strategy: Meaning, Advantages, Disadvantages and Examples

What is Market Penetration?

The percentage of a product or service used by consumers compared to the expected total market for that good or service is known as Market Penetration. Market Penetration can also be used to design strategies for increasing the market share of a particular service or product. In addition, it can also be used to estimate the size of the potential market. If the entire market is large, newcomers to the business may be attracted by the possibility of gaining market share or a percentage of the total number of possible customers. For instance, if the country has 140 crore people and 56 crore of them own cell phones, then market penetration is 40% of the population. According to theory, 60% of the population, or 84 crores, are yet untapped as potential cell phone users. The penetration rates may suggest potential expansion for the manufacturers of mobile phones. In other words, Market Penetration can be used to evaluate an industry as a whole and analyze the possibility for companies inside it to obtain market share or increase revenue through sales.

Geeky Takeaways:

• The term “Market Penetration” describes a quantitive assessment of a product or service’s sales to the expected total market.
• It is expressed as the percentage of the entire market that a business can access.
• Market development is the process of expanding the presence of a business within a certain market to realize profits.
• Businesses need to be mindful of the ways they can expand into new markets that could harm their current customer base, damage their brand equity, and confuse consumers about the identity of the company.

What is a Marketing Penetration Strategy?

It refers to a strategy of a company or organization for expanding or further saturating its consumer base in an already established market. For instance, if a company is launching a new product that will appeal to a different segment of the existing market, it can develop a market penetration strategy. In simple words, a Market Penetration strategy is the act of introducing a new product (from the company or organization) into an already-existing market (where current or similar items already exist).

This is a part of the 1957 strategic framework known as the Ansoff Matrix, which helps business leaders develop strategies for growth. The objective of market penetration strategies is to improve the number of customers who select the products of a business over competitors in the market. The concept was initially identified with the Ansoff Matrix, intended to identify four overall strategies for market growth and used on products already in the market rather than newly introduced products. Despite its difficulties, Market Penetration can increase a product’s sales and brand awareness and provide a substantial return on investment (ROI).

Why is Market Penetration Important for Businesses?

Market Penetration activities help brands understand how they may grow the market share of a specific product or service in an existing market. It is an important strategy that both new and existing businesses use to reach their target audience, sell their goods, and expand their operations. Market Penetration usually requires some basic knowledge to begin with. Thus, before launching a new product, a business needs to be aware of its current market share, growth rate, pricing strategy, and competition.

Advantages of Market Penetration

1. Helps in Raising Sales: One of the primary objectives for implementing Market Penetration strategies is to increase sales. A well-implemented Market Penetration increases sales of your goods and services directly.

2. Increases your Product’s Visibility: It is advised that a business enter a market only if it can provide greater value to customers. A successful market penetration strategy can help you reach a larger consumer base as well as enter a new market.

3. Facilitates Brand Growth: One of the four marketing growth strategies is the Market Penetration approach. This strategy helps in accelerating growth and raises awareness of the business when done properly.

4. Beat your Competition: Marketing Penetration strategies include preventing competition. Nowadays, the only way to compete with continuously improving and evolving competitors is to implement a strategy that allows you to regain the lost customer base.

5. Increase Brand Equity: The Market Penetration can improve the brand equity of the company. This is so because an effective strategy can help in exploiting the brand’s existing perception, which ultimately leads to increased equity of the company.

Disadvantages of Market Penetration

1. Faltering Brand Image: While market penetration might improve operations, it also has the potential to backfire. Companies that expand into new areas or introduce new products always run at risk of damaging their existing reputation, which can form false public opinions about them or attract customers who don’t fit with their strategic objectives. Moreover, if products lose their appeal to customers in the markets they have entered, companies may be compelled to liquidate them by selling them at a discount.

2. Creates undue pressure: Market penetration can put unnecessary pressure on other areas, such as manufacturing, production, and sales. Producers might not be able to increase process efficiency, and manufacturers might not be able to cut costs as quickly as expected. In that case, the ability of sales representatives to promote products and services may also be limited.

3. Attract the “wrong” Audience: A product’s market penetration plan might bring newer members of the target population to it, but not all of them will be target consumers. There is a possibility that the incorrect “product fit” will damage the company’s reputation. It results from incorrect market segmentation.

Examples of Market Penetration Strategies

The Coca-Cola Company produces the carbonated soft drink known as Coca-Cola or Coke. Coke was invented in the late nineteenth century by John Stith Pemberton and later purchased by businessman Asa Griggs Candler. With his marketing strategies, Coca-Cola became the market leader in the soft drink industry worldwide. The drink’s name relates to two of its original components, which were caffeine-containing kola nuts and coca leaves. Coca-Cola’s current recipe is still kept a trade secret.

The concentrate is made by The Coca-Cola Company and distributed to authorized Coca-Cola bottlers throughout the globe. The bottlers, who have exclusive area agreements with the company, get the concentrated product in cans and bottles along with sweeteners and filtered water. Coca-Cola associates itself with well-known occasions and holidays to leverage its powerful brand. Coca-Cola has been globally linked with Christmas ever since its well-known Santa Claus Christmas campaign. Coca-Cola is a powerful brand that is frequently associated with celebrations, not just around the holidays. The Coke brand is beneficial when it is associated with sporting events. At athletic events, it is even more common than water.

Market Penetration Strategy

A business may grow through Market Penetration by using some of the strategies listed below:

1. Change the Price of the Product: Even though Veblen goods contradict the law of supply and demand, a business is more likely to expand Market Penetration by decreasing its prices than by increasing its prices. In most cases, a company cannot increase market share by increasing its price. The business must have an in-depth knowledge of its profit margins and input costs. It also requires an awareness of its customer base and whether a lower price will attract the target audience that the company intends to keep in the long run.

2. Adding New Features: Another effective Market Penetration method includes adding new features to an existing product without making major changes. For example, a Customer Relationship Management (CRM) system could be improved with an email integration function, attracting consumers who were previously unwilling to use it. Remember when GPS was added to mobile phones to increase their application and utility? That resulted in an era of applications that used GPS services to address particular user problems.

3. Innovative Marketing: Innovating marketing strategies are often used by marketers to increase product and service Market Penetration. Virtual reality is a tool that retailers have long used to allow consumers to virtually try on and experience products before making a purchase. Marketers use cutting-edge strategies to expand their market penetration, such as chatbots, 360-degree videos, and user-generated content.

4. Field Marketing: Field marketing is conducted by highly skilled marketers who promote the company’s efforts in lead generation, customer relationship management, and brand creation. It consists of merchandising, auditing, sampling, roadshow, experiential marketing, demonstration, and targeted direct sales promotions. Field marketers can facilitate faster product adaptation and increase Market Penetration.

5. Integrated Marketing: Customers can engage with a brand or business more consistently with the help of integrated marketing. Integrated marketing makes it possible to integrate different marketing efforts in the complex and fragmented world of marketing. For instance, a product can be advertised on YouTube, in television commercials, on mobile ads, and so on to communicate the same message everywhere.

6. Enter Newer Geographies: Entering previously untapped markets is a tried-and-true Market Penetration strategy for increasing the adoption of products. Businesses with a successful product launch in one region can expand to other regions since the use cases are usually comparable.

7. Influencer Marketing: Influencer partnerships are preferred by businesses as a means of promoting their goods. Famous people who have large followings on social media sites like Facebook, Twitter, Instagram, and LinkedIn have the power to affect a product’s sales.

8. Dealerships & Partnerships: Forming newer collaborations is another example of a Market Penetration approach to reach a wider target audience. Dealers and partners can attract new customers to an existing product since they have a wide geographic reach. The way that producers of consumer electronics depend on distributors and retailers to market their products is an ideal example.

How to Increase Market Penetration?

Companies still use these strategies to obtain a complete understanding of their customer’s readiness to buy their products or services, even when Market Penetration sometimes faces difficulties. Greater Market Penetration suggests a more properly positioned product, a gradual increase in sales, and a rise in brand value. The four strategies listed below can help increase the market penetration of the company:

1. Price Adjustments: A company can use a variety of price-quantity combinations to align its products with its direct competitors. They may decide to remain competitive even with a different pricing range that is similar to their product.

2. Adjustments to Marketing Plans: It is essential to raise brand awareness through marketing and advertisements. The company can use digital media for internet marketing due to digitization. For instance, the Indian Brand Mamaearth continues to position its marketing in an approachable yet simple manner. The company makes use of influencer marketing to promote its products and keep its messaging simple.

3. Product/Offering Adjustment: It includes constantly upgrading its older products.  It includes introducing newer models and new technology to satisfy customers’ expanding expectations. For instance, Apple keeps pushing boundaries in terms of market share and retention of customers.

How to Calculate Market Penetration?

The Market Penetration of a product is determined by dividing its current sales volume by the total sales volume of all items that have comparable features or meet similar demands. They also include products offered by competitors of the company. To get a percentage, the resulting figure is multiplied by 100.

It is important to regularly monitor Market Penetration to identify any risks or losses. It must be kept in mind that Market Penetration can be determined after each marketing and sales campaign. As a result, the company can judge the effectiveness of a campaign(s) more accurately as it will bring attention to any changes in penetration.

There is another method to calculate Market Penetration. The Market Penetration of a product can also be determined by dividing the number of customers a company to the total market size. The number of customers can be estimated based on each customer from whom the company obtained business. Some can decide to analyze the stronger consumer base using only repeat consumers. Some have the option to select any customer who has made a transaction within a specific time frame (for example, the last two years).

But sometimes determining the entire market size could be difficult, particularly if the business offers products online or in a large geographic area. The entire market size refers to all potential customers the business may have, not just the number of people who live in that area.

Good Market Penetration Rate

The definition of a “good” market penetration rate depends upon the product, industry, and total addressable market (TAM). This is the basis of every successful Market Penetration strategy. The formula used to determine your current Market Penetration is:

Now, to know the position of a company, the above-calculated rate is compared with the average market penetration rate. Average penetration of the market is, (i) 2–6%, in the case of Consumer products; (ii) 10% to 40%, in the case of business products. Some techniques can increase the penetration rate if it seems a little low.

Frequently Asked Questions (FAQs)

1. What is a Marketing Penetration Strategy?

Answer:

A costing strategy called “Market Penetration Pricing” intends to provide a particular product at a lower starting cost. This helps companies in expanding their market share and launching new products or improvements.

2. When can a business adopt a Marketing Penetration Strategy?

Answer:

Market penetration is a useful strategy for businesses seeking to expand into new markets or increase sales of their present product line.

3. What is a Good Market Penetration Rate?

Answer:

A business venture can determine its penetration rate by calculating its total addressable market (TAM). (Number of customers/TAM) X 100 is the penetration rate. Experts believe that possible market penetration rates for consumer goods are typically between 2 and 6%, and for commercial items, they are between 10 and 40%.

4. What is difference between Market Penetration and Market Development?

Answer:

The process of introducing a new or current product to a new target market is known as market development. Extending out to new customers is the primary objective of the market development phase. On the contrary, market penetration strategies support the profitable sale of products in an already-existing market.