There comes a time in every business owner’s life when they realize that launching a product is not enough. That’s when they start thinking about market penetration strategy.
If you’re reading this blog post, you’re most likely in a similar spot. But before you go on the quest, you need to understand market penetration inside out.
Owing to our years of experience, we’ve curated this blog post to help you devise your market penetration strategy, acquire new customers and dominate the market for years.
Let’s get under the hood of a killer market penetration strategy.
What is Market Penetration? How to Calculate Market Penetration?
When you do your google search about the term market penetration, you might get confused as it has two different definitions. Let’s understand what each one of them means
- Market Penetration as a Measurement
Market penetration as a measurement refers to how much a product or service is being used by target customers compared to the total estimated market for that product or service.
Penetration Rate = (Number of Customers ÷ Target Market Size)
Example:
If you sold 10,000 units of your product last year and you think there’s a total market for 100,000 users, then your market penetration rate is 10%. It means you’ve captured 10% of the entire market with your sales.
- Market Penetration as a Strategy
When we define market penetration as a strategy, it means that your product enters the market, competes with the other products already present in the market and builds up a strategy to convince customers to choose your product among the others.
Example,
A new restaurant opened in a city, and it offers a diverse menu of healthy and vegan options. Despite having a target audience of 10,000 health-conscious individuals, only 2,000 people have dined at the restaurant in its first six months of operation.
When you calculate the penetration rate, it comes to 20%. While this rate is decent, the owners aim to increase it further. They decide to collaborate with a local gym, offering exclusive discounts to its members.
Through this partnership, the restaurant introduces a “Fit Menu” tailored to gym-goers’ nutritional needs and offers a 15% discount on meals for members. As a result, the restaurant sees a significant uptick in foot traffic, with an additional 1,000 customers dining at the restaurant within the next three months.
Simply put, market penetration signifies how deeply a product or service has reached its intended market. It also denotes the effectiveness of a business in entering new markets or saturating existing ones. Achieving a high market penetration rate indicates widespread adoption of the product or service, leading to rapid financial gains.
For brands, having a good or average market penetration rate is crucial for profitability. A high penetration rate indicates that the brand’s products or services are widely accepted and sought after by consumers. This is evident when the brand enjoys steady demand, repeat purchases, and increased market share.
Amazon’s Strong Market Penetration in the US
In 2018, Amazon dominated the US ecommerce market with an impressive 49% market penetration rate, surpassing the combined penetration rates of its top three competitors. This means that nearly half of all online purchases in the US were made through Amazon, highlighting its significant presence in the retail landscape. Additionally, Amazon accounted for 5% of all retail dollars spent throughout the country.
Apple’s Market Penetration Rate
With an estimated market penetration rate of 15% to 20%, Apple made significant strides during this period, selling 77.3 million iPhones by the end of the December quarter, thereby claiming a notable 19.2% share of the smartphone market.
Achieving high market penetration rates allows you to experience rapid financial growth and gain recognition as a reliable market player. Moreover, it helps you establish pricing strategies based on competitor analysis rather than blindly following industry trends. With this, you can maintain a competitive edge and sustain your upward momentum in the market.
What is a Market Penetration Strategy?
Developing a market penetration strategy requires creating a strategic framework aimed at amplifying a business’s market presence. Through this strategy, you seek to enlarge your customer base within your current market landscape, all while keeping your products or services unchanged.
By putting this strategy into practice, you strive to secure a larger share of the market and gain momentum. This involves making headway in a competitive landscape where similar products or services are already prevalent, frequently outperforming competitors.
In the race for market dominance, every business aims to outshine its competitors and capture a larger market share. Through a comprehensive analysis of your product’s market size and a clear understanding of its market share, you can effectively evaluate its worth.
Therefore, organizations must thoroughly understand the concept of market penetration before integrating it into their business strategies.
Why is Market Penetration Strategy Important?
Breaking into the market as a newcomer is no easy feat, particularly with established titans dominating the landscape.
However, by embracing a dynamic growth marketing strategy, emerging ventures can make waves, gaining visibility and challenging the dominance of established players.
How? Let’s read and understand.
- To Increase Sales
You can use a market penetration strategy to strategically position yourself to gain an advantage over competitors. Whether it’s a targeted promotion or product expansion, you can use it to capture market share and propel your business toward success.
Additionally, these strategies expose unexplored market segments and geographic regions that present opportunities for growth.
- To Improve Brand Equity
Utilizing a market penetration strategy, you can establish a recognizable brand identity and increase your overall value rather than solely relying on individual offerings. Bit confused reading this? An example can help.
Netflix can utilize market penetration strategies to expand to different content genres, capitalizing on its reputation as a leading streaming platform.
- To Implement Better Product Positioning
If you are a startup, you may find it tough to compete with industry leaders. While you may not be able to command higher prices initially, you can implement strategic market penetration campaigns.
By justifying slightly higher prices with superior value, you can effectively position yourselves in the market. However, it’s crucial that these prices align with the perceived value by customers.
Therefore, you need to clearly communicate your unique selling points to your target audience to develop a successful strategy.
Now that we’ve discussed market penetration, let’s see what are some of the best market penetration strategies you can apply for your business.
What are the Best Market Penetration Strategies?
Here are a few market penetration strategies to think about and potentially incorporate into your company’s operations.
1. Upgrade Your Pricing Strategy
One effective way to expand your customer base within your current market is by adjusting your pricing strategies to align with customer preferences and purchasing behaviors.
This involves:
- Reducing prices to stay competitive,
- Offering various pricing tiers to cater to different customer segments, or
- Implementing promotions and discounts to entice new customers.
The key is to find the right balance between the perceived value of your products or services and the spending capacity of your target audience.
Regularly conducting market research and soliciting feedback from customers can provide valuable insights for making informed pricing adjustments.
Example
- A software company might introduce special discounts during major holidays or launch limited-time offers to attract new users.
- A restaurant could introduce a lunchtime special menu to appeal to budget-conscious diners while maintaining premium offerings for those seeking a more upscale dining experience.
2. Increase Your Marketing Efforts
To expand your customer base within an existing market, it’s crucial to ensure that potential customers are aware of your presence. A robust online presence serves as the foundation of your marketing efforts.
How can you increase these efforts? Let’s understand.
- Digital Marketing
Utilizing various digital channels such as social media, email marketing, and content marketing enables you to effectively communicate your message to potential customers across different online platforms.
- Search Engine Optimization (SEO)
SEO plays a vital role in enhancing your online visibility. By optimizing your website for search engines, you increase the likelihood of your business appearing in search results when individuals are seeking products or services similar to yours.
- Digital Advertising
Additionally, investing in paid digital advertising, such as Pay-Per-Click (PPC) campaigns, further boosts your brand’s visibility among your target audience.
Platforms like Google Ads and social media advertising tools allow you to target specific audiences based on demographics, interests, and online behaviors.
- Segmenting Target Audience
Segmenting your target market is essential for maximizing the impact of your marketing efforts. By dividing your audience into distinct segments, you can tailor your marketing messages to address the unique needs and preferences of each group.
Whether it’s through personalized emails or targeted social media advertisements, segment-based marketing ensures that your campaigns resonate more effectively with your audience, ultimately leading to greater success.
3. Use Penetration Pricing
Using penetration pricing can be a smart move to penetrate into the market. It is a strategy in which you can set a low price for a new product or service.
The aim is to attract more customers quickly by offering a bargain. This can make competitors lower their prices or find other strategies to compete. People might switch to the cheaper option, and new customers might buy, too.
After a while, you can gradually raise the price of your product or service to make more profit and show the product’s value has gone up.
Another advantage of penetration pricing is that if you introduce a new product to the market at a low price, people will be interested in trying it, even though it’s different from what they’re used to.
Competitors don’t have much time to react before your company gets a lot of customers and becomes the new popular choice.
Netflix is a great example of how penetration pricing can work well. You might have noticed that Netflix prices sometimes go up, or their free trial ends after a month. But, even though people might grumble a bit, they’re still okay with paying more because Netflix has great content.
Now, Netflix is the top choice for streaming, with 51% of streaming subscriptions in the U.S.
4. Expand Your Reach
Making your products or services easier to access is a great way to attract more customers in your current market. This means providing more ways for customers to purchase from you.
Let’s understand better with an example.
If you sell consumer goods, partnering with new retail stores can help more people see and buy your products. You can also sell on popular online platforms like Amazon, eBay, or Etsy to reach a larger audience.
Another option is to improve your own ecommerce website to sell directly to customers.
If you offer services, you can reach more people by listing your services on online marketplaces, collaborating with other service providers for mutual promotion, or adding your business to local directories.
5. Develop Customer Loyalty Programs
Loyalty programs encourage current customers to keep choosing your products or services and to tell others about your business.
There are various ways to reward customers for coming back. Here are some examples:
- A bookstore might offer a loyalty card where, after buying five books, the sixth book is free.
- A gym might have a referral program where members get a free month for every friend they bring in who signs up.
- A restaurant might give diners points for every meal they purchase, which they can redeem for discounts, free appetizers, or exclusive event invitations.
6. Strategic Collaboration
As a business owner, you can buy a competing company to gain its customers and market share. If you are a startup, you can form a strategic partnership with similar organizations to reach your target audience and grow your market base.
This shows your efforts to expand your products in the market. This low-risk strategy helps quickly increase market share in a competitive market with similar products and services.
Many big brands have grown their market base using these strategies. Let’s look at some examples.
Examples of a Successful Market Penetration Strategy
Let’s explore some iconic market penetration cases to see their strategy in action.
- Coca-Cola
Coca-Cola, a widely recognized brand with almost a century of history, cleverly uses market penetration strategies every year by connecting its product with Christmas.
By utilizing the shared red color scheme of both Coca-Cola and the holiday season, the company stands out and reduces competition by forming alliances with its rivals. Moreover, Coca-Cola adjusts its marketing tactics to meet the diverse needs of consumers.
For instance, after the successful launch of Diet Coke, the brand faced resistance from men as they perceived the product as feminine.
In response, Coca-Cola introduced variations like Bloke Coke and Coke Zero, maintaining the same taste and benefits but targeting male consumers through tailored marketing efforts.
- Nike
Nike’s Air Max line showcases how a company can maintain customer interest and attract new buyers by constantly innovating its products.
For instance, when Nike introduced the Air Max 270, they didn’t just release another shoe – they brought something fresh and exciting to the table. Through clever marketing that appealed to both sports enthusiasts and fashion-forward consumers, Nike expanded its market share.
By always coming up with new and exciting products and getting famous people to endorse them, Nike keeps its customers interested and grows its sales in the process.
- Samsung and Apple
Big players like Samsung and Apple dominate the smartphone industry with high market penetration rates of 18.4% and 19.2%, respectively, which are among the highest in the market.
This means that a significant portion of smartphone users worldwide prefer these brands. Other brands like Xiaomi and Oppo make up the remaining share, completing the total market share of 100%.
Despite the dominance of these major brands, smaller companies still have opportunities to capture a larger portion of the market through effective strategies around product development, pricing, and marketing.
By focusing on these key areas, smaller brands can compete with industry giants and increase their market penetration.
Connect Market Penetration to your Overall Business Strategy
To choose the right market penetration strategy for your business, you need to conduct thorough research on current market conditions and recent developments. This will help you understand which approach will be most effective for your specific situation.
Depending on whether the market is highly competitive or already saturated, you can then decide on the best strategy to outperform your rivals.
Now that you have a clear understanding of market penetration strategy and its importance, it’s time to put this knowledge into action. A reputable growth marketing agency can provide businesses with a range of options to explore different tactics that industry experts often use and have found success with.
These tactics serve as the key ingredients for achieving growth and staying ahead in the market.
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