Growing a business is hard work, but it also involves crucial strategic decisions. One wrong decision could wipe out months of effort in a blink. If you’re thinking of expanding your business, do you penetrate your existing market or do you go searching for a new one? Well, the answer is not as easy as it sounds. The path you choose depends on a host of factors, but it must start with a fundamental understanding of market penetration vs. market development. This blog post is about that.
We know you’re looking for answers but let’s first start with a few crucial questions.
What is Market Development?
Market development is a marketing strategy in which a company tries to sell an existing product to a new group of consumers. This strategy can be used to sell your product in new geographical areas or by exploring new market segments.
When you sell your product in the domestic market for years, you reach a max-out point, where you have formed a strong customer base that will buy your product. So, how will you grow your business now?
That’s when market development comes into play. When you decide to implement this strategy, you need to do in-depth market research and segmentation analysis to find new markets to serve.
How Can You Approach Market Development Strategy?
While conducting your research about implementing a market development strategy, you’ll need to address questions such as:
- Who might need your product?
- Where do your target audience live?
- What are their preferences?
- How many competitors are already present in the market?
Having this information, you’re set to step into new markets and uncover unique avenues for success.
The Nike Legacy
Nike! Who might not have heard about this footwear brand that runs the sports game? Nike has a long history of using market development strategies to grow its business.
By zeroing in on specific market segments with personalized ads and teaming up with sports superstars for promotions, Nike knows how to connect with its audience on a personal level.
And the results speak for themselves. Nike isn’t merely a player in the sportswear arena; it’s the reigning champion. More than that, it’s become a household name associated with sports itself, an impression that continues to be felt worldwide.
Nike uses innovative ways to keep its audience hooked on the brand. One tactic is “Emotional branding.”
Nike never fails to put powerful emotions through the brand. You might have seen some of Nike’s famous ads, including:
“We gave up giving up”,
“Don’t believe you have to be like anybody to be somebody.” and how can we forget the tagline “Just Do It”.
The numbers themselves speak of the revenue they generate each year using market development techniques.
Check out the top five advantages of market development for your business.
What are the Benefits of Market Development?
Market development gives the obvious advantage of gaining new customers and thus increasing revenue. But it’s more than just that. Apart from these two, it also offers a range of other advantages that include:
- Diversification
By entering into new markets, you can diversify your revenue streams reducing reliance on a single market or customer segment. This diversification can enhance stability and resilience, particularly in volatile economic conditions.
How Amazon Nailed Diversification?
Amazon started as an online bookstore, slowly broadened its scope and used diversification techniques for expansion. Currently, with a net worth of $1.88 trillion, it sells almost everything from gadgets and clothes to cloud services and streaming.
Through this diversification, Amazon has evolved into a comprehensive destination for consumers, for an effortless shopping experience.
- Competitive Advantage
Upon entering a new market, your product or service’s reach expands, granting you a competitive edge and offering a roadmap for positioning yourself as an industry leader.
It also helps you stay ahead of competitors who may not be targeting the same markets.
Unpacking IKEA’s Design Dominance
IKEA, the Swedish furniture seller, is well-known for its smart way of growing in new places. When it enters new countries, it adjusts what it sells and how its stores look to match what people there like and the rules they have. For example, in Asia, IKEA changes its products and store layouts to fit the preferences and needs of local shoppers.
- Brand Awareness
When you launch your products into new markets using a market development strategy it increases the awareness of your brand among the customers. Additionally, it also:
- Strengthens the visibility and
- Solidifies your reputation and
- Increases credibility.
As more people become aware of your offerings, you attract a bigger crowd and new prospects.
P&G’s Journey to Global Recognition
P&G introduced its well-known brands like Tide, Pampers, and Gillette to new geographic markets, expanding its customer base and increasing its brand awareness globally.
- Innovation Opportunities
Opting for a market development strategy and entering new markets demands openness and adaptability. To meet the needs and preferences of people in these markets, you may have to innovate your products or services. This can benefit you by steadily improving your products and creating fresh opportunities for business growth.
How Netflix Transformed the Entertainment Industry?
Netflix entered the entertainment industry and completely transformed it with its streaming platform, offering a convenient and personalized viewing experience that drove subscriber growth.
Now, let’s turn our attention to market penetration where the goal is to boost sales by targeting your current customers.
What is Market Penetration?
Market penetration is the proportion of a product or service sold in a specific market compared to the total estimated demand for that product or service in that market.
It’s essentially a measure of how successful a company is at capturing a share of its target market.
How to Calculate Market Penetration?
If a company sells 500 shirts out of a possible 5,000 customers, the market penetration rate is 10%. How did we arrive at this %? Let’s crack it open.
Penetration Rate = (Number of Customers ÷ Target Market Size)
So, here it would be 5000/500= 10%
Market penetration is also a strategy in which you can sell your products in the existing market, compete with existing competitors and tactics to convince customers to choose your product above others.
Also Read: MARKET PENETRATION STRATEGY: A COMPLETE GUIDE FOR BRANDS TO DOMINATE THE MARKET
Example:
Sure, here’s a condensed, conversational version:
How Starbucks Crafted Coffee Experience Worldwide?
Starbucks, the world’s biggest coffeehouse chain, boasts over 32,000 stores worldwide in 83 countries, serving up everything from hot and cold drinks to pastries and snacks.
Before the pandemic hit, Starbucks was all about expanding its reach and improving the coffee experience. It was rapidly opening new drive-throughs and express stores in various locations, even in areas where it already had a strong presence.
Plus, they also spiced up the coffee scene with special roasteries and upscale experience stores for serious coffee enthusiasts who take their brew seriously!
And their digital game was next level. With mobile payments, Starbucks was all about getting their customers hooked on their app. How? Yes, even you might have that: loyalty points!
You get that on the basis of how much you spend and the way they promoted it made the people go gaga over it.
So, Starbucks wasn’t just about serving coffee; it was all about creating an experience, whether you were chilling with your laptop or grabbing a quick pick-me-up on the go.
Moving to the next section, let’s have a closer look at the advantages your businesses can gain by using market penetration techniques.
What are the Benefits of Market Penetration?
The success of the market penetration strategy depends upon your target audience and your ability to gain market share quickly while still making a profit and creating a loyal customer base.
Apart from this, market penetration has some appealing advantages to consider:
- Boosts Sales
Through market penetration, you can boost the sales of your product or service by obtaining a larger slice of your existing market. When the sales graph goes up, the revenue graph follows it.
Microsoft’s Bundling Tactics
Microsoft boosted market share in operating system and productivity software markets through product bundling and giving discounts to educational institutions.
- Enhances Product Visibility
You can increase your product’s visibility in the market by using market penetration techniques effectively. You can also attract more customers and open up to new markets.
Nestle’s Product Panorama
Nestle increased brand visibility by providing budget-friendly products customized to local preferences and economic capacities while entering fresh markets.
- Fosters Brand Growth
Market penetration speeds up your growth path and boosts consumer awareness, strengthening its reputation in the market as it gains more visibility.
The Airbnb Brand Growth Story
Airbnb enhanced brand expansion by utilizing user-generated content and compelling storytelling in its “Belong Anywhere” campaign. The campaign featured distinctive travel adventures and established emotional connections with its audience.
- Outpaces Competition
To remain competitive in a constantly evolving market, you need to be on your toes. Market penetration helps you do that by helping you retain your customers and attract new ones.
Apple’s Competitive Edge
Apple secured more than half of the global smartphone market by continually introducing improved versions of the iPhone, surpassing its rivals.
- Builds Brand Equity
Implementing Market Penetration strategies can positively impact your brand’s overall perception. As more people encounter and purchase your products or services, it solidifies your brand’s position in the market and enhances its perceived value.
This helps you achieve heightened visibility and contribute to stronger brand equity, which translates to greater customer loyalty.
Zara’s Brand Equity Evolution
Zara’s emphasis on fast fashion, adaptable supply chain, and trend-centric designs played a pivotal role in establishing the brand as a premier choice for stylish and budget-friendly clothing, thereby bolstering its brand equity.
Considering the advantages of market development and penetration, we are now proceeding to compare these two powerful growth strategies.
Market Penetration vs. Market Development
If you want to choose between market penetration and market development, you need to be aware of their differences and the impacts each can have on your business. Let’s compare both strategies to help you decide which one is best for your business.
| Parameters | Market Development | Market Penetration |
| Meaning | Expand into new territories for more customers and brand growth. | Boost market share in the existing market. |
| Main Focus | Expand into new markets and customer segments. | Increase your market share among the customers you’re currently serving. |
| Risk | Involves higher risk | Lower risk strategy. |
| Strategies | Explore new geographical areas or reach new customer segments. | Adjusting prices, creating promotions, and using new distribution channels. |
| Growth Potential | Long-term growth strategy | Short-term growth strategy |
| Competition | Faces less direct competition in new markets but must contend with building brand recognition. | Involves intense competition within existing markets, requiring strategic differentiation to increase market share. |
| Examples | Nike and Slack. | Starbucks and Coca-Cola |
These were some of the key points of Market development vs. Market penetration.
Choosing between one of these two strategies depends upon mapping out your growth journey and what resources you’ve got to fuel it.
Want to simplify things? Take a look at these steps we’ve prepared for you.
Market Penetration vs. Market Development : Which is Right for You?
Deciding between Market Penetration and Market Development hinges on several factors. Below-listed questions can help you with it:
- What is the market’s maturity?
- Who else is in the game?
- What resources do you have on hand? and
- Where do you want your business to be?
You need to conduct a thorough analysis of your business and be well-versed with its strengths and weaknesses. With this analysis, you can decide:
- Whether a particular growth strategy align with your objectives?
- What are the chances of success?
- Are you equipped with the resources it requires?
- Is your business currently in a position to implement this strategy?
Evaluating each of these in detail will help you choose the strategy that works best for your business now and in the future.
1. Evaluate Your Available Resources
When thinking of any of the growth strategies, you should take a look at the resources that your company possesses to execute that particular strategy.
What resources should you consider?
- Financial capital
- Time and effort required.
- Market Research
- Human resources required
- Technology.
Example:
If your goal is to introduce your product to a new state through market development, you might need funds to establish stores in that area. But if your company lacks the finances to enter new markets, you should consider using a market penetration strategy instead.
Understanding and leveraging your company’s available resources will have a significant impact on your growth strategy.
2. Consider Your Experience in the Market
Your experience in the market speaks a lot about whether or not you should try any of the new growth strategy.
Example:
If you have been in the market for a decade, you might have more resources, making it easier for you to explore new markets. Additionally, your established brand recognition can give you easy access to unfamiliar territories.
3. Decide on a Long-Term or Short-Term Strategy
The duration of your growth strategy affects the approach you take when expanding your product market. Market penetration is ideal for the short-term growth of your business. It’s more about promoting your product in the existing market with the present customer base.
On the other hand, market development requires more time, focus and effort since it’s about creating and growing new markets gradually for long-lasting growth.
4. Using Both Strategies Together
Yes, you read it right. You can use both strategies together, as the main focus is on growing your business. Even though each of these strategies has its own focus and methods, when used correctly both these strategies can complement each other. (Like a couple!)
Many times, companies use both strategies together to maximize their growth.
How can you do it? An example here will help.
McDonald’s Market Mastery
McDonald’s! A tech giant company that we all love. It is a well-known fast food chain globally. But back in the day, it wasn’t that big.
What did McDonald’s do to reach there? Well, it used both market penetration and market development startegy for its growth.
Market development: By using this, they were able to offer their already existing menu from the US to all over the world.
Market penetration: By using this McDonald’s changed its menu according to the demographic locations. Plus, it also has meals for both adults and kids.
Wrapping Up
Market development and market penetration are like two different routes to business success, each with its own perks and ways. Figuring out which one suits you best can help you steer your business in the right direction.
Regardless of whether you aim to tap into emerging markets or cement your foothold in known territories, LeanSummits will engineer a customized plan to secure your success.
So which path would you choose? Planting your flag in the fresh market or steady workhorse trail?
Because, in the end, it’s more about boosting your sales to new heights and leaving your competitors in the dust.
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