No matter what your business is, whether you are an owner of a large IT firm or a solopreneur just starting out, you need a game plan. The strategic plan that gives your organization a cutting edge depends on multiple aspects like the industry you are working in, your objectives and the opportunities you come across.Most successful marketing plans involve increasing market share and continuing to seize opportunities. However, reaping consistent profits requires an ongoing growth strategy. This is where a market penetration strategy comes into play. 

Market penetration is a ratio of how well a product/service is performing in a market compared to its estimated market. New companies need to understand the meaning of market penetration as it helps them understand their potential and calculate the expected revenue. 

  1. What is a market penetration strategy

  2. How to calculate market penetration rate

  3. Market penetration vs. market share

  4. Importance of market penetration

  5. Market penetration strategy examples

  6. Best market penetration strategies to implement

     

 

What is a market penetration strategy?

A market penetration strategy allows a brand to gain a larger market share and increase its customer base without changing its products and services. A good market penetration strategy enables you to enhance your market base in an existing industry where similar products and services are already present and take your competitors’ market share.

Every brand wants to eliminate its competition and seize a more significant part of the market share; calculating the market size and understanding how much one owns enables companies to estimate their worth. This is why every organization must understand the meaning of market penetration before implementing it in their business. 

How to calculate market penetration rate?

The market penetration rate formula allows entrepreneurs to realize how actively customers buy their products/services compared to the estimated size of their market. 

Market Penetration Rate = Number of customers X 100 Target market size

It is recommended that you regularly observe the market penetration rate as a business owner. If not that, consider estimating it right after you run a marketing campaign that will help you measure the success of your campaign. 

Market penetration vs. market share

More often than usual, the two terms-market penetration and market share-are confused. It’s essential to understand the difference between them for your business to grow. For this, it’s important to have thorough knowledge about the meaning of market penetration and market share. 

Market penetration is a percentage of a market that buys the brand’s products/services, whereas market share is the portion of the market’s total value captured by the brand. 

Simply put, activities carried out to increase market penetration help improve your product’s market share. 

The statement above is the easiest way to understand market penetration versus market share

Importance of market penetration

Many successful brands have applied the theory of market penetration and reaped benefits. First-time business owners need to understand the importance of market penetration before implementing it, so here’s  a little low-down:

  • Helps increase sales

One of the prime reasons for adopting market penetration strategies is to drive your sales. When applied correctly, a market penetration strategy contributes directly to the sales of your products/services. 

  • Improves your product’s visibility

A good market penetration strategy can help you tap a more extensive customer base and possibly a new market. However, it is recommended that a company only enter a market to offer superior customer value. 

  • Enables your brand to grow

Market penetration strategy is one of the four growth strategies in marketing. When implemented correctly, it’ll increase your brand’s visibility and fasten growth.

  • Beat your competition

One of the best parts about implementing a market penetration strategy is to combat your competitors. If you have several constantly evolving and progressing competitors, the only way to outplay them is to adopt a strategy that helps you capture your lost customer base. 

  • Enhance brand equity

Several market penetration examples will make you realize that market penetration can help enhance your brand’s equity. A good strategy will help leverage your brand’s existing perception, thereby increasing equity. 

These scaleable benefits serve as a great example of why it’s so crucial to implement market penetration no matter the size of your business. It not only helps combat your competition but also helps create awareness about your brand. 

Market penetration strategy examples

To get more clarity about the term and its uses, below are some of the most iconic market penetration examples existing around us:

  • Global leaders like Apple and Samsung have a market penetration rate of 19.2% and 18.4% respectively, the highest in the smartphone industry. Oppo, Xiaomi and a range of other brands constitute the rest of the share that make it to 100% of the market share. These smaller brands have plenty of opportunities to make a good market penetration strategy around pricing, product development and marketing to take over the more significant part of the pie. 
  • A majority of the world’s population is addicted to Coca-Cola. The beverage company is making millions by applying market penetration tactics and understanding the consumer’s psyche. Coca-Cola established a place for itself as a great drink to go along with refreshments. However, the launch of Diet Coke happened as soon as the company realized how consumers were making healthier choices, and they successfully captured a larger market share with this strategic move. 
  • In 2018, Amazon’s share of the US retail market was 49%, which is more than its top three competitors combined. This shows that a higher market penetration rate reaps immediate monetary benefits. 

These market penetration strategy examples shed light on the importance of adopting these strategies not only for new business owners who have just entered the market but also for well-established entrepreneurs looking at growing their market share. One should introduce these strategies taking inspiration from the above market penetration examples

Best market penetration strategies to implement:

Once you understand the meaning of market penetration and how essential it is for your brand’s growth, you can then work out the right strategy for you to adopt. Some of these are: 

  • Dynamic pricing

This is one of the most common market penetration strategies. Many retailers study the market and accordingly price their products/services at competitive prices. Dynamic pricing allows pricing automation, which means the software will price your offering at an amount that will help generate the most number of sales. 

  • Implement innovation

No one understands your product better than you. Study your market, understand the feedback received and work on how to better your existing product. Use the insights on why customers prefer your product and where they struggle.

  • Educate your audience

If you are entering a new market, consider educating your audience about your product/service. Make use of social media sponsored ads, optimize your website and improve your digital presence overall. This will help consumers understand what you’re offering and garner interest in your product/service. 

  • Increase distribution channels

With an evolving market, you need to evolve too. Don’t rely on a traditional retail outlet to generate all your sales. Look at various direct as well as indirect distribution channels for your products to reach a larger audience. 

  • Make it easier to buy

Very often, a consumer is interested in purchasing a product but faces issues while buying it. If buyers come to your website, they don’t want to spend a lot of their energy and time filling long forms and giving out too much information. Make it quick, easy, and convenient.  

  • Enter new markets

Many brands consider entering new locales with their offerings. This helps reach a more prominent and unexplored audience that can be your loyal consumer base. However, it’s essential to consider the financial risks involved. Also, you must have a fantastic value proposition that can help you beat the existing competition.

Picking the right market penetration strategy involves a whole lot of research about the current market scenario and relevant market development, which will enable marketers to decide which strategy to adopt. The market may be in an intense competitive scenario or a completely saturated environment; choosing the right market penetration strategy will allow you to stay a step ahead of your competition. 

Now that you have a clear understanding of market penetration strategy and its importance, it’s time to execute this knowledge. Harappa has a plethora of pathways that help businesses study various tactics that industry insiders often make use of and are the secret sauce to their success. 

With Harappa’s Select A Strategy learning pathway, you’ll learn to pick a strategy that will reap the maximum benefits for your organization. The pathway will enable you to find a solution to every problem and trace the root cause of the various challenges that your company is currently facing. The helpful and motivational faculty will always be there to support you through your learning process. This pathway is updated with the latest developments in the market and how various businesses have implemented the same flawlessly to stay ahead of their competition. The Select A Strategy pathway prepares you for an industry that’s constantly evolving and requires you to keep up with the rapidly changing trends. Build an approach that’ll enable you to look at problems from every angle.