Did your startup lose market share or the necessary momentum to competitors? While it might be a silly question to ask business owners, they might make a mistake when choosing a particular market or strategy. It often comes down to what a brand needs to do that hinders the growth opportunities rather than what the business owner is doing.
Whether you are a solopreneur or have a big business, an efficient marketing plan is what you need to run your business. A strategic game plan that gives you an edge over your competitors is based on numerous aspects. It can be the business opportunities you come across, the industry you are working on, or your business objectives. While most successful marketing strategies increase market share and seize opportunities, incurring profits consistently demands an ongoing growth strategy. This is exactly where the market penetration strategy comes into play.
You might be launching a new business and expecting it would impact your target market, or you have already been in a business for a while and looking for ways to enhance revenue, boost sales, and take the business to the next level. Whether you want to go for sustainable growth or a big splash, there’s one strategy that is bound to work for you: market penetration. But what is it, and how does it impact your business? Let us find out:
What is Market Penetration?
When we talk about market penetration, it can mean two things. The first thing is measurement. Didn’t get it? Maybe an example will help:
If you estimate that there are 10,000 people who are in need of your product, and you could sell 2000 units of it, your market penetration would be 20%.
The second thing that market penetration can mean is activities and strategies that help in boosting the market share of a product. It can also include promotional and advertising activities.
Both the analogies of marketing penetration are important to business as both penetrating markets and gaining traction are crucial in determining success.
Suppose a skincare company has launched its brand-new organic and vegan product lines. Some of its products include vegan lip balm, foundation, eyeliner, lip colors, and many more. However, out of the company’s target group size of 50,000, only 25,000 people have bought their products till now.
Six months after the launch, the company will calculate its penetration rate, and it will be 50%.
While a 50% penetration rate might be considered an average level, it is not an exceptional outcome. So, the company will join hands with another reputed cosmetic brand to offer 20% off on lip gloss with every lip color purchase. By doing this, the client base increases to 10,000.
These examples are just to say that by implementing the right penetration approach, the sales rates went up by 20%.
So if we were to define market penetration, this is how we would do it:
Market penetration is the extent to which a particular product or service has penetrated its target market. It can also mean how well a business expands into a new market or how they increase its business saturation with an already occupied business space.
All the brands wish to have a good, or at least average rate market penetration rate for obvious reasons. High penetration rates translate into quick monetary benefits. So when does one know they have a high market penetration? Let us give you another example:
In 2018, the market penetration of Amazon in the US ecommerce market was a whopping 49%. This was more than its top three competitors combined! Simply put, Amazon accounts for 5% of all retail dollars spent throughout the US. In the same year, another company, Apple, captured an estimated 15% to 20% market penetration rate. By the December quarter, the company sold 77.3 million iPhones with a 19.2% share.
A business with a high market penetration will enjoy quick riches and use ongoing credibility for sales. But the real benefit is experiencing the forward and upward momentum built. Another advantage is that you can set prices based on your competitors and not follow others.
Now, let us talk about the importance of market penetration:
Why is Market Penetration Strategy Important?
Getting its name out there in the market is one of the biggest challenges a budding business faces. This gets even tougher when trying to plunge into a space where big brands have already established themselves. This is where this growth marketing strategy comes into play. Let us see how:
- Increased Sales
One of the primary reasons why startups leverage market penetration strategies is to increase sales. These strategies can be the key to improving a company’s bottom line. It can immediately get your products out to the market and make them more visible to your target audiences. Moreover, these strategies also reveal an unexplored market geography and segment.
- Improved Brand Equity
A company can increase its value with well-defined brand equity instead of a particular service or brand. For example, Apple can leverage market penetration strategies to offer other products by capitalizing on its reputation in the luxury smartphone industry.
- Better Product Positioning
Oftentimes, new brands find it tough to compete against big brand names. But, while they cannot charge more than their competitors, they can carve out a well-planned market penetration campaign and justified higher sale prices, which will efficiently position their brands in the marketplace. But, of course, the prices must consider superior customer value. Thus, startups must effectively communicate differentiation to audiences to develop their strategy successfully.
Now that we have a good idea about market penetration let us understand how to calculate it.
How to Calculate Market Penetration?
Market penetration can be the key indicator of whether or not your sales and marketing strategies are working. It is the percentage of identified potential customers you have acquired. When you do not meet the desired penetration rate, it can result in a strategic issue in marketing or sales, or it could be an indicator that your business needs time with market development for the expansion of the potential consumer base.
Here’s how you determine your penetration rate:
Calculating the penetration rate is quite easy when you know your target market size. To calculate the penetration rate, divide the number of customers you have by the target market size and then multiply the result by 100.
Penetration Rate = (Number of Customers ÷ Target Market Size) × 100
For example, if you sell homemade pickles in a small town to 60 licensed shops and your book of business has 200 shops, your company’s penetration rate is 30 percent.
Penetration Rate = (50 ÷200) × 100 = 25 percent
In order to have a successful penetration rate, you must have an efficient strategy. So let us learn about it.
What is a Market Penetration Strategy?
A market penetration strategy is a well-planned and structured plan that allows a business to gain traction at a larger market share and improve its customer base without changing its services or products. A well-defined penetration strategy helps you improve your market base in an existing industry, but similar services are products that are already present and take the market share of your competitor.
Every business wants to get rid of its competition and seize a bigger part of the market share by calculating the market size, and acknowledging how much one owns enables a company to estimate its net worth. Therefore, every organization must understand the true meaning of market penetration even before implementing it in their business.
So what are these strategies? Let us find out.
What are the Best Market Penetration Strategies?
Market penetration strategy is a business’s effort to expand with the help of current commodities in the present marketplace. Moreover, the low-risk approach helps in determining how to augment and acquire market share in an advancing market with similar services or products.
If a business plans to improve its sales volume of the current services or products in the existing marketplace, market penetration is a good growth strategy. It aids them in obtaining a higher market share via the introduction of product updates, penetration pricing, and other tactics.
Let’s examine the penetration strategies:
- Use Dynamic Pricing
In an attempt to persuade their customers to buy their services and products, many online retailers get involved in price wars. Given the online price rise and drip through any given day, the market penetration strategy grows more complex and intense.
When you set dynamic pricing, it allows for pricing automation. Thus, irrespective of the complexity or size of your given service or product, the associated software explores the market and sets the prices in order to offer actionable intelligence.
- Magnified Marketing and Promotion Attempts
Businesses can change their promotional ways and endorse aggressive advertising campaigns to grow their brand awareness. Moreover, it also helps them in retaining customers and gain more of their competitor’s clients.
- Penetration Pricing
One of the most crucial methods of acquiring market share and flourishing the earnings, such as lowering the product amount initially to broaden audience engagement, is market penetration pricing. So businesses must assess the effect of market share from the shift in product pricing. Moreover, it should also conduct an inspection of the total recent customers received after the revised pricing scheme launch.
- Product Modifications
A marketer must examine the response to both its products and the competitors’ products to identify the items that must-have key activities and characteristics. They can then change the product and something distinct to search the market penetration rate.
- Procurements and Coalitions
A business can purchase the competing business in order to get its client base and market share or close it down entirely. Another way for a startup business is to enter into a strategic partnership with organizations of similar interest to acquire their core audience and expand the market base.
This will indicate the organization’s efforts to expand its current commodities in the marketplace. In addition, the low-risk approach suggests obtaining and augmenting the market share in a fast-paced market with similar services and products.
Big brands have acquired quite a market base by leveraging strategies like these. Let us see some examples.
Examples of a Successful Market Penetration Strategy
We have laid out some of the iconic market penetration examples to get a clearer vision of the term and its uses.
- Global Leaders such as Samsung and Apple have a market penetration rate of 18.4% and 19.2%, respectively. It is considered the highest in the smartphone industry. Xiaomi, Oppo, and a range of other brands make up the rest of the share, which makes it 100% of the market share. Usually, smaller brands come across sufficient opportunities in order to make a good market penetration strategy around product development, pricing, and marketing to take over the larger part of the pie.
- A good part of the world’s population is actually addicted to Coca-Cola. The beverage company has made millions by leveraging market penetration tactics and understanding the consumer’s psyche. Coca-Cola has established a place for itself as a great beverage to get along with refreshments. Having said the launch of Diet Coke took place as soon as the company understood how health-focused customers were. With this, they successfully captured a significant market share with this strategic move.
These are two vivid examples of market penetration.
Connect Market Penetration to your Overall Business Strategy
Choosing a suitable market penetration strategy includes a whole lot of research about the ongoing market scenario and recent market development. This will enable businesses to determine which strategy will work best for them. The market might be in an intense competitive or completely saturated environment; thus, opting for the ideal market strategy will let you stay ahead of your business rivals.
Now that you clearly understand market penetration strategy and its crucial, it’s time to implement this knowledge. A good growth marketing agency will have a plethora of pathways that help businesses examine various tactics that industry insiders often leverage and have proven to be the secret sauce to their success.