Your Full Guide: What is a Market Penetration Strategy?

Growing your business cannot happen without a market penetration strategy!

Expanding your company scale seems pretty intuitive, considering successful and effective growth and experiencing boosts in revenue. That means your business has already built brand awareness, loyalty, and more.

It’s encouraging and promising that you probably say something like, “Let’s offer our products in America!” — for example. 

We know this to be true by checking the most successful and well-known companies around you. (Look at Apple, McDonald, and Amazon!)

On the other hand, did you see a brand lose its momentum and market share for its competitors when it decided to scale up its business? Then, of course, you did. 

The question you should think about is, “What is common between highly-successful companies?” Or how do they put themselves in a position for consistent and strong growth? And what other losers did wrong? You need to know what they do to learn about their case study. 

Of course, many reasons lie in the secrets of success and failure. However, this post will focus on a new concept in strategic planning.  

So, if your startup is looking for low-risk business growth plans, creating a market penetration strategy should be one of the first things to consider.  

We’ve heightened the definition of a market penetration strategy, how to create one, and more.

Let’s get it right. 

What is a Market Penetration Strategy?

A market penetration strategy is a framework plan for getting your products or services into a new market. It’s about getting your company in front of a new audience who will buy from it. Having a solid plan before entering any new market is important because it can be expensive and time-consuming. Plus, if you don’t have a good plan, you could end up losing money instead of making it.

As we’ll see, this process has many facets, with a lot of research, preparation, and analysis.

Sometimes, we can define market penetration as the amount of a product or service sold to customers compared to the forecasted total market for that service or product.

It’s an assessment that can determine the potential market volume and size or help develop a strategy for enhancing a specific product or service’s value proposition and market share. 

Thus, this strategy entails infiltrating an existing market where competitors offer current or similar products with a new product you intend to introduce. 

When Do You Use a Market Penetration Strategy?

• You are planning to expand or further statute your customer base in a market they are already in.
• You will launch a new product that might appeal to a different target market segment.
• You want to estimate the size of your market and identify the percentage of consumers who buy similar products or services within. 
• You want to gain a sense of actions taken to overtake your competitors and want to acquire a larger share of the market. 

In short, all business owners want to eliminate all competition and completely take over all the market share for a given product. So, calculating the total market size and measuring how much of the pie you have is significantly beneficial before launching any new. 

Side info: This definition emerged in 1957, representing a theory of the Ansoff Matrix model, which helps leaders plan for their future growth.  

How Can You Create Your Own Market Penetration Strategy?

But how can you create or calculate market penetration?

If you’re using market penetration as a metric and strategic framework, use the formula below to discover how much a product or service customers use compared to its total evaluated market.  

Or, use the current sale volume in the following equation for your product or service, then divide it by the total target market volume of all products available in your market.  

(Number of your customers/target market size) x 100 = Your market penetration rate. 

*Please note this equation can not happen without having a total addressable market (TAM)

What is a market penetration rate?

It is a metric that measures the percentage of a target market that a company has captured. It’s a valuable measurement for companies to track because it tells them how well they’re doing at reaching their target market.

So, let’s say Company X has 100 customers and 1000 potential customers in their target market. That means their market penetration rate would be 10%.

If Company X wants to grow, they need to find ways to increase its market penetration rate. To do this, X needs to introduce new products or services that appeal to its target market.

So, is it good enough?

Well, according to a handful of marketing studies, a reasonable penetration rate is between 10% and 40%. But, of course, it also varies depending on the industry norm. And for business products, the rate ranges from 2 to 6%.

So, compare your rate to the average market penetration. If your own looks a little low, you must explore ways to increase it.  

Thus, Company X still has a way to grow. 

Frankly, you need to monitor your market penetration to identify any increase or decrease in penetration.  

But how often to calculate your market penetration rate?

It’s an excellent question because you don’t need to bother yourself with these numbers constantly. So, the good rule of thumb is to calculate it after each marketing campaign. 

That will help you spot any changes in penetration so that you will have a better idea of how the success your campaign can achieve.   

Important: This way of measuring your penetration might not align with all industries. For example, establishing market size can be tricky for software products because your potential customer base might be literally everyone! The more particular you can get with your ideal audience demographics, the easier it will be to perform your penetration. 

Takeaways:

We know that much intensive information has been explained, so we need to focus on what you need to know from all these theories and speculation:

• The average market penetration is 2 to 6% for each consumer product. However, it should be between 10 to 40% for the business level. 

• This average might change based on the industry and your market volume. For example, if you offer a software tool and your market is as wide as the Earth, then if your penetration rate is 10%, you are doing quite well. 

• While companies like Apple and Samsung are market leaders in the smartphone industry, companies like Oppo and Xiaomi only acquire around 7% of the market. But both have a plethora of opportunities to grow and take a share of the market.  

• Every business has the same opportunities to increase its market penetration by improving its strategy around pricing, offering new features for product improvement, consistency, and marketing initiatives to take more market share from its competitors. 

• Consider the Ansoff Matrix for the best result when crafting your penetration strategy, which includes four aspects for business growth; diversification, market development, market penetration, and product development.  

• Even if you have no plans to expand, you need to calculate your market penetration from time to time to determine the size of the potential market and update your strategy. 

• If you receive positive data proving that your market is large enough to comprise your new product, be ready with your penetration strategy. 

• When designing your market penetration strategy, consider using the STP concept, which stands for segmentation, targeting, and positioning. It’s a perfect model to know more about your product or service before offering it to the market. It starts with dividing your market into segments and then targeting each segment with a specific campaign to solve their unique problems. The third step is learning how to position your business to appeal to each segment.   

What Does it Mean to Have a High or Low or Penetration Rate? 

As you know, the more, the better, so many brands aspire to push up their penetration rate for many reasons— one of them is to generate immediate monetary benefits.

That’s what Amazon is trying to do all the time. Not just that, Amazon acquired 5% of all retail dollars spent throughout the entire USA. 

It was also the case for Apple when iPhones amounted to a 15% to 20% market penetration rate. That’s when Apple sold more than 77 million iPhones, ending 2018 with a 19.2% share, according to Omnia Retail. 

Samsung comes second at 18.4%, Huawei ranks third in the smartphone industry at 10.2%, and a bunch of smaller brands take the remainder of the market share. 

In fact, the examples of brands which have benefited from the higher penetration rate are tremendous.

You can think about Nike. The company has become a giant empire in athletic shoes. If you have visited sports stores such as Foot Locker or Dick’s Sporting Goods, you can see how Nike consistently takes up a larger portion of the space. 

It’s not a coincidence. That’s because the retailers realised that Nike has the biggest market share and everyone likes it. It delivers in sales. 

The retailers also know buyers expect a wide collection of Nike products in their stores. Nike’s reputation and popularity warrant better shelving space and exposure. 

As a result, Nike lies in high market penetration. 

A brand that succeeds in hitting high market penetration can enjoy insane cash flow and riches. It can also gain an ongoing reputation that it would continue to leverage.

You can’t do everything like these giant companies. Many obstacles will hinder you, but the real advantage of seeking to increase your penetration is enjoying the forward and upward momentum built through the process.

That accounts for another benefit because you’re able to set the price, and then your competitors will follow you— instead of being subordinate. 

So, successful companies can use market penetration rate at the industry level to keep their eyes on the potential for specific offerings or a smaller scale. Also, it’s a way to gauge the market share of their offerings. 

That will help them gather insights into how the market and your customers see your product or service.

As a business owner, you have an excellent opportunity to be similar to Nike! Who knows! But why should you consider acquiring a higher market penetration? Because you can expect the following:

• To be an industry leader.
• To have a widely-recognised brand everyone likes.
• To sell products or services in high momentum even if they are already established in your industry.
• To have robust brand equity.
• To have better visibility in the market.
• To have a high sales volume means you’d be able to leverage among your competitors and suppliers. 

However, you have the ability to make more products for less than you’d be able to because of the scale of your operations— if you were a less-established business.

In short, high market penetration gives you many marketing advantages and more potential to guarantee continued growth and success as a business. Needless to say, high market penetration is a goal in itself, but how can we achieve it?

According to many experts and entrepreneurs, market development should be your approach. 

How Can Profiletree Help You?

Are you searching for a place to start your growth plan?  

So, you have to develop a good market penetration strategy, which all depends on a reasonable market penetration rate. And the market penetration rate depends on your product, how you can add value to your industry and your total addressable market (TAM). 

If you know your TAM, you can use the penetration formula to calculate your current market rate. 

But if you don’t know? What if you know but get fractured because your rate is not even close to your competitor’s?

That’s how we can help you. We will explore the best market penetration strategy to boost your market share and focus on what you need to implement in the short and long term. 

That can happen through:

• Working on a new marketing plan: It all depends on how you present yourself to your audience. We will work on creating a new marketing plan that aligns with your unique vision. 

• Creating a new marketing campaign: increasing your penetration share will never happen without launching a new creative marketing campaign or initiative to promote your offerings in a unique way that your customers have never seen before. Our experienced team is ready to do so by implementing a media buying plan and analysing your campaign’s success before and after launching it so you can refer to it soon.  

• Changing your pricing: Implementing a pricing plan is a significant part of your penetration objectives. We will design a new one to lower or raise the cost of your products according to your roadmap in this step. 

• Investigating the competition landscape: You will suffer a lot without identifying the need for a new product before launching it. Our team will conduct surveys and optimise analysis to understand your target audience. Then we help you create a product to fill this gap.

• Updating or changing the way you showcase your product: the market is constantly changing, and you should do so. Finding a specific feature of your product can come with some challenges. But our team has the right tools to resolve this challenge by creating your buyer personas more effectively to line up with what you’re offering. 

• Entering new markets: Growing your business requires entering new territories and offering franchise opportunities, but actually, it’s not as easy as it sounds. You need to identify where you can expand and grow your business. We will conduct a market search to explore which areas you can open up new stores or prospects for your innovative startup or brick-and-mortar business.  

• Identifying a partner to work with: Sometimes, you can’t handle your expanding business alone. We can help you to make the best choices for your business. While we specialise in marketing your business, you can focus on the other things that matter.

• Offering a new rewarding system: A promotional programme is essential to boost loyalty. We will design this programme (including discounts, insider information, birthday gifts, and more) for you by encouraging your customers to sign up on the website. Then you can give them perks for giving you their personal information like their name, emails, and mobile phones.  

• Training your marketing and sales team: Offering profound and practical training for your sales rep and marketing team can enhance your penetration plans. You can also encourage them to increase their sales by designing new ways of commissions and promotions that will always positively affect your revenues. We will help your force to focus on social selling and enrich their experience to close the deal with prospects.   

Your success is our bread and butter. Our team knows how to create a business development plan to ensure you hit your market confidently and constantly. 

Contact us today for more!