What are market penetration strategies?
Types of market penetration strategy
- Market penetration pricing. Adjusting pricing is one of the most common market penetration strategies. ...
- Market penetration marketing and promotions. Some brands may achieve market penetration by increasing their advertising efforts or promotions. ...
- Acquisition. Acquisition is common in market penetration strategies. ...
- Product updates. ...
What are the disadvantages of the market penetration strategy?
What Are the Disadvantages of the Market Penetration Strategy?
- Unmet Production Costs. If products are expensive to create, attempting to have the lowest prices may not lead to a significant profit.
- Missed Opportunities. A company that produces a luxury product misses opportunities if it markets the item as a cheap product.
- Poor Company Image. ...
- Lowering Industry Prices. ...
- Lack of Results. ...
- Saturated Market. ...
How to develop market penetration?
Market Penetration tactics
- Price Adjustment. The strategy of Price Adjustment is one of the most widely used market penetration tactics. ...
- Augmented promotion. The drastic increase in promotion of a product (or service) can lead to dramatic results. ...
- Distribution Channels. ...
- Improving Products. ...
- Upsurge Usage. ...
- Knowing Risk and Growth. ...
- Create barriers to entry. ...
What is the market penetration formula?
Market penetration rate measures how much of your product is used or bought by the customers compared to the approximate total market for that product. To calculate the market penetration rate, you need to know the Total Addressable Market (TAM). The market penetration formula is as follows: Market Penetration Rate = (Number of Customers / TAM ...
What is the example of market penetration?
Launching a new product into the market is another market penetration example that can be used for growing a business. Companies tend to generate a lot of hype amongst their target markets when it comes to releasing new products.
What's market penetration strategy?
A market penetration strategy is when a company works towards a higher market share by tapping into existing products in existing markets. It's how a company (that already exists in the market with a product) can grow business by increasing sales among people already in the market.
What is penetration pricing strategy with example?
Penetration pricing is when businesses introduce a low price for their new product or service. The initial price undercuts competitors, forcing them to match the offer or quickly apply other strategies. Competitors' customers may switch over to the cheaper offer, and new customers buy in too.
What is the market penetration of Coca Cola?
Market Penetration strategies of Coca-Cola Marketing penetration refers to selling existing products to existing markets (BPP Learning Media, 2010). Coca-Cola pursues market penetration as one of its growth strategies. This has been possible for the company due to an incredible strength of Coca-Cola's brand name.
What companies use market penetration?
Popular Examples of Market Penetration StrategySmart Phones. SmartPhones are the best example of the Market Penetration Strategy. ... Digital Entertainment Companies. In this era of SmartPhones, digital entertainment companies like Netflix, Amazon Prime, Spotify, etc. ... Food Industry. ... Telecom Industry. ... Airlines Industry.
How does Apple use market penetration?
Market penetration involves gaining a larger share of the current market by selling more of the company's current products. For example, Apple applies this growth strategy by selling more iPhones and iPads to its current markets in North America.
How does Netflix use price penetration?
Netflix is a perfect example of penetration pricing well executed. In 2000, Netflix users could rent four movies at a time with no return deadline for a $15.95 subscription. This made it possible to rent a DVD for $1 or less, while Blockbuster charged about $4.99 for a single three-day rental.
What are the advantages of market penetration?
Advantages of market penetration strategies include quick diffusion and adoption of your product in the marketplace, incentives to be efficient, discouragement of competition, and creation of goodwill. Disadvantages include lower profit margins, possible harm to your company's image, and the risk of a pricing war.
What companies use penetration pricing strategy?
13 penetration pricing examplesStreaming companies. ... Internet and cable providers. ... Banking institutions. ... Hospitality services. ... Grocery stores. ... Airline companies. ... Online education programs. ... Product manufacturers.More items...•
How does Nike use market penetration?
Market penetration is another major intensive growth strategy that optimizes Nike's profitability and competitiveness. The strategic objective of market penetration is to increase the company's customer base or market share, by selling more of existing sporting goods to current markets.
What is Starbucks market penetration?
Starbucks Coffee's main intensive growth strategy is market penetration. In the market expansion grid or Ansoff Matrix, this strategy supports the company's intensive growth by maximizing revenues from existing markets, using the same or existing food and beverage products.
How can market penetration be improved?
Ways to increase market penetration Adjusting (increasing or dropping) pricing to appeal to new audiences. Channeling further investment into marketing and advertising efforts. Updating your product so that is better addresses customer concerns or roadblocks, and/or improving its functionality.
What are the objectives of market penetration?
Market penetration is a set of activities pursued by companies to increase the market share of a product. Market penetration is the art and science of increasing sales of existing products/solutions/services without changing them. Usually, it is applied to merchandise that is selling in a specific geography.
What strategy does Starbucks use?
Starbucks business strategy can be classified as product differentiation. Accordingly, the coffee chain giant focuses on the quality of its products and customers pay premium prices for high quality.
What is market skimming and penetration?
Price skimming sets prices higher to attract customers most interested in the product or service to maximize short-term profits. Penetration pricing uses lower prices to build a customer base for new products or services.
What are the advantages and disadvantages of market penetration?
Advantages of market penetration strategies include quick diffusion and adoption of your product in the marketplace, incentives to be efficient, discouragement of competition, and creation of goodwill. Disadvantages include lower profit margins, possible harm to your company's image, and the risk of a pricing war.
What Is The Purpose Of Market Penetration Strategies?
Market penetration is a strategy used to increase sales of existing products or services to existing markets to gain a more significant market share. This strategy is often used in the early stages of the business or before it enters the market to prove the market’s existence. It is also used to reveal market size for products or services and understand the number of competitors and their share of the market. Applying his strategy allows businesses to decide on whether it is good to enter their target market or not. Market penetration also gives a business idea of how it can make its products or services more attractive to consumers than its competitors. In running the business, when there are low sales or slumps compared to previous years, market penetration strategies can also be applied to revive sales. If the sales growth trend is increasing but significantly lower than competitors, it indicates a shrinking market size. In this case, market penetration strategies can be used to regain market share.
What is market penetration?
Market penetration is the successful selling of a product or service in a specific market. It is measured by the sales volume of an existing good or service compared to the total target market for that product or service. Market penetration is one of the business growth strategies from the Ansoff Matrix. H. Igor Ansoff first devised and published the Ansoff Matrix in the Harvard Business Review in 1957, within an article titled “Strategies for Diversification”. The product-market grid is used to help assess and determine the steps the company must take to grow, and the risks associated with each strategy
How Is It Different From Market Development Strategies?
In market development strategy, a company tries to expand into new markets (geographies, countries etc.) using its existing offerings and minimal product/services development, unlike market penetration, where the expansion is attempted in existing markets.
How to increase market share?
The basic idea to achieve a higher market share is two-fold: increasing sales volume from existing customers by encouraging frequent purchases or increasing the number of customers in the current market by attracting new customers. The market penetration strategy is based on proven capabilities and characteristics of the business and the market; therefore, it contains the lowest risk out of the four strategies in Ansoff’s product-market growth matrix. When conducting this strategy, companies should give extra consideration as it evaluates the products or services in its existing market. This is important in the early stages of selling the product or service when business owners are not comfortable with risk-taking. The business is not in the position to invest heavily into product development or diversification. The amount of risk involved with each of the four types of Ansoff’s strategies increases from market penetration to market development, to product development, to diversification. The diversification strategy is most risky as the business grows into both a new market and product and is exposed to more uncertainties. Market penetration is a strategy and a measurement (in percentage) for the popularity of a brand or a product in the category. In other words, it measures the number of customers in the market that buys from a brand or product.
Which strategy bears more risk?
Market development strategies bear more risk than market penetration strategies as there are more uncertainties in new markets than existing ones.
Who sells Coca Cola concentrate?
The Coca-Cola Company produces concentrate, which is then sold to licensed Coca-Cola bottlers throughout the world. The bottlers, who hold exclusive territory contracts with the company, have the finished product in cans and bottles from the concentrate, in combination with filtered water and sweeteners. The bottlers then sell, distribute, and merchandise Coca-Cola to retail stores, restaurants, and vending machines worldwide. The Coca-Cola Company also sells concentrate for soda fountains of major restaurants and foodservice distributors.
What is market penetration strategy?
Market penetration strategies are methods companies and their marketing teams use to increase their market share, or the portion of the market their product occupies. Market penetration has challenges, but it can also yield a significant return on investment (ROI) by increasing brand awareness and boosting the sales of a product.
Why do companies avoid using marketing penetration strategies?
Some markets already have many products with very low price points, so companies may avoid using marketing penetration strategies such as price adjustment because of high competition. If they choose to offer their products at a decreased cost in a market with competitive pricing, they may face challenges in managing the cost of production while trying to compete against companies with similar products and pricing. However, they can prevent unmet goals by using other strategies, such as increased promotion or product improvement, to give them the competitive advantage they need to accomplish their objectives and increase their revenue.
How can marketing professionals help businesses?
Marketing professionals can help businesses overcome the challenge of entering a market saturated with existing products and brands by implementing strategies that disrupt current supply and demand. Marketing teams that use market penetration strategies may benefit from increased production and a larger customer base.
Why do businesses use market penetration?
Faster growth. Businesses aiming to achieve growth can benefit from market penetration strategies because they may increase their customer base. Marketing professionals often achieve this by lowering prices, which attracts the attention of consumers and encourages more sales. When more consumers buy a product, businesses have an opportunity ...
Why do companies avoid promotion of lower priced products?
However, they typically avoid the promotion of lower-priced products because they want to maintain their image as luxury brands. For this reason, they usually choose to keep their customers' focus on their costlier products by keeping prices stable. This prevents their customer base from associating the brand with value offerings.
Which matrix considers market penetration the least risky of its four components?
The Ansoff Matrix considers market penetration the least risky of its four components.
What is the definition of a barrier to market entry?
Creating barriers to market entry: Reducing the variable cost, or production costs that change based on how much product a business manufactures, to increase market share
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.
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 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.
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:
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:
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:
What is a market penetration strategy?
The market penetration description may be confusing, based on where you look, since there are two distinct definitions. As shown below, market penetration can typically be defined as either a measurement or an activity. We will analyze all market penetration concepts and how they apply to SaaS in this post.
How to calculate a market penetration
If you're using market penetration as a measurement, use the formula given to evaluate how much a service or product is used by consumers relative to the total estimated market.
Pros & Cons of market penetration strategy
As far as market penetration is concerned, you want yours to be high. A high market penetration rate has many advantages.
How to create a market penetration strategy?
A market penetration strategy is made up of tactics that are aligned with favorable market conditions. Business conditions—or indicators—should serve as "proofs of concept," showing whether or not you can adopt a plan.
Some examples of market penetration strategy
Market penetration, categorized as a measurement, is an estimation of how much a product is sold, calculated as a percentage, compared to the overall estimated market for that product. This is also referred to as market penetration rate.
Final thoughts
Market penetration strategy includes concentrating on selling more of your SaaS product into an existing market in order to obtain a higher market penetration and more of your competing companies' customers.
What is market penetration strategy?
Market Penetration Strategy is an approach for a product or service to gain a position in the market which increases sales. Market Penetration is a measure that describes how much a product/ service has reached and availed by the customers compared to the estimated stats.
How to calculate market penetration?
Market Penetration for a business can be calculated by dividing the volume of your product or service sales with the total number of sales estimated and multiplying it with 100 to get a percentage.
Why do businesses need market penetration?
As mentioned, a business needs strategies to get into the market and increase sales. Market Penetration Strategy can help the business evaluate the market, understand the pros and cons of competitor’s products, and improve their products accordingly. The best product or service with the right pricing will entice a customer and improve sales.
How does penetration pricing work?
Most of the packaged foods industries gain visibility in the market by launching the products for a lower price than the competitors . Once the popularity is gained they increase the prices of the products.
Which smartphone company has the Penetration Pricing Strategy?
While the Apple iPhone is in the market with an astonishing OS and grabbed everyone’s attention, Samsung came into the picture with the Penetration Pricing Strategy. It provided a smartphone for lower prices which increased the sales for Samsung. Later many brands came into the picture using the same strategy.
What is a market penetration strategy?
A market penetration strategy is a plan to increase the market share of a product within an industry. Market penetration is the process of identifying how the size of a potential market relates to the included products. Businesses use a market penetration strategy to identify if it is possible to gain market share in a certain area to meet their goals.
How does market penetration work?
A market penetration strategy can help increase a brand's customer base and revenue. By identifying your company's current share of the market and comparing it to the demand, you can then create a penetration strategy. Understanding the different strategies and how to apply them can help increases that market share. In this article, we discuss the benefits of a market penetration strategy as explain how you can use one to meet your goals.
Why do coffee shops have market penetration?
The owner develops a market penetration strategy to lower their company's pricing in the city and offer a variety of menu items so customers have more drinks from which to choose. This allows them to capture a wider range of customers and, over time, they can increase their share of the market. They also consider buying out a few of the smaller coffee shops in the area but decide to wait until the completion of the first strategy to reevaluate their penetration rates.
How do brands achieve market penetration?
Some brands may achieve market penetration by increasing their advertising efforts or promotions. These strategies increase brand awareness, which can be important for gaining more customers and more market share. Brands can also use marketing and promotions to achieve brand loyalty or to use emotions to connect with the customer. Many brands may also use market penetration marketing and promotions in combination with pricing.
What is acquisition strategy?
Acquisition is common in market penetration strategies. This is the process of merging two entities to create a partnership or buying out a competitor. With each of these actions, you combine your market share with the other brand's share for a larger percentage of the overall market. Some brands may choose to maintain the previous brand's name and reputation, whereas others may choose to merge everything into their own brand.
Why is market penetration important?
Fast Growth – Market penetration is the best way to enlarge the consumer base. When better prices are offered to consumers, market share expands easily than before. As a consequence, growth occurs in the firm rapidly. Also, the sales and marketing strategies target the customer base ensuring a greater outreach.
How is market penetration calculated?
Market penetration is calculated as how much the product or service is being used by the customers in comparison to the total market for that product or service and is generally used as a means to create a position in the market especially in the primary stages of setting up of the business, which helps it to establish and develop a direction to expand and achieve growth in the market.
What are the economic advantages of market penetration?
As a result of lower prices than competitors, more consumers will buy the product which will result in higher profits. Alternative strategies will lead to attracting the lost customers and it will create an edge over the competitors.
What is the policy of entering the market at a low price and then establishing the product and eventually increasing the price?
Penetration Pricing Strategy – The policy of entering the market at a low price and then establishing the product and eventually increasing the price is called penetration pricing policy/ strategy.
What are the disadvantages of a product?
Some of the disadvantages are –. Unrealized Production Costs – Lowering the product price may lead to an increase in more number of consumers buying the product but it will also lead to production costs not being met and hence might result in losses.
What does it mean to have a higher market penetration?
That means if a company has higher market penetration, it means that the company is a market leader in that industry .
What is the lack of results in the consumer market?
Lack of Results – One player after the other may compete to sell goods at lower prices. This might lead to a total reduction in the industry price of the product. A company should rather try to create a place in the consumer market by way of quality and services than continuously reducing the prices.
What is market penetration strategy?
Market penetration strategy is one of the four growth strategies explained in the product/market expansion grid known as Ansoff Matrix. The other three strategies include market development, product development, and diversification.
Why do companies use penetration strategy?
Companies use a penetration strategy for the expansion of their business and customer base. For instance, a company follows the market penetration when it launches a new product in the current market to target the other segment of the existing market. You may perceive the market penetration in two ways; either an activity or measurement.
How to Calculate Market Penetration Rate?
Now the question is how to calculate market penetration; you can calculate it by following the simple formula;
Why is market penetration important?
Market penetration allows you to compete with competitors. Every market comprises many competitors, and they offer different products/services to attract your customers’ market share. Now it’s a question of your business’s survival, and you have to fight back by offering lower prices. That’s how you push the competitor out of the market.
How do companies scale their presence in the market?
Companies could scale their presence in the market in various ways. They sell more products to increase the market share of the firm. For instance, whenever Apple experiences an imbalance in the market, the company increases the sale of its products, iPhones, and iPads. The brand also increases the product range to satisfy the needs of customers.
How do companies increase their market share?
Companies also increase their market share by expanding their marketing campaigns in foreign countries. The best strategy is to offer your product/service in a foreign language.
Is it difficult to know the size of your market?
Though the formula is simple, it would be challenging to know the exact size of your market. The target market of products like the software could be the whole world. The more precise information you’ll acquire about the target demographic, the more accurate calculation you’ll have.
