Most companies strive for market penetration as soon as they enter a new market to launch a new product. The hope is to enter the market swiftly and capture a sizable market share.
What is market penetration? In simple terms, it’s planning how to grow your business in an already thriving market where similar products exist. When you enter an already established market, you need to have strong implementation and execution strategies in order to get the upper hand against your competitors. This is where market penetration strategies come into play.
Market penetration strategies carry a low amount of risk and are ideal tactics for business growth, especially for startups that are low on cash or can’t invest in riskier growth strategies. Entering an established market is a safe bet as it already guarantees a need for products in your industry.
Before you can start considering which strategy to move forward with, it’s important to note that market penetration can be looked at as a metric or an activity.
Market penetration as a metric
Market penetration as a metric assesses how much of a product is being sold in relation to the total estimated market for that product. This metric is expressed as a percentage. When market penetration is viewed as a metric, it can also be called the market penetration rate.
See the simple calculation below that you can follow to get the market penetration rate:
Market penetration rate = (number of customers ÷ target market size) x 100
This can be calculated if you know your total addressable market (TAM), which is the total amount of money you can make selling your product or service. Sometimes calculating your market size can be tricky, especially depending on the nature of your product. Plus, your potential customer base could be global and your target audience may be “everyone.” The more particular you can be with your ideal audience demographics, the easier it will be for you to calculate.
To know whether or not your product or business is doing well once you’ve calculated your market penetration rate, consider this — the average rate for market penetration for a consumer product should be around 2% to 6%, whereas a business product can range anywhere from 10% to 40%. If you’re able to hone your product to where you can capture around 10% of the TAM in your industry, you’ll be doing quite well.
Apple offers a good example of successful market penetration. Within the smartphone industry, the iPhone has a market penetration rate of 19.2%, whereas smaller brands like Huawei have 10.2%.
Market penetration as an activity
As an activity, market penetration is the process of going to market with a product (in an existing market where current or similar products already exist) and taking market share from competing companies. This can also be known as market penetration strategy.
Market penetration as an activity first stemmed from the Ansoff Matrix. The Ansoff Matrix was developed in 1957 by Igor Ansoff and is used to help companies plan their strategies for future growth. It’s a 2x2 matrix that represents four different business growth strategies including market penetration, product development strategy, market development strategy and diversification strategy.
Market Penetration Strategies
There are several different ways you can approach market penetration and different strategies to apply in order to achieve success. We’ll highlight five strategies below.
1. Improving marketing effectiveness
This may feel like a “no duh” approach, but updating your content and analyzing its effectiveness can go a long way in market penetration. Consider these three ways to improve your marketing effectiveness: content adoption, content effectiveness or content customization.
Content adoption rate
How much of your content is actually being used? If your marketing team is churning out content that is rarely used by the rest of your business, it could be because that content is ineffective (see below for more about that) or because the content is too difficult to find or use. By adopting brand templating, your marketing team can organize templated content in one location that stakeholders can quickly find and customize to their needs.
If you’re looking to improve your marketing effectiveness, you need to ensure that your content is on brand and on message so you don’t lose customers to irrelevant or low quality content. Brand education, brand consistency controls and regular feedback from customers and stakeholders on which content is most effective is critical to stand out in a saturated market.
Empowering everyone in your organization to customize content is a powerful way to improve content effectiveness. Provide your staff with tools like templates that they can adapt and personalize based on customer and industry insights.
2. Increasing brand awareness
Similar to improving marketing effectiveness, another good market penetration strategy is to increase brand awareness. You can do so through several different ways including branded packaging, upping your presence on social media, working with influencers or leaning into your brand story and personality.
No matter which approach you take with increasing your brand awareness, you have to be consistent with your brand across all platforms and channels. With a consistent brand voice and aesthetic, potential customers can get to know your brand and recognize it easily.
3. Enabling multiple distribution channels
In today’s digital world, it’s no longer enough to simply sell through your personal website or in a brick and mortar shop. You need to post your content on multiple channels, as well as sell your product or service through different distribution channels as part of your market penetration strategy. That can include internal sales, channel sales partners, digital channels, franchises or strategic alliances.
If you’re looking at acquisition, know that by buying a company within your industry, you can practically buy the customer base and the market share along with it. Or, you can buy the competition and shut them down. This business plan may not be accessible for small startups, but may be feasible for more established companies.
If you can’t buy out your competitors, then making a strategic alliance as channel partners with similar companies will help you to capture their audience while also widening your market. Remember to put brand guidelines in place to keep your messaging consistent — it will ultimately make your channel partners’ lives easier too.
Creating a business franchise can also be a well-planned market strategy helping you to stand out among competitors. Franchising can be a cost-effective way to quickly get you into a market, because you won’t be footing the cost for every location. In franchising, franchisees use the brand and open their own location, while the franchisor gets royalties from the profits.
To help with brand consistency across franchises, create a brand manual that will detail things like your brand’s voice and tone, outline a general code of conduct, and include best practices templates. These templates will ensure that franchisees won’t stray from correct branding. Using templates like those provided by Lucidpress will help you create and customize templates so your franchises won’t have to create content from scratch. You can also use a content marketing platform to create, manage, distribute and organize all of your content in one place.
4. Changing pricing
Another effective market penetration strategy is through lowering or raising your prices. In fact, it’s one of the most widely used tactics. Lowering the price of a product with the intent of increasing sales is considered a price adjustment tactic. After analyzing your competitors' prices, offering lower prices or an openly discounted price (that will be raised later on) can help swing business your way. If you do take this approach, be careful, as overdoing it can lead to the opposite effect that you’re hoping for.
5. Updating or launching products
Small adjustments to your product or service can make a big difference in your market penetration strategy. Reaching out to customers or clients through surveys or researching competitors can help you understand what your audience is looking for along with what they’re saying about your current products. By listening to your customers you can pinpoint essential functions or features that they want. If done correctly, you could end up giving your market something they need but can’t find with any other company.
Whether you choose any one of these tactics to help your business grow, it’s important to note that market penetration won’t affect your overall marketing strategy for your business. Rather, it will bring solid growth potential and increase revenue. However, each of these strategies will require strong implementation and execution in order to compete and grow alongside your competitors. So be ready to stick to your guns and don’t give up too soon.