Get started with a robust market penetration growth strategy.
In any business, even when numbers are high and work is going well, business owners are constantly on the lookout for ways to grow and increase their market share. In the highly competitive world we live in, it is essential to keep improving to thrive and keep the customers coming.
One key way to achieve this growth is through what is called market penetration. This is one of the four growth strategies of the Product-Market Growth Matrix as defined in Ansoff’s matrix.
This matrix is a 2×2 matrix representing four different growth strategies where a company enters a new or existing market with new or different products. In this, the term market penetration, defined as an activity, is the process of going to the market with a product in an existing market in which a current or similar product is already present and taking market share from the other competing companies.
Really, this is a natural step as a product continues through its life cycle. Once a product or service has taken off, the first thing one would probably do for growth is to execute a market penetration growth strategy.
What Market Penetration Growth Strategy Is And Why You Should Be Interested
Market penetration means to sell the same product in the same market but find ways to get customers that haven’t yet bought the product or enjoyed the service. The key here is to try to get more customers.
It is essential to understand that markets don’t grow forever, consumers aren’t always loyal, and technology changes. It is crucial to adapt over time and review strategies to remain relevant.
Market penetration growth strategy is executed when an organization wants the sales of a product or service to grow. This strategy can be used as soon as a business has taken off, before sales, or even a few years into the business when you find that sales aren’t rising or are going down.
When we talk about market penetration, we relate to people who are currently customers in a specific period and a specific number of customers who are now buying into the product or service.
Importance of Market Penetration Growth Strategy
Market penetration determines the size of a company in terms of the number of consumers. It is also an indicator of the relative size compared to other competitors and can help understand how much opportunity exists. This enables companies to understand customers and the market better and formulate more efficient strategies to get more customers.
Penetrating a market to a great extent can lead companies to become market leaders. With a large base of potential customers, the company can have a decisive edge over its rivals.
When a company becomes a market leader, it is more likely to strike better deals with suppliers. More customers mean more bulk orders, leading to an even larger market share and increased cost-efficiency.
The position of a market leader can come in handy, especially in retail. Their products are more likely to get prime shelf space than their competitors because their product is a lot more popular among customers.
For example, a supermarket may prefer to put potato chips by Lays on display on a limited shelf rather than a smaller brand of chips because it is more likely to sell due to its popularity. This does not necessarily mean that Lays are better or healthier. Lays has an advantage as it is a market leader in this industry, and it is a more familiar face.
The main goals of marker penetration are:
- To increase sales from existing customers by encouraging more frequent purchases
- Attracting new customers and increasing the number of customers in the market.
While planning out a strategy, the focus should be on market penetration as it evaluates products and services in its existing market.
Market Penetration Rate
Whether your market penetration strategy is good or bad depends on your particular industry, product, and your total addressable market (TAM).
Using the formula Market Penetration Rate = (number of customers/TAM) x 100, you can calculate your current market penetration.
The average market penetration rate for consumer products is 2% to 6%. For business products, meanwhile, the average rate is 10% to 40%.
Market Penetration Growth Strategy
Most market penetration strategies are not too risky and ideal for startups with tighter budgets or are not keen on investing large sums in other growth strategies that come with more risks. It is generally a safe bet for a company to position itself in an already established market. As it means that they don’t need to come up with a brand-new product.
However, it does require strong strategy execution, especially around user experience, pricing, and marketing, to attract customers from your competitors.
When a business is in its early stages, it may not be in a position to invest too much into riskier growth strategies like new product development, franchising, or diversification, i.e., the other matrices of Ansoffs’ strategies.
Penetration Pricing
The primary purpose of market penetration is to get more customers. And where do these customers come from? You have to convince customers of your competitors that your product or service is better than others.
Changing pricing by launching a new product priced lower than your rivals can increase your market share. You can increase the price of the product after you have captured a larger market share.
For example, when Jio mobile network came to India, it was available at a very affordable price of Rs 0 for unlimited calls and 1GB of data per day. This drew millions of smartphone users, and it soon became one of the leaders in the industry. Airtel, Vodafone, and Idea users flocked to Jio as they had to pay about Rs 300 per month for the same offer.
After Jio acquired a huge market share, it increased the price to the same price as its competitors had initially. Only this time, many people already had Jio phone numbers. And rather than changing back to their old networks, they stuck with Jio.
Though this is an exceptional and one-of-a-kind example, it shows how pricing can be used to get a larger market share and get more customers to enjoy your services or buy your products.
Price Adjustments
To get more customers, organizations may even increase sales by increasing the number of products and reducing the product price below that of their rivals.
Perhaps the best example of price adjustment is Amazon. At any given time, about 343 million products are up for sale on Amazon.com. While browsing through the website, you might have found that the price of a pair of shoes you were looking at the day before is now lower. By collecting tons of data at an unbelievable rate, Amazon knows exactly what you want and shifts prices to offer you better than its competitors.
The price of an average product on Amazon shifts every ten minutes. Meaning, product prices on Amazon change an astonishing 2.5 million times a day!
Promotions
Offering promotions is another very popular strategy to penetrate the market deeper. The main aim of this technique is to increase awareness of the product, enabling it to raise visibility and, therefore, profit.
Many companies do this in several different ways. For example, a learning app called Byjus is the Indian Cricket Team’s (ICC) official sponsor till 2022. This means that their ads and logos will be visible whenever and wherever the Indian cricket team plays. Cricket has mammoth visibility in India and around the world. By sponsoring and promoting the sport, the company can be visible to a large number of customers. Before Byjus, the mobile company Oppo was the ICC’s captain. As the official sponsor of the ICC, Oppo too enjoyed the same luxuries that Byju’s does now.
Additionally, Byju’s also gets popular cricket players to star in their commercials, which results in the greater public interest.
Increase Distribution Channels
Dominos Pizza has become a household name, and the brand has become synonyms to birthdays, holidays and a celebration. The fast-food company has over 17,644 outlets worldwide.
The company’s market share is believed to be increasing because it expanded franchises. A distribution channel connects an intermediary to a business, generally before consumers purchase a service or a good.
Further, increasing locations and at-home delivery apps have also increased its popularity. Before food delivery apps, Domino’s was known well for its quick delivery. People trusted and kept going back to the fast-food place because they knew they could rely on them to bring them food in 30 minutes.
Product Improvement
Perhaps the most basic strategy to increase your market share is to go back to basics with the assumption – customers will buy my product if it is better.
Product management is one of the essential elements for capturing a higher market share. Organizations can beat rivals by improving the quality of their product or adding features to make their product more desirable.
In this, it is important to understand and analyze the customers’ needs and improve products to meet demand. This leads to a higher sales volume.
For example, Apple releases a new iPhone every year. Even though the improvement may be quite minor, it is always better than the previous version. Be it an extra camera, a better screen, or a higher refresh rate, Apple finds out what customers want and delivers it in the latest iPhone.
If you’re already a market leader, your objective here is to maintain your market share by coming up with newer strategies to retain customers and win the largest share of customers that have just entered the market.
Marketing And Promotions
For a startup attempting to grow through this strategy, becoming more aggressive with marketing campaigns and advertisements on the different platforms can help increase awareness in the market. Making an effort to woo potential customers by advertising on the right platform can also broaden the customer base. In this day and age of social media, an effective campaign can really set a brand or product apart, and customers from other products will come a-knocking.
A good marketing campaign or scheme can also encourage existing customers to stay loyal instead of giving their business to another company. Services like loyalty schemes and strategic alliances are some ways to offer a unique and better experience in the company. If people associate your product with a pleasant experience, they are more likely to return and recommend it to others.
For example, a bubble tea café in South Delhi offers stickers cards. Whenever a customer buys a bubble tea, they are given a small sticker. When a customer successfully collects ten stickers, they are given a free boba tea. This loyalty program offers customers a reason to come back. Because they know that each boba tea will contribute towards a free one.
Acquisition And Partnerships
Another possible option to beat the competition is buying them out or even joining them and making money together. It is probably one of the most common methods. It comes with huge advantages like having access to a whole new customer base and market share.
Alternately, a company can buy out another one and shut it down altogether, leaving the latter’s customers free for grabs. Although this requires a considerable investment, it can be quite an effective tactic and usually, in the long run, with effective implementation, reaps huge profits.
This may not be in the reach of a startup just yet. But smaller companies can keep looking for potential buyers or strategic alliances with other companies.
It should be possible to increase your share in the market and gradually gain dominance in your market with strategic planning around pricing, competitors, and lots of effort in promotions, marketing, and advertising.
For example, a supermarket may prefer to put potato chips by Lays on display on a limited shelf rather than a smaller brand of chips because it is more likely to sell due to its popularity. This does not necessarily mean that Lays are better or healthier. Lays has an advantage as it is a market leader in this industry, and it is a more familiar face.
The main goals of market penetration are:
- To increase sales from existing customers by encouraging more frequent purchases
- Attracting new customers and increasing the number of customers in the market.
While carrying out this strategy, more consideration should be given as it evaluates products or services in its existing market.
Market Penetration Rate
Whether your market penetration strategy is good or bad depends on your particular industry, product, and your total addressable market (TAM).
Using the formula Market Penetration Rate = (number of customers/TAM) x 100, you can calculate your current market penetration.
The average market penetration rate for consumer products is 2% to 6%. For business products, meanwhile, the average rate is 10% to 40%.
Market Penetration Strategies
Most market penetration strategies are not too risky and ideal for startups with tighter budgets or are not keen on investing large sums in other growth strategies that come with more risks. It is generally a safe bet for a company to position itself in an already established market, as it means that they don’t need to come up with a brand-new product.
However, it does require strong strategy execution, especially around user experience, pricing, and marketing, to attract customers from your competitors.
When a business is in its early stages, it may not be in a position to invest too much into riskier growth strategies. Like new product development, franchising, or diversification, i.e., the other matrices of Ansoffs’ strategies.
Want to learn more about Market Penetration Growth Strategy? Here are some of our other popular articles on this topic: Market Penetration Strategy Examples, Types Of Business Growth Explained and Internal Growth Strategies For Small Businesses
Penetration Pricing
The main purpose of market penetration is to get more customers. And where do these customers come from? You have to convince customers of your competitors that your product or service is better than others.
Changing pricing by launching a new product priced lower than your rivals can increase your market share. You can increase the price of the product after you have captured a larger market share.
For example, when Jio mobile network was launched in India, it came in it at a very affordable price of Rs 0 for unlimited calls and 1GB of data per day. This drew millions of smartphone users, and it soon became one of the leaders in the industry. Airtel, Vodafone, and Idea users flocked to Jio as they had to pay about Rs 300 per month for the same offer.
After Jio acquired a huge market share, it increased the price to the same price as its competitors had initially. Only this time, many people already had Jio phone numbers, and rather than changing back to their old networks, they stuck with Jio.
Though this is an exceptional and one-of-a-kind example, it shows how pricing can be used to get a larger market share and get more customers to enjoy your services or buy your products.
Price Adjustments
In order to get more customers, organizations may even increase sales by increasing the number of products and reducing the price of the product below that of their rivals.
Perhaps the best example of price adjustment is Amazon. At any given time, about 343 million products are up for sale on Amazon.com. While browsing through the website, you might have found that the price of a pair of shoes you were looking at the day before is now lower. By collecting tons of data at an unbelievable rate, Amazon knows exactly what you want and shifts prices to offer you better than its competitors.
The price of an average product on Amazon shifts every ten minutes. Meaning, product prices on Amazon change an astonishing 2.5 million times a day!
Promotions
Offering promotions is another very popular strategy used to penetrate the market deeper. The main advantage of market penetration using this technique is to increase awareness of the product, enabling it to raise visibility and, therefore, profit.
Many companies do this in several different ways. For example, a learning app called Byjus is the Indian Cricket Team’s (ICC) official sponsor till 2022. This means that their ads and logos will be visible whenever and wherever the Indian cricket team plays. Cricket has mammoth visibility in India and around the world. By sponsoring and promoting the sport, the company can be visible to a huge number of customers. Before Byjus, the mobile company Oppo was the ICC’s captain. As the official sponsor of the ICC, Oppo too enjoyed the same luxuries that Byju’s does now.
Additionally, Byju’s also gets popular cricket players to star in their commercials, which results in the greater public interest.
Increase Distribution Channels
Dominos Pizza has become a household name. The brand has come to be associated with birthdays, holidays or a celebration. The fast-food company has over 17,644 outlets worldwide.
One of the reason’s company’s market share is increasing is because it expanded franchises. A distribution channel connects an intermediary to a business, generally before consumer purchases a service or a good.
Further, increasing locations and at-home delivery apps have also increased its popularity. Before food delivery apps, Domino’s was known well for its quick delivery. People trusted and kept going back to the fast-food place. This is because they knew they could rely on them to bring them food in 30 minutes.
Product Improvement
Perhaps the most basic strategy to increase your market share is to go back to basics with the assumption – customers will buy my product if it is better.
Product management is one of the essential elements for capturing a higher market share. Organizations can beat rivals by improving the quality of their own product or adding features to make their product more desirable.
In this, it is important to understand and analyze the customers’ needs and improve products to meet demand. This leads to a higher sales volume.
For example, Apple releases a new iPhone every year. Even though the improvement may be quite minor, it is always better than the previous version. Be it an extra camera, a better screen, or a higher refresh rate, Apple finds out what customers want and delivers it in the latest iPhone.
If you’re already a market leader, your objective here is to maintain your market share. You can do this by coming up with newer strategies to retain customers and win the largest share of customers that have just entered the market.
Marketing And Promotions
For a startup attempting to grow through a market penetration growth strategy, becoming more aggressive with marketing campaigns and advertisements on the different platforms can help increase awareness in the market. Making an effort to woo potential customers by advertising on the right platform can also broaden the customer base. In this day and age of social media, an effective campaign can really set a brand or product apart, and customers from other products will come a-knocking.
A good marketing campaign or scheme can also encourage existing customers to stay loyal instead of giving their business to another company. Services like loyalty schemes and strategic alliances are some ways to offer a unique and better experience in the company. If people associate your product with a pleasant experience, they are more likely to return and recommend it to others.
For example, a bubble tea café in South Delhi offers stickers cards. Whenever a customer buys a bubble tea, they are given a small sticker. When a customer successfully collects 10 stickers, they are given a free boba tea. This loyalty program of sorts offers customers a reason to come back. Because they know that each boba tea will contribute towards a free one.
Acquisition And Partnerships
Another possible option to beat the competition is buying them out or even joining them and making money together. It is probably one of the most common methods. It comes with huge advantages like having access to a whole new customer base and market share.
Alternately, a company can buy out another one and shut it down altogether, leaving the latter’s customers free for grabs. Although this requires a considerable investment, it can be quite an effective tactic. In the long run, with effective implementation, reaps huge profits.
This may not be in the reach of a startup just yet. But smaller companies can keep looking for potential buyers or strategic alliances with other companies.
It is possible to increase your share in the market and gradually gain dominance in your market. All you need is strategic planning around pricing, competitors, and lots of effort in promotions, marketing, and advertising.
Have we missed anything or have any questions? Get in touch
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You might also enjoy these popular startup growth-related articles 11 External Growth Strategies For Businesses, and Steps To Successfully Expand And Scale Your Business on the same topic.
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