Do you flock to the nearest Starbucks every holiday season to avail of promotions and their exclusive calendar collectible? If you are new to a place and unsure of which food to eat, do you look for McDonald’s because you know there is always one in almost all cities, the price is affordable, and the food is familiar? What new flavour of Coca-Cola soda have you discovered in your recent trip to the groceries? All of these are market penetration strategy examples or ways brands try to increase their market share.
What Are Market Penetration Strategies?
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
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In the market penetration strategy, the company tries to grow using its existing offerings (products and services) in existing markets. It tries to increase its market share in the current market scenario, increasing market share within existing market segments. This can be done by selling more products or services to existing customers or by finding new customers within existing markets. The company strives for increased sales for its present products in its current markets through increased promotion and distribution.
This can be accomplished by:
- Price decrease
- Increase in promotion and distribution support
- Acquisition of a rival in the same market
- Modest product refinements
Of the four product-growth strategies in the Ansoff Matrix, market penetration is the least risky.
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.
This can be accomplished by:
- Different customer segments
- Industrial buyers for a good that was previously sold only to the households;
- New areas or regions of the country
- Foreign markets.
Market development strategies bear more risk than market penetration strategies as there are more uncertainties in new markets than existing ones.
Market Development Strategy Examples
When McDonald and Starbucks first landed in a new country, these are ventures into foreign markets and an example of market development. The same is true when Starbucks started selling its branded coffee as capsules for home-use coffee machines like Nespresso and Dolce Gusto. Before this, Starbucks was traditionally targeted for a restaurant or dine-in experience.
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.
The Basic Ideas Of Market Penetration
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.
Market Penetration Example: McDonald’s
McDonald’s Corporation, the American fast-food company founded in 1940, is the world’s largest restaurant chain. As of 2018, McDonald’s serves over 69 million customers daily in over 100 countries across 37,855 outlets. It started as a restaurant operated by Richard and Maurice McDonald in San Bernardino, California, the United States, which was rechristened into a hamburger stand, and later turned the company into a franchise. The Golden Arches logo was introduced in 1953 at a location in Phoenix, Arizona. In 1955, Ray Kroc, a businessman, joined the company as a franchise agent and purchased the chain from the McDonald brothers. McDonald’s Corporation revenues come from the rent, royalties, and fees paid by the franchisees and sales in company-operated restaurants. According to two reports published in 2018, McDonald’s is the world’s second-largest private employer with 1.7 million employees (behind Walmart with 2.3 million employees). As of 2020, McDonald’s has the ninth-highest global brand valuation.
Best known for its hamburgers, cheeseburgers, and French fries, they also offer chicken products, breakfast items, soft drinks, milkshakes, wraps, and desserts. In response to changing consumer tastes and a negative backlash because of the unhealthiness of their food, the company has added to its menu salads, fish, smoothies, and fruit.
McDonald’s has stayed on as the world’s largest restaurant chain by revenue, mainly due to its aggressive market penetration strategies. Here is how McDonald’s have been keeping the lion share of the market:
Known the world over for its affordable meals, McDonald is almost always cheaper than its competitors. They also price most of their products using a clever pricing strategy – where prices end with .99, making it appear affordable. McDonald’s also use bundled pricing where it is cheaper to pay for combo meals (food plus drinks) together rather than paying individually for each item.
Extensive Marketing And Advertising
McDonald’s is famous for its extensive marketing and advertising. You cannot watch a television program without seeing its advert multiple times during the run of the program! Television has played a central role in the company’s advertising strategy. In addition to the usual media (television, radio, and newspaper), the company uses billboards and signage. It also sponsors many sporting events ranging from Little League to the FIFA World Cup and Olympic Games. To date, McDonald’s has used 23 different slogans in United States advertising and a few other slogans for select countries and regions. In addition, McDonald’s do not shy from getting celebrities to endorse them. Among its famous endorsers are sports celebrity Michael Jordan and rapper Travis Scott. In the countries and territories outside of the U.S., you will find it being endorsed by favourite local celebrities and personalities. One of its longest and popular sponsorship is with the NASCAR races, dating back to the NASCAR Cup Series in 1977.
Increased Distribution Through Speedy Service, Drive Throughs and Deliveries
It certainly lives up to its name as fast food as it is known worldwide for its speedy service. McDonald’s has also established drive-throughs for ease of purchase. The company also offers home delivery through third-party food delivery service like UberEATS, etc.
Innovative Product Bundling Plus Localized Offerings
Who has not heard of the McDo Happy Meal? The Happy Meal is an excellent demonstration of how McDonald’s applied modest product refinement to penetrate the market and capture a more significant market share. The contents of the Happy Meal are staple products like burger and fries but bundled with toys and treats for children, and it becomes irresistible to kids and parents alike. McDonald’s also “localizes” their menus to cater to each country’s food custom and taste. In some McDonald’s restaurants in Asia, soups are offered while beer is sold in McDonald’s German stores.
Market Penetration Example: Starbucks
Starbucks Corporation the world’s largest coffeehouse chain. This American multinational chain of coffeehouses and roastery reserves is headquartered in Seattle, Washington. As of September 2020, the company had 32,660 stores in 83 countries, including 16,637 company-operated stores and 16,023 licensed stores. Of these 32,660 stores, 18,354 were in the United States, Canada, and Latin America. Starbucks locations serve hot and cold drinks, whole-bean coffee, micro-ground instant coffee known as VIA, espresso, caffe latte, full- and loose-leaf teas including Teavana tea products, Evolution Fresh juices, Frappuccino beverages, La Boulange pastries, and snacks including items such as chips and crackers. Some seasonal offerings include the annual fall launch of the Pumpkin Spice Latte and others specific to the store’s location. In urban culture, Starbucks has become a favourite hangout for the tech-savvy and hyper-connected generation owing to its free Wi-Fi on almost all its locations.
In 2018, Starbucks had 52% of company-operated stores vs 48% of licensed stores. The revenues for company-operated stores accounted for 80% of total revenues, making Starbucks a chain business model. Before the pandemic, Starbucks has been known to aggressively increase its market share in existing locations with existing products, using the following market penetration strategies:
Growing The Number Of Stores
Starbucks has always been aggressive in expanding its presence in territories where they already have a footprint. In the U.S., for example, before the pandemic, it opened more drive-throughs and express stores in New York, Boston, and Seattle, even if it has already a considerable presence in these locations. It opened its first store in 1999 in Beijing and has continuously opened new stores; as of 2016; there are over 2,300 Starbucks stores in China. It has also modified its store mix with lesser dine-in and restaurants and more express and pick-up stores. In Korea, the 11th coffee market globally, Starbucks grew its presence by partnering with upscale department store Shinsegae.
Elevating The Coffee Experience
There is an urban culture associated with Starbucks that is synonymous with the tech-savvy, hyper-connected generation. This is because Wi-Fi is almost always accessible in every Starbucks store. In addition, Starbucks has also been offering roasteries, reserve and experience stores for the uber-rich, coffee connoisseurs and other premium customers. It also provides seasonal product like the Pumpkin Spice Latte (fondly called PSL by Starbucks fans), which heralds the arrival of autumn for Starbucks fans and aficionados.
Extending Digital Engagement
In the U.S., mobile payments make up one-fourth of all Starbucks payments. So it makes sense for the company to drive digital engagement and promote mobile payments. It has also changed its loyalty program to the amount of purchases instead of frequency to encourage its loyal customer base. Instead of a one-on-one email marketing campaign, it has switched to an app-based payment, marketing and loyalty program.
Market Penetration Example: Coca-Cola
Coca-Cola, or Coke, is a carbonated soft drink manufactured by The Coca-Cola Company. Invented in the late 19th century by John Stith Pemberton, Coke was bought out by businessman Asa Griggs Candler. His marketing tactics made Coca-Cola the present-day market leader of the world soft-drink market. The drink’s name refers to two of its original ingredients: coca leaves and kola nuts (a source of caffeine). The current formula of Coca-Cola remains a trade secret.
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.
Based on Interbrand’s “best global brand” study of 2015, Coca-Cola was the world’s third most valuable brand, after Apple and Google. In 2013, Coke products were sold in over 200 countries worldwide, with consumers drinking more than 1.8 billion company beverage servings each day. Coca-Cola ranked No. 87 in the 2018 Fortune 500 list of the largest United States corporations by total revenue.
A combination of clever and effective marketing and market penetration strategies has turned Coke into one of the most recognizable and saleable brands in the world today. Here’s how Coca-Cola is doing it:
Capitalizing On Its Strong Brand
Frequently credited as the inventor of the red and white-clothed Santa Claus, Coca-Cola capitalizes on its strong brand by associating itself with popular holidays and events. Ever since Coca-Cola’s famous Santa Claus Christmas campaign, it has been associated with Christmas worldwide. And not just Christmas but Coca-Cola as a brand is so strong that it is often synonymous with celebration. Sporting events benefit from having the Coke brand attached to it. It is even more ubiquitous than water during sporting events!
Aggressive Advertising And Promotion
Like McDonald’s, you cannot watch a television program without at least running into an advertisement from Coca-Cola. You see it everywhere, too – in billboards, print media and the internet. People even look forward to its Christmas and summer advertising campaigns. In addition to promoting the brand through traditional channels, Coke also licenses its logo for many products – collectibles like mugs, glasses, and fashion and accessories.
Coca-Cola has a long history of sports marketing relationships, which have included Major League Baseball, the National Football League, the National Basketball Association, and the National Hockey League, as well as with many teams within those leagues. Starting in the 2019-20 season, Coca-Cola has agreed to its biggest U.K. sponsorship deal by becoming Premier League football’s seventh and final commercial partner for the U.K. and Ireland, China, Malaysia, Indonesia, Singapore, Egyptian and the West African markets.
It is seen as product placements in movies and T.V. series. Prominent celebrities like Elvis Priestley, David Bowie, Elton John, and Whitney Houston have promoted the endorsed the brand. Coca-Cola also does not shy from global marketing campaigns. One of its most iconic campaigns is the 1971 “Buy the World a Coke”, where the jingle pop song “I’d Like to Teach the World to Sing (In Perfect Harmony)” was sung in different languages. Another popular and global campaign was the “Share A Coke” campaign originated in Australia in 2011. In the campaign, the Coca-Cola logo on the bottles was replaced with first names. Coca-Cola used the 150 most popular names in Australia to print on the bottles. The campaign eventually made its way into other markets around the world.
Acquisition Of Rivals In The Same Market
A notable market penetration strategy done by Coca-Cola is acquiring brands that are selling in the same market. Among its most significant acquisitions are Smartwater and Vitaminwater, Minute Maid, Odwalla, Fuze Beverage and Honest Tea. Smartwater and Vitaminwater were purchased as part of Coca-Cola’s 2007 acquisition of Glacéau for more than $4 billion. Smartwater is the best-selling premium water brand in the U.S., while Vitaminwater is a nutrient-enhanced water beverage available in various flavours. Everybody knows the juice brand Minute Maid which has been around for more than 60 years. Its acquisition marked Coca-Cola’s first venture outside of soft drinks. Though it is mainly recognized for its orange juice, Minute Maid comes in more than 100 different varieties, including apple juice and fizzy lemonade. Odwalla is a protein drink and juices company that also offers chewy fruit and nut bars. In 2001, Coca-Cola paid more than $180 million for its acquisition. Coca-Cola bought Fuze Beverage in 2007 in an undisclosed deal. It subsequently became one of Coca-Cola’s billion-dollar brands. In 2008, Coca-Cola purchased a 40 per cent stake in organic beverage maker Honest Tea for $43 million and bought out the rest of the company in 2011. Today, Honest Tea can be found in more than 100,000 stores.
The original Coke flavour, or what people refer to as Coke classic, is arguably the most popular variant. But when criticism emerged over the unhealthy nature of carbonated drinks, Coca-Cola introduced Diet Coke to retain the increasingly health-conscious customers. Over the years, Diet Coke has become a viable alternative to the regular Coke. It has even managed to elevate the status of Coke as something acceptable to drink for the health-conscious. The other Coke variants include Caffeine-Free Coca-Cola, Diet Coke Caffeine-Free, Coca-Cola Zero Sugar, Coca-Cola Cherry, Coca-Cola Vanilla, and unique versions with lemon, lime, and coffee.
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