Market Penetration is a very familiar term in marketing and sales. It plays an important role in expanding scale and increasing the competitive level of businesses, especially new businesses or startups. To better understand Market Penetration, its importance, and how to build an effective market penetration strategy, please follow the article below from DPS Media.
Definition of Market Penetration
According to Philip Kotler, Market Penetration is a low-price strategy applied by businesses for products/services to attract more buyers and increase market share percentage.
Market penetration rate is calculated by the following formula:
Market penetration rate = (Number of customers / target market size) x 100
Example: Smartphones are indispensable electronic devices for everyone. Therefore, the market for this product is very potential. A company plans to launch a new smartphone line targeting a market size of 200 million people. After a period of launch, the number of customers buying this smartphone product is 20 million. Thus, the market penetration rate of this smartphone line is 10%.
Typically, the market penetration rate for consumer products usually ranges from 2% to 6%. For business products, it can range from 10% to 40%.
The Importance of Market Penetration
Market penetration strategies are strategies applied by businesses to increase market share for a product/service in a new market by using various Marketing strategies. Building a market strategy is an important tool for businesses to have an overview of their products, the level of meeting customer needs, and the shopping psychology of customers.
Additionally, when implementing market penetration strategies, businesses will determine the consumption level of the product, who the direct competitors are, their strengths and weaknesses. This information will be the basis for businesses to build more suitable sales strategies.
Learn 8 Best Market Penetration Strategies Today
Dynamic Pricing Strategy
Dynamic pricing strategy is when businesses implement adjustment plans regarding product/service prices to help achieve different marketing goals. With this strategy, businesses will base on market conditions to decide whether to increase or decrease product/service prices. However, regardless of the choice, businesses must calculate customer reactions and competitor responses to these changes.
Developing Distribution Channels
Nowadays, businesses continuously expand and improve the quality of distribution channels to meet consumer demands. This helps businesses have a suitable development strategy to deliver more goods to customers quickly.
Each distribution channel has its own characteristics and suitability for different products/services. Therefore, businesses need to carefully research the types of distribution channels as well as their products and services to select the optimal distribution channel.
Market Penetration Strategy: Product Improvement
Businesses can monitor the market share of a specific product/service to evaluate customer reactions. From there, they can propose solutions to improve product quality based on consumer preferences and needs.
Some product improvement methods that businesses can apply include: improving design, improving quality, and enhancing functionality... helping products become more liked and preferred by customers. This is one of the effective market penetration strategies that help extend product life cycles and bring stable revenue to businesses over the long term.
Boost Advertising
Boosting advertising is a market penetration strategy by using various forms of advertising on multiple fronts. This strategy helps businesses reach target audiences widely and increase consumer awareness of the brand.
However, businesses need to note that whether the advertising campaign is large or small in scale, it must be planned and detailed. Because a poorly executed advertising campaign, without careful attention, can easily be "broken" by competitors and lose advantages.
Some common advertising methods used are: billboards, signs, print ads, television, media... The marketing department of the business should use breakthrough, creative marketing techniques to increase the effectiveness of advertising campaigns.
Market Penetration Strategy: Creating Entry Barriers
A smart brand will know how to leverage available resources or find things that can make the product/service unique and different. Thanks to that, businesses will build entry barriers against competitors and dominate market advantages.
Understand Risks and Growth
When a business launches a new product to the market, two situations may occur: success or failure. Entering a completely new market segment always carries unwanted risks. Therefore, understanding the product and market is the key to ensuring smooth and favorable business operations.
Create Differentiation
In a fiercely competitive environment like today, if you want to win, you must have a product strategy as well as a completely different approach. Because a sales strategy that is not continuously improved but repeated over and over will not bring good results and will hinder the development of the business.
Therefore, you need to change your thinking and adjust Market Penetration strategies when necessary. By innovating and enhancing product value, you will increase the chances of success for the business.
Market Penetration Strategy: Strategic Partnerships and Alliances
A strategic alliance is companies or organizations that share the same target market and sell similar products/services. The purpose of a strategic alliance is to create common benefits to increase competitive advantage against competitors not belonging to the “alliance group.”
Instead of developing internally, cooperating and linking with businesses in the industry will help the company achieve goals faster, easier, and with less risk. In addition, this strategy also brings many other benefits such as:
- Access to a wider market
- Access to diverse distribution channels
- Access to new technology
- Benefits from economies of scale
- Reducing risks and costs of new strategies or products
- Increasing reliability level
- …
Steps to Build a New Market Penetration Strategy
Entering a new market is not easy, even for businesses with strong resources. Therefore, before entering any market, you also need to build a scientific and reasonable strategy. Below are 8 basic steps to build a successful market penetration strategy:
- Step 1: Research market size
- Step 2: Identify market segments
- Step 3: Select target market
- Step 4: Product positioning
- Step 5: Product pricing
- Step 6: Choose appropriate penetration strategy
- Step 7: Marketing to increase market share
- Step 8: Customer feedback survey and product improvement
Summary
Expanding scale and optimizing profits is the goal every business aims for. And the Market Penetration strategy – main market entry is what businesses need to implement to increase competitiveness and dominate the market.
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