Market penetration is one of the four strategies of Ansoff matrix or product market expansion grid. Ansoff matrix is a business analysis technique that helps to identify the growth opportunities and its pros and cons. Ansoff Matrix was named after a business manager and Russian American mathematician named Igor Ansoff.
In simple terms, market penetration is the process in which Business goes to existing customers with existing products. Selling existing products to existing customers is the crux of the market penetration strategy.
Market penetration is used when the organization needs growth on existing products in existing markets.
Market Penetration Strategy
Pricing is one of the important tactics that you can use to penetrate the existing market and gain market share rapidly. You can not only grow the revenue but also gain more customers with reduced pricing. The success that is obtained with pricing is measurable easy.
You have to understand and strategize accordingly. Whether your company wants to increase the market share of one quarter or one year or if the company expects continuous growth. There could be multiple combinations and types of pricing strategy for market penetration. For example, a company can offer a direct discount on their product. A product priced at five dollars can be discounted for $4.95. Here the company is giving the flat 10% on the purchase.
Another strategy would be to give reduced prices on the combination of products or on bulk purchases. For example, buy one get one free. In this case, the company is not reducing the price of one product but giving an effective discount of 50% on two products. In this way, the customer benefits with good discount and company benefits by volume sale. Some companies go ahead and give discounts on buy two, get two free or buy three get five free.
2. Marketing and Promotions strategy
As a business, you have to realize that marketing and advertising plays a vital role in market penetration. Having aggressive marketing campaigns can increase the chance of sales. It should not be looked at as an expense, but it should be looked at as an investment. Implementing high promotional strategies will result in higher awareness of the product in customers, and ultimately it will translate into higher sales by market penetration.
Increasing the frequency of advertising, marketing promotions like sales discount, freebies, limited time offers, collaboration with other products, free samples are few of the techniques which can be used for increasing marketing penetration. Promotional strategies are very useful since they attract a large number of audiences with you.
Endorsement by celebrities, digital advertising, word of mouth is few of the promotional tools which effectively help in market penetration.
3. Partnerships, Mergers, and Acquisitions
If the competitors cannot be beaten them the best ideas to join them. Buy them out by providing a good offer. The market penetration strategy of acquisition turns out very profitable for businesses. Also, the time taken is very less. The entire customer base is shifted from one company to another when the company is acquired.
Of course, it’s an expensive process, but it is guaranteed to increase sales. In promotions and marketing efforts, it may happen that some customers may shift to your product, but others may not shift so easily. Promotions and marketing strategies do not guarantee the conversion of all customers of competition. This is where the acquisition strategy comes into the picture. You can shut down the competition entirely once you buy them out.
Partnering with the competition is yet another strategy to increase market penetration. Many companies partner with competitive companies for a limited time to offer selected products. This increases awareness of both the customers and the companies get to use the customer base of each other without being in the rivalry. Also, both companies can reap profits from the entire market without being an obstruction to each other.
4. Product modifications
Customer feedback is an important factor. Taking customer feedback at every step of the sales process can help you improve the sales process. But taking the feedback after the sale of the product gives you the necessary changes that should be made in the product. As much as possible, this feedback should be taken directly from the customer by the manufacturer.
Implementing these recommendations, feedbacks and improvements in your product will not only make your product better but also strengthen the relationship with your customer. The customer gets a feeling that he has been heard and his feedback is taken into consideration.
This will increase the trust of the customer on the product, and he will become a loyal customer. This will automatically help to increase market penetration.
5. Increasing product portfolio
Increasing your product portfolio may not be the logical step, but sometimes it may be a necessary step. Sometimes the company is missing many products on the portfolio, from which the competitor gets a share. These missing products are the gaps in which the competition enters and slowly occupies the entire share of the wallet of customers. To avoid this, businesses have to ensure that they have a higher portfolio of products from which the customers can choose. Of course, it is not possible to expand your portfolio according to every competitor company but keeping the product close by to the competition was also helps to gain the market share.
The product portfolio can be increased in many ways. For example, you are introducing a lower-priced variant or a higher-priced variant. Changes in the flavor, texture, color, size can also be done, and it can be classified as widening your portfolio. It can also be termed as product modifications. Introducing a cheaper sub-brand so that the image of the higher brand does not affect is yet another strategy of increasing your product portfolio.
For example, Audi, Skoda, Porsche, Bentley, Bugatti, etc. are subsidiaries of Volkswagen. This way, Volkswagen has many products to offer to customers who are looking for products in different price ranges as well as a variety of choices for customers who are looking at the different varieties of products.
Market Penetration for companies
Many companies use market penetration to check their product market share. It is also used by industries as a global scale to measure the scope in the market for their services or products. Market penetration relates to the potential customers that have been purchasing a competitive product regularly but now have switched over to your product. Typical market penetration is expressed in percentage. It presents a percentage of the total of all the market to those products.
A company that has a higher percentage of market penetration can be considered as a market leader. Market leaders have already weather establish brands and products. This is why they are able to reach many customers as compare to other companies. This is also why they have a better advantage at getting a higher penetration rate. Because of popularity, they will also have better brand positioning. This will result in more conversion of the customers and in turn, a higher penetration rate.
Market penetration can also be calculated for individual marketing and sales campaigns. This will also determine their success rate and if there is any significant change in the market share or not. This will determine if the implemented campaigns are effective or not. Changes if necessary, can be made in the campaign so as to achieve more effective results and better penetration rates. Thus, market penetration is a tool for the measurement of your campaign success.
Pinky is an MBA in Marketing from the University of Mumbai. She loves helping people out in learning Marketing and sharing latest ideas and tactics for growing businesses.