Market penetration is a statistic that measures the extent to which a product or service will be chosen by the potential customers in comparison to the entire market. It is the ratio of the estimated customer base concerning the total market for that product or service.
New business ventures use this data to determine the market size, reach a larger customer base and establish their brand in the concerned market. Business managers can utilise this data before launching a new product to ascertain its potential market. By determining revenue from the increasing market size, market penetration can essentially boost product development.
Market penetration activities provide brands with the perception of how they can increase the market share of a particular product or service in an existing market. It is an important strategy that is adopted by well-established companies and start-ups alike to tap into their target market, successfully sell their product and grow their business.
Market penetration requires some basic information to begin with. A business venture must understand its existing market share, growth pattern, price structure and competitors before introducing a new product.
Apple Inc. has constantly worked on its primary products like iPhone and iMac. With constant upgrades to its high-end products, Apple’s market share has crossed the 5% mark in India as of 2022. Thus, Apple effectively implements its product placement strategies, thereby gaining a competitive advantage.
Market penetration means identifying the likeability of a product or service and is generally expressed by this formula:
However, for determining the saleability of a current product/service, business ventures use this equation instead:
An example of market penetration will further explain the outcome of these strategies. The mirrorless digital camera market has been breaking all boundaries in terms of creative capabilities using innovation and AI technologies. Digital camera giants like Nikon, Canon, Fujifilm, and Sony have constantly been working on improving their current product range by introducing software and firmware upgrades.
With an existing market share of 59.8% (as of 2022), Canon is the leading camera manufacturer in addition to their other optical imaging devices like photocopiers and medical equipment. Their immediate competitor Sony (22.1% market share), works on similar market strategies and applies its fancied product differentiation to help consumers identify their products.
With exclusive innovations to their product base, other brands like Fujifilm have also seen a substantial rise in their market share. Fujifilm maintains a specific customer base that favours analogue-style digital imaging.
Its marketing strategies also focus on its retro-styled cameras and ensure secure market domination. To own a product that differentiates from the widely used models, Fujifilm customers have technically ‘accepted’ the penetration strategy introduced by the manufacturer.
This strategy of identifying the target market and tapping into the customer base that can resonate with the vision of the product denotes successful market penetration.
A market penetration strategy helps business managers focus on existing products or services, the customers it caters to, and the strategies of their immediate competitors. It aims to neutralise the risk-bearing factors of a product through marketing and promotional strategies. Following are three market penetration strategies for business entrepreneurs:
Despite the challenges that market penetration occasionally faces, companies still prefer these strategies to gain a thorough insight into their customer’s willingness to purchase its products or services. Greater market penetration implies a gradual increase in sales, brand value improvement and a smarter product positioning.
Following are four different ways of increasing market penetration:
Business ventures can make informed marketing decisions with access to market penetration strategies. Some benefits of using these strategies include:
Despite the advantages of using market penetration as an effective business strategy, it could have certain disadvantages too.
Market penetration transforms perceptions about a product and, thus, affects customer decisions. Despite high competition, successful penetration allows companies to capture an enormous market share. A greater market share implies sales and profit maximisation.
Ans. Market penetration pricing is a costing approach that is meant to initially provide a particular product at a lower price. This helps brands capture a greater market share and introduce new products or upgrades.
Ans. Market penetration works well when companies want to boost the sales volume of their existing product range or introduce new products in an existing market.
Ans. When a business venture identifies its total addressable market (TAM), it can calculate its penetration rate. Penetration rate = (number of customers/TAM) X 100. Experts believe that an average market penetration rate of 2-6% for consumer products and 10-40% for business products are profitable.
Ans. Market development is the process of launching an existing or new product to a new target market. The goal throughout the market development stage is to tap into a new customer base. On the other hand, market penetration strategies help to successfully sell products in an existing market.
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