Businesses today operate in a highly dynamic environment. The rise of internet usage and online businesses during the COVID-19 pandemic has seen the emanation of many new businesses, making competition even stiffer and more volatile than ever before. Now, it is necessary for businesses to have a strategy if they want to survive the jungle that is the business world and make the most of the market opportunities, at the same time evading the market threats.
Firms need to be competitive to serve chosen segments effectively in a meaningful and sustainable manner through the development of appropriate marketing strategies. A successful marketing strategy must tell an organization where they would want to be on a long-term basis that is why it is often said that marketing strategy is a continuous process. Every organization should have a marketing strategy to use as a tool to enhance their growth and become a strong adversary against competitors.
What is Market Penetration?
Market Penetration is defined as a quantitative measure of the sales of a product or service compared to the total estimated market expressed as a percentage. However, this definition is often substituted with the one for penetration strategy. A market penetration strategy involves infiltrating an existing product into an existing market to increase the sales of the given product while also increasing the customer base. It can also be defined as a low-pricing strategy adopted by companies for new and existing products to attract a larger number of buyers and a larger market share. Market penetration on its own is therefore a metric/ or measure and a market penetration strategy is an activity. Market penetration can therefore be a measure/ metric or activity depending on the context.
Market Penetration as a Metric
Market Penetration Rate = Number of Customers/ Target Market Size X 100
This formula illustrates that market penetration is calculated by measuring the number of customers buying a company’s product at least once against all of the potential clients in that target market in a given period. Arguably, it can therefore be used to identify whether a product is doing well in the market or not. A company can therefore evaluate its potential within an industry and assess how interested the customers are in the product using this percentage. It also gives an indication of the possible market share and revenue that can be generated by the product.
According to Buildd, in the present global market, the average market penetration rate for consumer goods is estimated at around 2% to 6%. For business products, the average market penetration ranges between 10% to 40%.
Market Penetration as an Activity
The main objective behind the market penetration strategy is to launch a product, enter the market as swiftly as possible and finally, capture a sizeable market share. The market penetration strategy involves a number of activities which include pricing, promotions and distribution, partnerships and more.
Market Penetration Strategies
Below we look at some of the various strategies that most companies employ as their penetration strategies.
- Lowering Prices
In economics, the law of demand states that ceteris paribus, there is an inverse relationship between price and quantity demanded. This means that a low price attracts more demand for a given good. This means that lowering prices results in more product sales, and thus a faster market penetration rate because consumers will buy more.
- Promotions or Discounts
Promotions like buy one get one free or offering product or service discounts such as “10% off” are another way of attracting customers and penetrating a new market.
- Partnerships and Dealerships
Partnering with other established companies and acquiring dealerships can also be another way of expanding your geographical coverage as well as improving your credibility in the eyes of companies.
- Influencer Marketing
Influencers have a wider audience which can be an advantage to your business if you employ the services of an influencer to push your product or service on their platforms.
- Aggressive Advertising
This involves bombarding the customer with your adverts through the use of various media such as newspapers, street banners, television, radio, pole-litter bin adverts, social media adverts, and print media. This helps in increasing the frequency that a customer is likely to come across your adverts and thus reinforces your product positioning.
Advantages of High Market Penetration
- Elevates the Company’s Position in the Market
If a company successfully penetrates a market and achieves a high penetration rate, it becomes a market leader. This means that the company now has a competitive advantage due to the favorable brand positioning in the market.
- Increased Sales
High market penetration means more sales revenue for the company. These can be translated into better infrastructure for the company, better employee remuneration and also a higher budget for marketing and research activities for better products or services.
- High Product Visibility
If consumers buy more of a product, visibility increases amongst peers and colleagues. This encourages more referrals and impulse buying, which benefits the company through increased revenues.
- Promotes Brand Loyalty
When customers are impressed by a product or service they become loyal to the brand. Brand loyalty means that the company has a guaranteed flow of income from those loyal consumers. Marketing costs are relatively lower as compared to marketing costs incurred while marketing the products to acquire new customers.
- Increased Negotiating Power
Negotiating position for the company is elevated due to the new standing the company has in the market. These can be deals with suppliers, partners, competitors, suppliers, customers, or any other stakeholders.
Disadvantages of Market Penetration
- Faltering Brand Image
If not properly managed, market penetration strategies may tannish the brand image due to the rapid growth strategies employed. A brand may lose its authenticity and values along the way and lose its focus. The customers may also have the wrong image from the one intended by the organization. Furthermore, the wrong type of customers or target market may be attracted.
- Pressure
Market penetration can create pressure on other departments such as sales, finance, manufacturing, and procurement, thus resulting in burnout. Sales may not be able to deliver on time, manufacturing may face a sharp increase in costs and procurement may also fail to quickly supply the inputs on time.
Conclusion
In order to successfully penetrate a market, a business may have to use various strategies according to what their budget allows. In as much as there are some challenges that one may face using the market penetration strategies, they are likely to face more benefits than drawbacks from the endeavors in the short run. Also, exercising caution every step of the way, exceptional teamwork and ensuring that the penetration efforts are still in line with the overall business strategy and values will help minimize whatever challenges that may come later on.
References
Ambler, T., Kokkinaki, F., & Puntoni, S. (2014). Assessing marketing performance: reasons for
metrics selection. Journal of Marketing Management, 20(3-4), 475-498.
Bulle, M.J., (2017). Market Penetration Strategies on Organizational Performance in Telkom Kenya Limited, Nairobi City County, Kenya, 1-67.
Kotler, P. & Armstrong, G. (2009). Principles of Marketing. 13th Edition, Pearson, Englewood Cliffs.
Chiedza Gandah is a consultant at Human Capital Experts
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