Market Penetration Strategy

Article byShrestha Ghosal
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Market Penetration Strategy?

A market penetration strategy is a business plan developed to increase a product’s market share in an existing product market. It aims to boost business growth by increasing sales among a pool of existing competitors.

Market Penetration Strategy

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The strategic market penetration involves introducing a product or service in the market where similar products or services exist. Therefore, a business must formulate effective marketing strategies to make the new product stand out among its rivals. Furthermore, the product’s sales must increase to expand its share in the product market.

Key Takeaways

  • Market penetration strategy is a business plan companies design to increase their market share in an existing market. It aims to expand an existing product’s sales in the existing market.
  • This strategy is used when a product or a service must take away a part of the market share from its rivals for itself. It is beneficial for products that require frequent replacement.
  • This strategy is effective in promoting a good brand image. Additionally, it helps a company introduce new products seamlessly into the market. Furthermore, it aids a business in establishing and expanding its position in the future.

Market Penetration Strategy Explained

Market penetration strategy is the business strategy a company designs to aid a product in grabbing a share of the market size in an existing product market. When a company sells a product with similar counterparts in the current market, it must create compelling strategies to attract customers’ attention. This business strategy is developed to attract customers toward existing products, which will increase sales.

It is a part of the Ansoff strategy, a business growth strategy developed in 1957. The Ansoff strategy has four valuable tools for increasing business growth. The Ansoff matrix comprises market penetration, product development, and product diversification. Market penetration strategy in marketing is a useful instrument that helps a business achieve significant growth while being risk-aversive.

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How To Implement?

A company can implement this strategy in the following ways:

#1 – Dynamic Pricing

Online retailers often engage in price wars to lure customers. Changing the price according to the current market conditions helps a company to increase its customer base by staying ahead of its competitors. In addition, dynamic pricing helps a business by allowing price automation by engaging research software.

#2 – Distribution Channels

Increasing the distribution channel would help a business cover a large market segment, growing sales. For example, a company focusing solely on retail stores can increase its consumer base by venturing into online marketing, email marketing, and telemarketing.

#3 – Choose A Specific Location

Targeting specific locations helps a business tap into a market with high demand for products or services. Some aspects like the weather, climatic conditions, and lifestyle can be factored in while selecting the location. For example, the demand for warm beverages will be high in a hill station, whereas the need for cold beverages will be higher on the beach.

#4 – Upgrade Products

Upgrading the existing product will help attract more customers. A business can study the consumers’ expectations of a particular product or a service. Then they can try to upgrade the existing product or service by including those features. Adding more features to a product that customers already like and prefer will enhance its position in the market. This will lead to increasing demand for that product which, in turn, will increase sales.

#5 – Consumer Awareness

Increasing consumer awareness can help a business increase sales. First, potential customers can be educated about a product’s existence and attributes. This is necessary, especially for new brands or products recently entering the market. A company must take the initiative to familiarize potential customers with the latest product or service. This will help boost sales.

Examples

Let us understand this strategy with the following examples:

Example #1

Suppose David Apothecary is a company that manufactures beauty and wellness products. They introduced a moisturizer that customers have liked over a long period. David Apothecary named the moisturizer “Honey and Oats Delight” based on its most active ingredients. Within a short time, it grabbed a good market share and continued to be a product that customers liked and purchased consistently.

As a result, in 2022, David Apothecary introduced a separate new ingredient in the same product. They added SPF 50 in the Honey and Oats Delight moisturizer variant. In addition, they announced to their customers that the moisturizer could also act as a sunscreen. By doing so, they upgraded their existing product. This is an example of a market penetration strategy.

Example #2

Filippo Berio became the top brand for olive oil, vinegar, and pesto in over 20 countries. The brand is famous across Central and Eastern Europe and Russia. In January 2023, Filippo Berio’s CEO planned to increase its consumer base in the United States. Although the brand has existed in the US market since 1896, it had only a 2% market share in the USA. Filippo Berio aims to unlock a significant percentage of the US markets in the coming months. This is also an example of a market penetration strategy.

Advantages And Disadvantages 

The advantages of the market penetration strategy are as follows:

  • This strategy helps seamlessly introduce a new product or service in the market. It ensures that there is no resistance from the customers.
  • It helps in promoting a good image of the business. It shows that the company is willing to invest to retain its customers. This creates goodwill for the brand.
  • It is an economical method for increasing sales. Compared to other ways, it is less time-consuming and requires fewer resources. As a result, it is also a cheaper alternative to other marketing methods.
  • It is an effective way to grow a business. This strategy helps a company reach out to many new customers quickly, thus increasing the customer base. Consequentially, it also increases sales.
  • It helps a business grow its prospects. This strategy is instrumental in carving a niche for a brand in the market. This allows the brand to establish itself and keep expanding in the future.

The disadvantages of the market penetration strategy are as follows:

  • This strategy may lead to unmet production costs. Lowering prices to attract customers over their competitors or increasing the cost of marketing the product could generate low revenue. As a result, the profit margin could get adversely affected.
  • This strategy will not be beneficial in an already saturated market. If the products are such that they do not need regular replacements, this strategy will become unsustainable in that market.

Market Penetration Strategy vs Market Development Strategy 

The differences between the two are as follows:

  • Market Penetration Strategy:  Companies use this strategy to sell products in an existing product market. It is a low-risk strategy as the products and services are sold in familiar markets. This strategy includes flexible pricing, adding more distribution channels, and increasing consumer awareness and brand promotion.
  • Market Development Strategy: Companies use this strategy to sell existing products in a new market. It is a high-risk strategy as the products and services are sold in a foreign market. This strategy includes entering a new geographical market and targeting new consumers in new market segments.

Frequently Asked Questions (FAQs)

1. Which products should use the market penetration strategy?

The products or services that already exist in the market and are willing to grow their market share use this strategy. This strategy is favorable for the products that consumers keep replacing frequently. Some products where this strategy is beneficial are online streaming platforms, internet service providers, airline services, hospitality brands, online educational programs, and clothing retailers.

2. Why choose a market penetration strategy?

This strategy helps a business increase its product or service’s visibility in the market. It also helps make the customers aware of a product’s features and benefits. It is an effective way to attract a consumer’s attention and turn potential leads into actual customers. Furthermore, it aids in growing brand equity as the company’s impression improves along with its rising market share.

3. When is the market penetration strategy effective?

A penetration rate between 2% and 6% is considered adequate for consumer goods. A 10% to 40% penetration rate is considered suitable for business products.

This has been a guide to what is Market Penetration Strategy. Here, we explain it with its examples, advantages, disadvantages, and how to implement it. You can learn more about from the following articles –

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