Market Penetration

Market Penetration Meaning

Market penetration is calculated as how much the product or service is being used by the customers in comparison to the total market for that product or service and is generally used as a means to create a position in the market especially in the primary stages of setting up of the business, which helps it to establish and develop a direction to expand and achieve growth in the market.

The formula for calculating market penetration as a percentage:

Market Penetration = (Current Sales Volume / Total Sales Volume) *100

Market Penetration Example

Let us understand this market penetration with the help of an example of the smartphone market.

According to the statistics of Counterpoint research, Apple is in the lead with 51% of the market share of the smartphones market across the world, followed by Samsung at 22%, Huawei at third with 10%, OPPO at fourth with 6% share at OnePlus with 2%. Apple manages to be at the top almost every time with new strategies, introducing new versions, enhancement of products, product up-gradation, etc.

Strategies for Market Penetration

Below given are the strategies for market penetration.

Market-penetration

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Source: Market Penetration (wallstreetmojo.com)

  • Penetration Pricing Strategy – The policy of entering the market at a low price and then establishing the product and eventually increasing the price is called penetration pricing policy/ strategy.
  • Price Adjustments – Lowering the price to attract price-sensitive buyers in the market is one of the important strategies for market penetration.
  • Increased Promotional Activities – By increasing a product’s appearance and targeting the most profitable customers, the market share of the product would increase.
  • Improving Products – Taking the customer feedback about the product, what improvements they want in that particular product making it more desirable in the market would make it irresistible.
  • Improving Technology – Improving the technology by continuous up-gradation and maximizing the production thus meeting the demand.
  • Increase in Distribution Channels – Distribution channels help improve market penetration by reaching out to more consumers. It can lead to an increase in consumer awareness and enhance the consumer’s perspective of the product.
  • After-Sales Service – Providing after-sales service to the customers improves their satisfaction upon using the product while leads to them suggesting to consumers of competitor’s products which leads to personal promotion.

Advantages

Some of the advantages are –

  • Fast Growth – Market penetration is the best way to enlarge the consumer base. When better prices are offered to consumers, market share expands easily than before. As a consequence, growth occurs in the firm rapidly.  Also, the sales and marketing strategies target the customer base ensuring a greater outreach.
  • Economic Advantages – If market penetration goes well as planned and hoped, it leads to a multitude of economic advantages. As a result of lower prices than competitors, more consumers will buy the product which will result in higher profits. Alternative strategies will lead to attracting the lost customers and it will create an edge over the competitors.
  • Tackling the Competitors – One of the greatest advantages of market penetration is combating competitors. Low prices will lead to competitors striving hard to stay in the market while we evolve as market leaders. Outplaying their strategies with new strategies is the deal.

Disadvantages

Some of the disadvantages are –

  • Unrealized Production Costs – Lowering the product price may lead to an increase in more number of consumers buying the product but it will also lead to production costs not being met and hence might result in losses.
    It might become difficult for the company which has set lower prices with bigger companies.
  • Poor Company Image – When a company produces more than one product, lowering prices of one product may lead to a bad image to the other products of the company and hence, the brand reputation may fall.
  • Lowering Industry Prices – Once a player reduces the price in the market, the other competitors also try to reduce the price of the product drastically so that consumers avoid shifting from one product to another.
  • Lack of Results – One player after the other may compete to sell goods at lower prices. This might lead to a total reduction in the industry price of the product. A company should rather try to create a place in the consumer market by way of quality and services than continuously reducing the prices.

Conclusion

Market penetration is thus the measure used by companies to assess their product’s market share. It is a global and market-wide scale measuring the scope of the product’s market share. That means if a company has higher market penetration, it means that the company is a market leader in that industry.

As we have seen above, market penetration is calculated as a percentage of the total market for those products. There are many strategies to increase market penetration as discussed earlier.

But any strategy has to be carefully implemented because the strategy will also be implemented by a competitor which leads to a shift in the consumer base again. The focus must be on improving customer satisfaction which will help the company in the long run rather than solely a continual price reduction.

This has been a guide to what is market penetration and its meaning. Here we discuss various strategies of market penetration along with the example. You can learn more from the following articles –

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