Market penetration can be defined as the strategies or methods that are adopted by an organization or proposed in order to create or penetrate an existing market and establish a stable bottom in terms of business.
The term is often used when a new company wants to enter the market, which is already saturated and was to establish a firm base. Generally such companies use Penetration pricing, wherein they drop the pricing of the products so that they can penetrate the market better.
The situation of the market can be mentioned as a thick layer of ice below which the water is in a liquid state, and the new entrant wants to penetrate the ice and sink into the bottom to have roots.
To achieve this, the organizations, need to design a strategy which will break the customers from existing products and make them loyal to their new products — the primary objective of having the strategy of market penetration to obtain higher market share.
This involves converting the current product users to new products and getting entirely new customers. Competition conversion plays an important role in case of market penetration, which can be implemented by strategies like competitive pricing or reward system or increasing marketing communications.
There are multiple factors which lead to the success of market penetration like better inventory management making the costs lower or even making lesser and lesser middleman between customers and the organization.
Market penetration is special independent on the efforts of the marketing and sales department you need to create a buzz in the market and increase the noise level for their products.
Since the focus is on increasing the market share of the product in the market, most of the pressure is on the sales team to increase the sales.
Why do companies penetrate the market?
Most of the companies have common reasons to implement a market penetration strategy. Here are a few of the common reasons for implementing market penetration:
#1 Better market share:
The existing companies who are suffering from reduced sales and consistently reducing users will implement market penetration strategy to improve their market share.
Market penetration helps to increase the user based drastically and reduce the competition by providing a competitive advantage to the company implementing market penetration for their products.
By reducing their prices or by implementing schemes attractive to the customer’s companies ensure that interpenetrate the existing market break the users from the existing product and increase the usage of their product.
#2 Establishing new companies:
Market penetration is an important strategy for companies which have newly launched in the market to survive.
If they do not penetrate the market successfully the product will not what say the market, and it will be difficult for the company to survive in the tough competition which is by the strategy of market penetration is very useful for them to create a customer base.
Techniques of market penetration
That several strategies for market penetration which are employed by different companies depending on the product and nature of the industry and also according to the nature of the market and the rivalry.
For most of the products and industries, price penetration works better, but for specialized industries like pharmaceutical products, product quality and development of good products is the only way to achieve market penetration.
Here are a few of the techniques which are used by almost every company:
#1 Price penetration
This is perhaps the most widely used technique of market penetration, which is used by many organizations. This is one of the sure-shot technique which works with almost any industry and every product.
The farm using market penetration reduces the price below the lowest competitor. This attracts many customers from the existing product user base and converts them or rather compels them to buy the newly launched low priced product.
Price is an important factor in case of purchasing for more than 70% of the customers. To recover costs, many of the existing companies cannot reduce the price.
This is well new entrants who win the price war by using price penetration to grow their customer base much higher than the existing competition.
For example, to compete with existing supermarkets and grocery stores when Walmart was launched, they had to reduce the prices of their products to pull customers.
Distance use this strategy on certain days, which are termed as black Fridays or sale days when the prices are exorbitantly lower than their competitors.
The companies ensure that the price remains the same for some sometime during which the customers get used to the product and then the companies slow they start increasing their prices.
While applying this strategy, the firms should ensure that their product is up to the mark with other competitors.
If this is not the case, then the customers would buy the product one time and later on, will move back to the competitors. Price strategy can be used to pull the customers, but once the customers are pulled, to retain them, product quality, service, and other factors should be used along with few marketing strategies as described below.
#2 Increasing marketing efforts
Having more promotional strategies and campaigns always benefits the product and helps to establish the brand name and brand value in the market. The companies should ensure on promoting their product through every available medium so that it reaches the customers, and product awareness is built up.
It is very unrealistic of the companies to expect a return on investment immediately after the marketing campaign because it takes some time for the word of mouth to spread, and then the sale picks up.
The combination of different promotional media can be used to promote the product, which helps to achieve better penetration in the market.
It becomes relative the cheaper to market a product via social media. Digital marketing also ensures that the right target audience is reached and then the promotional material is viewed by the targeted audience, thereby ensuring the complete utilization of the promotional material.
This is one of the effective technique for achieving deep market penetration. A part of Marketing is also using different offers and loyalty programs in order to attract and retain customers.
Most of the times, customers are attracted to the product and purchase it owing to a low price but fail to make a repeat purchase.
For such customers, in order to encourage repeat purchases, it is important that companies introduce different reward programs. For example, Airline rewards program was one of the most successful strategies to ensure that flyers book the same flight every time and earn miles, which can be redeemed later.
Following which many credit card companies introduced the same reward points technique in order to increase credit card users.
#3 Having a strong distribution network
Stronger distribution network aids to achieve market penetration. Distribution channel ensures that the product is available for the end customer at the right place and is reaching within the time limit so as to ensure that customer demands are matter on time.
Reaching the product to the customer has become of paramount importance since e-commerce has grown.
Customers place orders on e-commerce websites and expect the deliveries within a short time. The shorter the delivery time, the higher will be the customer satisfaction rate, which will further ensure a better market penetration over the competitors.
The distribution network is also directly related to the service of the customers.
#4 Strong Research department
This is considered as one of the costliest ways to achieve market penetration. Having a strong research and development department will ensure that the product is extremely innovative and topnotch having a strong competitive advantage.
The features of the product should be unique and appealing to the customers, and then in such case, the price of the product will not matter for quality-conscious customers.
The product which is improved and new, always attract customers and trendsetters who do not hesitate to buy and try the new product.
Once the positive reviews from the trendsetters are in in the followers and laggards, start using the same product. This improves the customer base and increases the usage of the customer, and also insurers repeat usage and repeat purchase from the customers.
For example, until a few years ago, Apple was considered as one of the most innovative companies, and every iPhone that they launched was bought by most of the customers because of the unique features that it provided.
The high price did not matter for the customers because the features that wear packed with the iPhone very much more appealing, user-friendly, and they resonated with customers.
But now Apple has gone down in terms of innovation and has become more of a follower then and of energy adaptor.
Other companies like Google have brought their own product like google pixel 3 and other cell phones which are way more efficient than iPhone both in terms of quality as well as the features and are priced at a much lower price than iPhone.
Advantages of market penetration
- Increase sales for the organizations by growing the customer base.
- Increased user base which assures growth in future for the organization.
- New companies get to establish their products and make themselves heard in the market.
- If the product is of good quality, then the strategy of price presentation definitely helps customers to use a better product at a reasonable price.
Disadvantages of market penetration
- Every company has to ensure that there will be initial losses which have to be taken care of by the company itself. This is truly special in case of companies which are focused on creating brand value in the market before launching the product full-fledged.
- It is very difficult for other companies to survive in case of price penetration wherein the new entrant is price rate a very low cost as compared to the existing competitors
- The customer is happier in case of price penetration because he gets a better product at a lower price; it is difficult for other companies to sustain with such low margins or meager amounts of profit. This starts a price war and toughens up the competition.
Difference between market share and market penetration
We often encounter these terms causes ok ready and tend to misinterpret or use them synonymously with each other; however, the term market share is very different than the term market penetration.
Market share is the amount of the sale that is happening in comparison with the competitors. For example, if there are five subscribers for Netflix, 2 for amazon prime and 3 for other video streaming services, then out of 10 subscribers for out of hundred percent the market share of Netflix is 50%.
Market penetration, on the other hand, is a strategy which is used to achieve, higher market share.
Market penetration is the means to achieve, and market share is the end result.
Market penetration is measured in terms of market share while market share is measured in terms of a number of customers or users or the sale that happens in the market in comparison to other companies and products.
Market penetration is a one-time process which is achieved, and then the achieved market share is to be maintained.
Market penetration is a strategy which is used to increase the market share.