You have a great product or service. Chances are you have seen success selling but know your market has untapped potential. This scenario is an excellent opportunity for market penetration. A market penetration strategy is when a company works towards a higher market share by utilizing existing products in existing markets. One way a company grows is by increasing its sales of products into a market they know will buy.
Market penetration strategies include setting yourself apart from the competition and digging deeper into an existing market for the company. It infiltrates a market that already contains the products but sets them up to gain dominance in the market.
Understanding market penetration strategy can help any organization grow and become a leader in their industry.
How Do You Know If You Have Market Penetration?
Market penetration calculations determine the measurement of a product or service in relation to how many customers use it compared to its total estimated market. To do this calculation, you will take the current customer volume for your product and divide it by the total market volume of all like-products available in the specific market.
You will then want to consistently monitor your market penetration to be made aware of any penetration increases or decreases. Perform the market penetration calculation quarterly or after you run a marketing or sales campaign. Remember, as you calculate, good market penetration is above 10% for B2B products.
What Is the Difference Between Market Share and Market Penetration?
Although they are used interchangeably, market penetration is not the same as market share, although it does drive market share. The difference is:
- Market penetration is the percentage of your target market you sell to during a period. Market penetration tends to focus on a targeted market that is a narrow version of the whole market.
- Market share is the portion of your market's total value that your business commands. It calculates the entire addressable market or the specific amount that can be reached. Market share is based on the company's revenue as part of the total sales in that industry.
Are There Different Ways to Increase Your Market Penetration?
There are several ways to increase your market penetration. These include a variety of proven tactics that organizations can use in their overall growth strategy.
Price Adjustment
Adjusting your pricing is a commonly used market penetration tactic, though price reduction it's not one we usually recommend. This could simply be lowering the price of a product or service in an attempt to increase sales.
Some businesses reduce or raise their prices after checking out the prices of their competition, making them more competitive. While it is crucial to be competitive, we also believe in driving high value for your product, which allows you to price accordingly.
Marketing Efforts
Transforming your marketing plan is another way to increase market penetration. Analyze data and the competition and make essential changes to boost your visibility and value among your target audience. Gaining visibility through marketing will increase the number of people in your market that know about you. Ideally, your product becomes the go-to solution in their mind for the problem you solve.
See how marketing tactics helped Dakota Storage drive 49% more contacts and 94% more closed deals.
Identify a New Need
Take the time to research and learn the needs of your target audience. Discover if your audience has different needs or problems you can address with your existing product. Create new messaging around those needs and segment your marketing to communicate those challenges to the audience.
Identify a Business Partner To Work With
Partnerships can be a unique way to create a win-win with another company. Developing a partnership allows you to reach the already cultivated audience they have created, which would also benefit you. There are many ways to share audiences, including email campaigns and cross-promotions. Distribution channels are another partnership that can increase sales power and market penetration.
Purchase a Small Business or Competitor
Businesses with the ability and resources may want to consider purchasing a competitor or alternative in their space. This strategy will increase your customer base and leads, immediately increasing their market penetration. Be sure if you are considering this strategy to have a good plan for rolling the new company into yours.
Promotional Program
It's great to have a series of promotions that you know work in the marketplace. Turn these on to boost penetration and kick sales up a notch. Loyalty programs are also a great way to increase sales of consumable products. These programs enable you to offer incentives to customers for promoting your business and purchasing regularly.
Potential Benefits
Before implementing a market penetration strategy, you'll want to understand the benefits and potential pitfalls.
Swift Growth
Market penetration is a great way to expand your customer base and increase sales quickly. Making your products distinct and clarifying your message can help you rise above your competition, making your brand top in your market.
Cost-Effectiveness
Generally, market penetration means doing more of what works. So no high costs are associated with developing new products and expanding production costs.
Contest Competitors
It can be challenging to stand out amongst your competition. However, when you use market penetration strategies, you will not only gain customers that are new to the market, but you'll also pick up customers from your competition.
What's at Stake
Unachieved Production Costs
Lowering the costs of your products is not always possible. If your production costs are too high, you may need to keep your prices where they are so you don't lose money. If this is the case for your products, focus on marketing tactics for marketing penetration instead of lower prices.
Bad Company Image
A market penetration strategy may not work well if you have multiple products of different quality. If you have a high-quality and low-quality product, you risk having the low-quality one becoming your brand's defining product. This will give your brand a bad reputation that's hard to break.
Messaging Miss
Makes sure your message and your product match. Marketing your product as something it's not will confuse potential customers, who simply will buy from someone else.
Making Your Market Penetration Strategy a Reality
There is much to consider when implementing a market penetration strategy. It is helpful to know what has and has not worked for your company in the past, and it often works well to start with your best-selling products to achieve success quickly. If you are still deciding which strategy to choose or even if there is an opportunity, complete our growth potential assessment for a deeper look into how you can reach your goals.
