Market penetration

Market penetration is a growth strategy stemming from the Ansoff Matrix (Richardson, M., & Evans, C. (2007). H. Igor Ansoff first devised and published The Ansoff Matrix in the Harvard Business Review in 1957, within an article titled “Strategies for Diversification.” The grid/ matrix is utilised across businesses to help evaluate and determine the next stages the company must take in order to grow. With numerous options available, this matrix helps narrow down the best fit for your organisation. As shown in figure 1 by moving into a new quadrant (either vertically or horizontally) risk increases but the return on growth may outweigh this risk. However, if the risk proves too high for the expected return it may be best to look into different market penetration methods or wait till the timing proves more suitable.

This strategy involves selling current products or services into the existing market in order to obtain a higher market share. This could involve persuading current customers to buy more and new customers to start buying or even converting customers from their competitors. This could be implemented using methods such as competitive pricing, increase in marketing communications or utilizing reward systems such as loyalty points/discounts. New Strategies involve utilizing pathways and finding new ways to improve profits, increase sales and productivity, in order to stay relevant and competitive in the long run.

Market penetration although it can be preformed throughout the business’s life, it can be especially helpful in the primary stages of set up. It helps establish the businesses current station and which direction it needs to expand in to achieve market growth. Successful outcomes stem from careful monitoring by key staff and leaders. Timing is key to a successful market growth; this can be dependent on the overall market welfare, the business’s competitors and current events. Questions, brainstorming and discussions can help distinguish whether it is the best time for market growth. These can include questions surrounding market share increases or decreases. Sales can be declining but shows opportunity for the business, it could be the perfect time to make alterations so as to grow market share. Market penetration can also be helpful when sales are proving to slow down, customers often need to be re-introduced to a company or reminded why they need your company’s goods/services. With the consumers attention span becoming less and less, organizations need to constantly keep on top of competitors to stay relevant.

Some factors of market penetration are holding costs, advanced inventory management practices and technology (e.g. ongoing replenishment and vendor managed inventory), supply chain problems and economies of scale (e.g., Chang and Lee 1995, Chen et al. 2005, Gaur and Kesavan 2005, Gaur et al. 2005, Hendricks and Singhal 2005, Huson and Nanda 1995, Lieberman et al. 1996).

Market penetration, market development, and product development together establish market growth for a company. Overall the major growth opportunities they implement, attempts to peak sales through stressing current products in present markets and present products in new markets. This includes developing new products for existing markets, subsequently. It is about finding new ways to boost sales and keep customers loyal and increase market share. When implementing change companies must be careful not to compromise their existing revenue or customers. If you drastically alter packaging or visual aspects of a company, existing customers may not recognise your brand and opt for a competitor’s product or service. Too much alteration can make consumers wary so change must be implemented in a subtle manner so as to only increase market share and build on your profits. Managers and leaders should monitor this throughout the entire process to ensure smooth changes. Clear and precise planning will also help minimise this risk and will lead to a successful improvement and boost in market share.

It measures the brand popularity. It is defined as the number of people who buy a specific brand or a category of goods at least once in a given period, divided by the size of the relevant market population. Market penetration is one of the four growth strategies of the Product-Market Growth Matrix as defined by Ansoff. Market penetration occurs when a company penetrates a market in which current or similar products already exist.

Market penetration is a very good way to determine successfulness of the business model and marketing strategy for your product. To check the successfulness, you must have a way to gauge the amount of the market you will probably reach and how much potential localized or otherwise customers there are that would be susceptible to your product. To this end Charles Hill came up with a five step system to understanding you advertising’s influence on the market (Nordmeyer, 2016).

1. Identify the demographic most suited to your product. Even though other demographics may use your product it is about identifying the largest demographic so that the majority of your advertising is tailored to them. E.g. for candy for children, salad for adult woman who may be dieting.
2. Decide upon the area in which they live. Location is important and wholly depends on the reach of your brand. If your company operates at a national level, then the entirety of the country will have to be averaged to reach the largest amount of people. The smaller the area the more specific you can be about the people of each demographic within it.
3. Knowing the size of your market. Once you have identified who your demographic is and where they are knowing specifics about how many there are is integral to understanding your market penetration.
4. Understanding competitors market penetration. What benchmark should you go for? When you have the penetration that other products have reached calculate the number that you should reach in your demographic by multiplying the total number of your demographic by whatever the percentage that other products are reaching (Jensen, 2001).
5. Calculate the amount of customers that your business needs to sell to too earn a profit and then compare that to the amount other competitors are reaching, if your business does not make a profit with average market penetration it’s time to rethink your business strategy. Market penetration is a very important tool for understanding potential earnings of a business and is integral to calculating a resourceful business model. There’s always more you can do for a larger market penetration so a good advertising strategy is very important. Market Penetration in an emerging market A model was theorized for market penetration by Yan Dong, Martin Dresner and Chaodong Han.

See also

Market segmentation, Business Intelligence, Market positioning

Material

• “Market Penetration Strategy: Everything You Need to Know”. Inevitable Steps. June 6, 2015

Books

• Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Upper Saddle River, New Jersey: Pearson Education.