Market Penetration Strategy

Any business needs a well planned and executed business strategy to generate revenue and market share. These strategies are tailored to fulfill the objective of the company. A brilliant marketing strategy is the bridge to the ultimate marketing goal of the firm. Market Penetration is one such marketing strategy.

As explained through the Ansoff matrix, Market Penetration is an activity for increasing the sales of an existing service in an existing market.

Another definition of the strategy is as follows:

“Market penetration is a low pricing strategy adopted by companies for new and existing products to attract a larger number of buyers and a larger market share” – (Kotler and Armstrong, 2009)

Well, Market Penetration can be seen in two ways: as a metric and as an activity, depending upon the context. Let’s understand market penetration more through examples!

Market Penetration as a metric

For understanding market penetration as a metric, suppose a company manufactures bicycles. Let us assume the target audience size to be 100 millions. Let us consider that out of 100 million, 20 million people buy bicycles. Now, using the formula, people who buy bicycles against the target audience, when expressed as a percentage, give a market penetration of 20%.

Market penetration as an activity

Now, as an activity market penetration can be understood as a set of activities performed by a company to increase the market share of any product. Now suppose the company runs a campaign and gets 1 million new clients, so here the company is able to achieve 21% market penetration of bicycles with an increase in its market share.

There are certain strategies under market penetration that are implemented by companies to expand their market at different times under different circumstances.

Market Penetration Pricing
For an emerging company in any market, pricing is one of the vital tactics that can be used to gain market share and increase revenue. Price tactics work well in a competitive environment where the customers are price sensitive and the retailer can earn large profit by selling larger volumes on a small margin. Price drop works well within the consumers and can help create a loyalty of the product. The price can be revised from time to time depending upon the circumstances of the market. In this tactic, it becomes quite important for any company to study the income and expenditure pattern of the people in the specific geographical domain.

Launching products

By launching the product in a new market, the company can develop a heightened awareness amongst the users. On release of new products, companies can create a hype in the market which can be capitalised easily. Here, it becomes important to study the consumer spending habits and the requirement generation before the launch of any product.

Expansion into new territories

As the time passes, the market becomes saturated with the same products and a need for new territories begins. Moving a market to a new place requires both research and funds. This is also a tactic of market penetration strategy. It becomes crucial to look into the new market complexities before stepping into it.

Developing strategic alliances

Sometimes it is a wise choice to enter into a new market with a company that is synergetic to us. Partnerships and alliances can bring better results in these cases. In this tactic, finding a company that is synergetic to you might be a challenging task.

Initiating chain or franchise

When a business or product gains popularity, it is easy for them to launch another store or initiate a chain. If they find it hard, a franchise can be allowed. To open a franchise or chain, the understanding of the new location is mandatory.

Gillette
One of the players of Market Penetration strategy is Gillette. Gillette, is known for its razors, often giving away free or cheaper razors to attract customers and undermine the competition. The profits lost by giving razors at a lower price are often compensated with other products or accessories, priced at a premium value. It implements Market Penetration Pricing strategy to gain maximum profit.

McDonald’s
McDonald’s is a globally renowned name, with stores all across the globe. The company offers various kinds of meals with different offers and discounts. It attracts customers with lower pricing and various combo offers. It provides quality service with cost effective measures. Under each marketing campaign, they keep the intention of growth in focus. They run rigorous campaigns to motivate current clients and add on newer ones.