Understanding and Using Market Penetration Strategies

Market Penetration Definition

The term market penetration adopts a theoretical and literal meaning.
On one hand, a brand calculates market penetration to gain a sense of
the size of a market and what percentage of consumers buy its
products and services within. In the literal sense, market penetration is
the actions taken to overtake competitors and gain a larger share of
the market.
Market penetration is the percentage of products/services sold in
relation to the estimated total market. Theoretically, a brand wants to
eliminate all competition, completely owning all the market share for a
given product or service. Calculating the entire market size and
estimating how much of the pie you own is incredibly useful for new
and established brands.
 

Market Penetration Rate

A simple equation related to market penetration:
(Number of customers/Size of market) x 100 = Market Penetration
Rate
For example, assume 500 million people live in a country, and 100
million of them own an iPhone. 
100/500 x 100 = 20% penetration rate
So, the market penetration for iPhones would be 20%. Theoretically,
400 million people or the remaining 80% of the population remains
for the taking.
An above average market penetration rate for consumer goods is
estimated to be between 2% and 6%. A good penetration rate for
business products is between 10% and 40%.
Some brands calculate market penetration every quarter while others
find it useful to do so after each ad and marketing campaign.
 

High Market Penetration

As you can imagine, most brands aspire to an above average or good
rate market penetration rate. Having a high penetration rate reaps
immediate monetary benefits.
In 2018, Amazon’s share of the US ecommerce market was 49% - more
than its top three competitors combined! To put it another way,
Amazon accounts for 5% of all retail dollars spent throughout the
entire United States.
In the same year, iPhones captured an estimated 15% to 20% market
penetration rate. Apple sold 77.3 million iPhones, finishing the
December quarter with a 19.2% share.
A brand with high market penetration enjoys immediate riches as well
as an ongoing reputation it can continue to leverage. However, the
real advantage is enjoying the forward and upward momentum built.
Another benefit is that you’re able to set the prices that your
competitors follow, rather than you having to follow others. 
 

Market Penetration vs Market Share

Market penetration is a percentage of a given target market that buys
a brand’s products/services. It is distinguishable from market share,
which is the portion of total value of a market captured by a brand.
 

Market Penetration Examples 

 
Market penetration begins with strategy, yet when applied, leads to
actionable steps that achieve stable market dominance.
Apple reached a market share of more than 50% of the world market
with its smartphones by 2017. Since the inception of the iPhone, Apple
consistently released upgrades, enhancements, and accessories. As a
result of this market penetration, Apple feasts on a larger market share
than all its competitors combined.
Dunkin’ started in the 1940s in Massachusetts. Today, the brand
formerly known as Dunkin’ Donuts is found in 46 countries. However,
its most loyal following remain in New England, for one-third of all
Dunkin’ stores reside there.
The Coca-Cola brand established itself as a beverage associated with
snacks, enjoying the benefits of the refreshment market until tastes
began changing in preference of healthier choices. Coke offered Diet
Coke to gain a larger share of the beverage market, capturing those
more health minded. When market research revealed more women
than men preferred Diet Coke, the brand initiated Coke Zero as a
‘catchall’ solution.
 

Best Market Penetration Strategies 

 
The actionable part of a market penetration definition relates to actual
strategies. Market penetration strategies allow a brand to take its
existing product or service to an already thriving market with high
demand and begin drawing-in a larger share of the entire market,
eventually draining competitors of opportunity and money.

Market penetration (as a set of actions) is taken from Igor Ansoff,

creator of the Ansoff Matrix. The grid features four growth strategies
related to entering a new or existing market with new or established
products/services.

1 - Use Dynamic Pricing

Many online retailers engage in price wars in an attempt to persuade
customers to buy products and services at the best price. The
market penetration strategy grows more intense and complicated
given online prices rise and drop throughout any given day.
Dynamic pricing allows for pricing automation, so regardless of the
size or complexity of given products/services, the associated software
researches the market and sets prices to deliver actionable
intelligence.
Further Reading: Why Price Is the Most Important P in the Marketing
Mix
 

2 - Add Distribution Channels 

Adding distribution channels is another market penetration strategy
focused on growth. For example, if a brand solely leverages retail
outlets, it may benefit from considering adding other ones such as
email marketing, online marketing, and telemarketing.
 

3 - Target Specific Locations

Some products and services are seasonal while others have a greater
demand depending on location (A sunscreen brand targeting sunny
Los Angeles versus rainy Seattle). Targeting the location in need would
lead to a surge in use and increase in sales in that region.
 

4 - Improve Products
If a brand can trace market share to a particular product or service
then it would make sense to consider improving upon what the public
already likes. Understanding what consumers like (or even better,
dislike) about a product presents an opportunity to make it even more
loved and preferred depending on technology related to materials,
newly developed accessories, etc.
 

5 - Enter New Geographical Markets

The ever-growing spending within the Latin American market has
intrigued many brands to expand offerings to Mexican and other Latin
American locales. Making the opportunity for growth more a reality,
many brands hire Spanish translation services to ensure brand
offerings are in Spanish, but also effectively resonate with the Latin
American peoples and their culture. 
A great example of this is when CNET entered the Hispanic market
with zeal by partnering with Latin World Entertainment in addition to
recruiting well-recognized superstar Sophia Vergara.
 

6 - Create a Barrier to Entry 

Wise brands create barriers to entry for competitors by utilizing
existing resources or seeking those that would either make a product
or service superior or allow to offer such at an unbeatable cost. 
For example, a food supplier dependent on several farms for
production may cut overall costs by investing in its own farm versus
buying needed goods from a third party. Amazon continuously
reinvests in its customer service, features, and ability to penetrate the
market, making it nearly impossible for another online platform to
compete.
Further Reading: The Complete Guide to Selling on Amazon
 

7 - Change a Design
Water is essential to human life, but only in the last century that it has
been offered in plastic bottles. Wine is another example of a beverage
that has been around for centuries, yet offering it in a box versus a
bottle is a very contemporary market penetration strategy.
 

8 - Make It Easier to Buy

How seamless is your online checkout process? Do you have an online
checkout process? Making it easier to find and buy your goods and
services is a surefire way to penetrate a greater share of a targeted
market.
 

9 - Create and Recruit Established Advocates

Word-of-mouth remains a stellar way to spread word and garner more
advocates. Many brands offer membership and/or referral programs.
Advocates create support by actively recruiting friends and family,
helping the brand penetrate a larger share of the market and make
more money. 
Amazon creates its own internal “club” via Amazon Prime
subscription. 26 Amazon Prime Day stats reveals 100 million US
shoppers have an Amazon Prime subscription (62% of Amazon’s
customer base in the United States)!
 

10 - Educate the Market

For a newer brand entering an established market, the challenge is not

creating a want, for it’s already established. The real hurdle is
educating the market about a new choice or selection and drawing
attention away from brands that already exist.
Cabot, makers of cheese, use Pinterest and a variety of social media
tools to educate the market on grilled cheese recipes, farms and
farmers in their ‘family’ of production, New England ski spots, and
healthy options for those who are lactose intolerant.