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What Does Market Penetration Mean?
Barron's Marketing Dictionary: Depth of sales of a particular product in a given
market. The deeper the penetration, the higher the volume of product sales. In order to expand the sales of current products in markets where their products are already being sold, marketers utilize market penetration strategies such as cutting prices, increasing advertising, obtaining better store or shelf positions for their products, or innovative distribution tactics.
Investopedia explains Market Penetration:- A measure of the amount of sales or
adoption of a product or service compared to the total theoretical market for that product or service. The amount of sales or adoption can be an individual company’s sale or industry while the theoretical market can be the total population or an estimate of total potential consumers for the product. For example, if there are 300 million people in a country and 65 million of those people have cell phones then the market penetration of cell phones would be approximately 22%. This would mean in theory there are still 235 million more potential customers for cell phones, which may be a good sign of growth for cell phone makers. In general, the older the offering or industry, the greater the market penetration.
Wikipedia on Answers.com:- 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 enters/penetrates a market in which current products already exist. The best way to achieve this is by gaining competitors' customers (part of their market share). Other ways include attracting non-users of your product or convincing current clients to use
more of your product/service (by advertising etc.).
The other three growth strategies in the ProductMarket Growth Matrix are: Product development (existing markets. new products) "Penetration is a measure of brand or category popularity. more effective marketing and by strengthening the offer by creating more customer value.Ansoff developed the Product-Market Growth Matrix to help firms recognize if there was any advantage of entering a market. an organization should only pursue a market penetration growth strategy if at least one of the following conditions exists: a) Current market is not fully saturated b) Market share of your competitors is decreasing while the industry growth rate is increasing c) Existing buyers have the potential to purchase the same products and services in more quantity d) Economies of scale provide a competitive edge Disavantages of market penetration The downsides of the market penetration strategy are: 1. 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. The emphasis is on increasing market share through more marketing promotions. divided by the size of the relevant market population. 2. new products) Market development (new markets. However. the opportunities for growth may be limited."  Advantages of market penetration Market penetration strategy is the preferred route to growth for many businesses because it appears safe. If you already have a high market share. Some markets (and customers) naturally limit the share of the leading player because they feature the concentration of market power. Aggressive market penetration strategies will increase competitive rivalries in the industry and may provoke a price war of similar competitive battle which damages . existing products) Diversification (new markets. Focus is on selling more of the existing products to: 1) Existing customers 2) Customers similar to your existing customers who are buying from your competitors 3) Customers similar to your existing customers who should be buying buying the product because they have a clear need but aren’t doing so.
Penetration pricing often has the effect of blocking. 3. With a 'market penetration' strategy. Others include: Product Differentiation. as a result of scale economies and experience curve effects that may be obtained with larger production runs. people will buy more of a product the lower it is priced. and more precisely targeted marketing programs. The strategy is also attractive when the firm anticipates dramatic reductions in average unit costs of production and marketing. price is set low for the product's initial introduction. consequently. in other words. Increasing exposure to one product-market segment can make the business more vulnerable to future changes in competition because of the “all the eggs in one basket” problem. it can help to lower .  Being the market pioneer does not always guarantee market dominance and success. Advantages In many markets. Some pioneers become complacent. The business may become complacent and ignore opportunities and threats from new products and service solutions to the customers’ underlying problems which are made possible through technological advances. The market pioneer generally enjoys a competitive advantage stemming from higher market share and lower unit cost structures than do later market entrants. but there exists a large mass market. A penetration pricing strategy creates a significant advantage for a firm that can identify and act on this type of price sensitivity. 4. Tactical Distribution and Massive Advertising. In addition. create and maintain sufficient customer demand. have inadequate marketing programs that fail to properly position the product and. improved technologies and products. This strategy is attractive when the market is highly price elastic as the innovator and early adopter segments are rather small. This advantage is referred to as the pioneering advantage. They fail to continue to improve their products. consumer demand is elastic. Price is used aggressively to quickly buy market share via an appeal to the mass market -the early majority and late majority adopter categories. competition. Tools of Market Penetration There are various tools available to a marketer in Market Penetration.industry profitability. Price With both the market skimming and market penetration strategies there is a distinct advantage to being the first in the market. or at least delaying. To make significant increases in market share. the business must be willing to drive competitors out of the market. but the most important one is Price. These weaker pioneers are highly susceptible to aggressive "followers" that enter a market later with lower prices.
So companies not only have to monitor industrial market but also pay attention to end consumer market. etc. Companies manufacture products for consumer market but industrial market is equally large and strong. 4. Industrial Market A market consists of two parts consumer market and Industrial market. The buying decision is influenced by many players ranging from technical experts to the finance department. In industrial market there is no distribution channel.Activities. This can unintentionally create a perceptual opportunity for competitors with higherpriced goods. Consumer-supplier relationship is much stronger in an industrial market owing to few players in the field. Service American Marketing Association:. Characteristics of Industrial Market In a industrial market. Its overall profitability will suffer if it has produced far more than it can sell. industrial equipments. Risks If sales volume fails to build as fast as projected in response to penetration pricing. Business buyer base is smaller in comparison to consumer market. There are many characteristic which set industrial market apart from consumer markets. if car companies falter then tyre companies will suffer. In terms of overall value industrial market is bigger than the consumer market. 3. 6. Buying for the business is a responsibility of purchase department which adheres to company rules and regulations.per-unit costs of production when manufacturing processes are subject to economies of scale. organizations buy goods and services for production of goods and services. Customer and supplier are very dependent on each for survival. 5. machinery. 1. 2. a firm may have trouble recovering its research and development costs. Services.not necessarily the best. thereby reducing overhead cost. . Additionally. benefits and satisfactions. Typical industrial markets consist of manufacturing plants. This means that sales people have to do multiple visits and present information to different departments. which are offered for sale or are provided in connection with the sale of goods. For example. penetration pricing can hurt a brand's value image by suggesting to consumers that it is the cheapest -.
A Nigerian Example . is generally consumed at the time it is produced.“Services include all economic activities whose output is not a physical product or construction. 1977). Difficulties in synchronising supply and demand for services. Characteristics of Services Intangibility: It refers to the total lack or perception of a service’s characteristics before and (often) after it is performed Inseparability of production and consumption: It refers to the simultaneous production and consumption of services. and provides added value in forms (such as convenience. stored. Heterogeneity: It refers to the potential for high variability in the performance and the quality of services. The customer is present when the service is produced. The production process of services has been called “servuction” process (Eiglier and Langeard. amusement. caused by the interaction between the service employee and the customer. Baruch and Paquette. comfort or health) that are essentially intangible concerns of its first purchaser”. (1987):. The customer plays a role in the servuction and the delivery process. The performance of the employees delivering one same service varies: o Between different hour zones of the day o From employee to employee o From service company to service company Perishability: It refers to the fact that services cannot be saved. resold or returned. timeliness.Quinn.
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