Market penetration is a technique of increasing the market share of a product by adopting creative strategies such as advertising, bundling, discounted volumes and prices. It measures the sales volume achieved by a product or a service in relation to the total market volume, i.e. the percentage of market share enjoyed by a particular product or a service.
This successful business strategy is adopted to introduce a new product or create a new market base for the existing product. The objective of this strategy is to acquire a large market share in quick time.
Tactics for Market Penetration:
- Aggressive Pricing: Mostly, businesses adopt the method of aggressive or penetration pricing. The products or services are offered at prices that are lower than the competitor’s price. In this manner, the business increases his market share, enjoys the support of loyal customers, and thereby potentially increases profits.
- Advertising: Business owners adopt a strategy of aggressive advertising through TV, promotional mails, radio and many other channels.
- Attracting new customers: Non-users of the product should be made aware of the characteristics of your product. Strategies related to better product placement should be adopted to create awareness among the customers who have not used your product.
- Promotional discounts: Another tactic used for market penetration is to announce promotional offers on your product, i.e. pull strategy. Trade discounts, offers, sale discounts and other promotional offers will help to increase the reach of your product.
Benefits of Market Penetration
The various benefits of market penetration include:
- It leads to quick diffusion. As a result the customers adopt the product quickly. Suppose the quality of your product is similar to that of the competitors, and it is cheaper; the product will enjoy a large share of the market, and customers will purchase it quickly.
- It increases customer referrals as the first customers of the product might refer it to their near and dear ones, based on their experience.
- Increased efficiency is observed as the profit margins are reduced as a result of aggressive pricing.
- The turnover of a product increases for a distributor; thus, the retailers are attracted to the product.
- Competitors feel discouraged to enter the market.
Difference between Market Development and Market Penetration
Market Development refers to attracting a new customer base for an existing product or a service. Market penetration is a strategy to acquire a large market share within an existing customer base. Market penetration includes a strategy involving the sale of established products or services by reducing the prices or offering better promotional deals.
Challenges of Market Penetration
Market saturation is one of the major challenges faced during penetration, as existing customers might be satisfied with the product or the service offered by you. Sometimes, you might not receive adequate ROI from the new customer base, which hampers your business strategy. Aggressive advertising strategies might not be successful, as the competitors may react to your advertisement claims and file a lawsuit against your product.