Updated April 15, 2023
Introduction to Market Penetration
As soon as a company enters a new market, it strives for market penetration. The main objective behind the market penetration strategy is to launch a product, enter the market as swiftly as possible, and, finally, capture a sizeable market share. Market penetration is also sometimes used as a measure to know whether a product is doing well in the market or not.
The technique of Market Penetration usually does not affect the overall marketing strategy of a company but invariably brings a solid growth potential and an increase in revenue generation. A company trying to adopt the concepts of market penetration must also remember to implement specific plans and tactics to challenge competitors and boost sales figures. However, it must also be considered that market penetration can be risky and has disadvantages.
This technique is more commonly applicable whenever a business sells prevailing products in an ongoing market. Marketers must consider the relevant market development or expansion grid data to decide which penetration tactic to adopt. In other words, the market may be saturated, or it may be in an intense competition scenario, or the products may have a low turnaround time. What should be the best tactic for all these different scenarios? Well, the answer to this question lies in the type of strategy you adopt. And yes, there are quite a few other penetration tactics. So without further ado, let’s know about a few of them.
Market Penetration tactics
The following are the different market penetration tactics:
1. Price Adjustment
Price Adjustment is one of the most widely used market penetration tactics. An example could be lowering the price of a product or service to increase sales is a price adjustment tactic. Furthermore, the alteration (increase or decrease) in the price of a product after analyzing the competitors’ products is also a scenario of price adjustment. But, in the real sense, this marketing strategy should be used judiciously, as overdoing it can lead to adverse results. Like, increasing your price consistently may make the customers believe you are a company with a high-profit motive. Decreasing the price too often would cause them to think that your products are of sub-standard quality.
2. Augmented promotion
The drastic increase in promoting a product (or service) can lead to dramatic results. For example, advertising can be an excellent tool for increasing brand awareness. Companies can choose to make their campaigns long-term or short-term depending on their needs and budget. However, the thing to be considered is that whatever the size of the campaign, it must be well-planned and thought-out. Competitors would ruin an easy-to-counter promotional campaign in this age of cut-throat competition.
3. Distribution Channels
The strategy of Distribution Channels is one of the most constructive market penetration strategies. This strategy typically involves opening new distribution channels by focusing on a particular distribution channel. For example, if selling through retail outlets is your primary channel, you can learn to gain new channels like telemarketing, e-mail marketing, online marketing, etc. Such opening of new distribution channels paves the way for more new channels and thus leads to increased market space and overall profitability.
4. Improving Products
It is true that to appeal to your customers, you must improve your product quality. However, sometimes communicating to them about the better standard of the product can do the trick, and no significant improvement in the product may be needed. This is because most consumers are encouraged to buy a product just by its appeal and do not necessarily check whether it proves itself. Thus, only by slightly adjusting the product and its packaging can you appeal more strongly and increase your sales revenue.
5. Upsurge Usage
A compelling method of market penetration is the increased usage of any product or service. If a marketing promotion campaign is effectively delivered in a specific area, then it would lead to an upsurge in product use which would thus lead to better market penetration with the increase in sales figures.
6. Knowing Risk and Growth
Most marketers, whenever they think of growth, think of new launches. However, it is only partially true. It can be risky too. When a new product is launched, the risk of it being successful or not exists. But, an efficient distribution channel and a smooth delivery process ensure that the product meets expectations. Similarly, entering a brand-new market segment can also be risky. Therefore, knowing your market and product is essential to do well and beyond expectations. An effective way to do this is to properly communicate with the customers and be sensitive to their requirements and wants.
7. Create barriers to entry
When adopting strategic options, you must leverage your business’s strengths correctly and justly. For example, by minimizing your variable costs, you can boost your sales and establish a barrier to entry for others. This is why many firms with superior technology and distinct processes can reduce variable costs and earn better gross margins per item sold. With a substantial share in the market and an efficient marketing process, your business could create a barrier to entry to prevent competitors from entering your industry.
8. Be unique and think differently
Although the entire market penetration process seems simple and monotonous, it’s a big challenge if you perceive it to be. To overcome the challenge, your approach must be unique and highly innovative. A repetitive selling strategy would yield unsatisfactory results and hinder your growth potential. So, it would be better to think differently and modify your penetration tactics as and when required. By being more innovative and adding value to your products, you enhance your success chances.
Some actions you could consider to be unique are:
- Educate your customers – This is important as many times people are unaware of the quality of the product and how it could be of use to them.
- Make purchasing easier – Many successful businesses lend a credit facility to their customers and thus increase the customers’ ability to buy.
- Widen the distribution network – Making your product available at more locations and better delivery and service options can also significantly boost your sales figures.
- Generate referrals – If you can encourage your customers to give referrals, it would certainly affect your chances of sales. For example, you can offer gift coupons or reward points to those customers whose referrals get converted.
- Changing product designs – By making the product more user-friendly, your chances of sales conversion significantly improve. For example, you could make a lengthy novel paperback instead of a hard-bound one.
9. Diversification
The product penetration tactic of diversification entails manufacturing new products for new markets. A diversification strategy is usually followed whenever there is saturation in the current market or when environmental changes such as societal, economic, technological, or regulatory make it very hard to generate new sales in those markets. This strategy is most commonly followed by businesses in the health sector, such as hospitals. Hospitals have diversified their services through long-term care facilities, reimbursement, network referrals, and utilization. Those firms that have diversified on opportunities of their strengths have gained the most.
10. Strategic Alliances
For some organizations, it isn’t easy to enter new markets for one or more reasons. To solve such an issue, many of these organizations enter into strategic alliances with one another to operate in a particular market. Although strategic alliances can be formed into many forms, the more common one is the joint venture business, where each partner business holds an equity position. The most common and natural strategic alliances are found in the pharmaceutical industry.
Pros & Cons of Market Penetration Strategies
Market penetration strategies benefit from reduced prices to increase product demand and market share. As the demand for your product increases, your business saves money on product manufacturing costs due to the larger production volume. This strategy isn’t going to work for all products and all types of businesses. So, some companies utilize different marketing strategies than usual to be more effective.
Advantages
Here are some advantages of practicing market penetration strategies
1. Swift Growth
If your business and marketing activities aim to expand your customer base, market penetration is the remedy you need. When you propose lower prices than your rivals, tempting their customers becomes possible, and you receive what you expect. Thus, fast growth is heavily dependent upon lower prices. The more rational these are, the better your chances will be.
2. Cost-effectiveness
Indeed, it’s reasonable to say that penetration leads to cost efficiency. It can lead to cost advantages if your business processes go in the manner you anticipated. By keeping low prices, you ensure that customers stay with you, and it also means that you can order more products from your suppliers, which eventually results in higher profit figures. This is why certain companies take the risky route and first buy products in bulk due to discounted prices, then implement a penetration strategy.
3. Contest Competitors
Combating with your rivals is one of the more challenging segments of the market penetration strategy. Just imagine you have plentiful competitors who are desperately trying to evolve and slow you down and are stealing your customers, which results in lowered profits for you. Following the rule of survival, your only way out is to fight and defeat them to stay at the top. For example, low initial prices will force your competitors to move to alternative strategies with changed market penetration pricing regulations. In this way, you will appeal to the lost consumers and render competitors on the defensive or leave the market altogether.
Disadvantages
Now, let’s look at some of the disadvantages.
1. Unachieved Production Costs
Lowering the product price, as you will, is not always possible. Sometimes, products are costly to manufacture, and tiny businesses find it difficult to survive while producing sufficiently to lower the production and price. This becomes more complicated when you have to deal with competing firms. Under such circumstances, it’s best to focus on the marketing campaign, product packaging, and enhancing public image because these have the same potential as having a low price structure.
2. Missed Chances
Some firms that produce luxury products make the silly mistake of marketing them inexpensively. Hence, customers who adore luxury products would avoid being marketed as “inexpensive items.” Thus, if you’re concentrating on making luxury products, consider that low prices may make your sales thinner, and the product might even fail in the market.
3. Bad Company Image
Adopting a market penetration strategy would undoubtedly be adverse when your company has numerous product lines, including a luxury line. For example, applying a particular market penetration strategy on a single product might poorly reflect the remaining product lines. Therefore, if a significant number of customers get familiar with your cheap product, it’s highly likely that they will forget that you also produce luxury items, and your brand’s status as a luxury manufacturer will disappear.
4. Lack of Results
A market penetration strategy isn’t going to work at a place where prices are previously set too low. For example, when prices are once low, the consumers have built trust in an existing company. Thus, entering that market and beating the competitor would be highly ineffective. Instead, a new company should focus on gaining its worth in the business by trying to create low prices of products.
Conclusion
We’ve tried to showcase several market penetration strategies in the given article. However, such tactics will apply best when you use multiple ones together. A subsequent increase in your promotions should accompany the rise in the reach of your product. After increasing the promotion, you are bound to grow the product usage and, conversely, attract competition from your rivals.
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