Definition
A Market Penetration Strategy is a business growth strategy used by companies to increase their existing product’s sales or usage rate amongst their current customer base. This is typically achieved through aggressive marketing tactics, price adjustments, product improvements, or competitive advantages. The primary objective is to dominate the market share within the existing customer arena.
Key Takeaways
- A Market Penetration Strategy is a tactic used by businesses to increase their market share of current products or services in existing markets. It involves trying to achieve growth by selling more to the business’s existing customer base or by finding new customers within those existing markets.
- This strategy can be executed through several methods including price reduction, increasing promotional activities, increasing distribution outlets, or acquisition of a competitor in the same market. These strategies aim at persuading customers to switch from competitor’s products or attract non-users.
- While the market penetration strategy aids in establishing dominance in existing markets, it also carries risks. The strategy might end up in a price war with competitors or over-saturation in the market. Hence, while adopting this strategy, businesses must carefully analyze market conditions and competitor responses.
Importance
Market Penetration Strategy is important in finance because it offers a pathway for businesses to expand their customer base within an existing market.
It focuses on selling more of the existing products or services to the existing customers or finding new customers within the market.
By doing so, companies can increase their market share, outperform their competition, and enhance their profitability.
Additionally, a successful market penetration strategy can lead to business growth without the need to make substantial modifications to products or services, making it a cost-effective approach to business expansion.
Explanation
The main purpose of a Market Penetration Strategy is to expand a company’s market share or customer base in an existing market. This is achieved by employing tactics that will attract the competitor’s customers or by converting non-users into users of the company’s products or services. The underpinning idea is to sell more of the current products or services to the present markets to achieve higher market saturation.
This strategy is considered less risky compared to other growth strategies since it involves dealing with familiar products and markets. In terms of its usage, Market Penetration Strategy is typically employed when organizations want to increase revenues without venturing into new markets or investing in new products. This is accomplished by reducing prices, increasing marketing and promotional efforts, or introducing slight modifications in the product to attract more customers.
Reductions in price, for instance, might draw customers away from competitors, while increased marketing efforts improve visibility and make a product or service more attractive to potential customers. Likewise, slight modifications in the product or service can make it appear new or different, rekindling customer interest. Overall, market penetration strategy aids in maximizing the company’s share in its current market.
Examples of Market Penetration Strategy
Netflix: Market Penetration Strategy was effectively used by Netflix when they first launched their streaming service. They initially offered their service at a very low cost to entice customers, even allowing a one-month free trial to get new users to sign up. This allowed them to penetrate the market quickly and gain a vast number of viewership. Once they hit a significant user base, Netflix began gradually increasing their subscription fees.
Amazon: Amazon employed Market Penetration Strategy by offering a huge range of products at competitive prices, coupled with efficient delivery system and excellent customer service. This strategy allowed Amazon to penetrate into the global e-commerce market and establish itself as a leader. Prime membership with added benefits like free fast delivery, prime video and music helped Amazon to retain and increase its customer base.
McDonald’s: McDonald’s uses market penetration strategy by adjusting pricing. They often use strategies like a value menu or limited time offers to attract more customers. McDonald’s also expands to diverse locations, allowing it to penetrate new markets. It’s not uncommon to see McDonald’s restaurants in malls, cities, suburbs, and even in some big-chain retail stores like Walmart.
FAQs on Market Penetration Strategy
What is a Market Penetration Strategy?
A Market Penetration Strategy is a business growth strategy that employs techniques to increase the company’s existing market share in the current market scenario. The core idea behind it is to grab more shares in the market by either engaging existing customers or attracting new customers towards the product.
What are the advantages of Market Penetration Strategy?
Market Penetration Strategy offers several advantages such as achieving economies of scale, increasing market power and dominance, discouraging competitors, increasing customer loyalty, and creating brand awareness.
What are the elements of a successful Market Penetration Strategy?
Key elements of a successful Market Penetration Strategy include understanding the market, an appealing and differentiated product offering, the right pricing strategy, and effective promotion and distribution tactics.
When should a business implement a Market Penetration Strategy?
A business should consider implementing a Market Penetration Strategy when it is seeking to achieve a bigger market share, has a product with a low market penetration level, or when the market has high growth potential.
What are some examples of Market Penetration Strategy?
Examples of Market Penetration Strategy can include price drops, increased marketing and promotions, distribution through more retailers, and new or improved features on existing products.
Related Entrepreneurship Terms
- Market Research
- Pricing Strategy
- Product Differentiation
- Competitor Analysis
- Targeted Marketing
Sources for More Information
- Investopedia: A leading source of financial content on the web, this platform offers immediate access to an extensive database of finance and investing terms. They provide articles, tutorials, and videos on market penetration strategy.
- Forbes: Globally recognized as a leading source of reliable business news and financial information, Forbes often publishes articles related to different market strategies, including market penetration.
- MBASkool: A comprehensive resource for Management Education, MBASkool provides content and quizzes related to various management topics, including market penetration strategy.
- Entrepreneur: A North American publication that carries news stories about entrepreneurialism, small business management, and business strategy. They have various articles discussing market penetration strategy and its application in business.
