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Definition

Market penetration is a growth strategy stemming from the Ansoff Matrix (Richardson, M., & Evans, C. (2007). H. Igor Ansoff first devised and published The Ansoff Matrix in the Harvard Business Review in 1957, within an article titled "Strategies for Diversification." The grid/ matrix is utilised across businesses to help evaluate and determine the next stages the company must take in order to grow. With numerous options available, this matrix helps narrow down the best fit for your organisation. As shown in figure 1 by moving into a new quadrant (either vertically or horizontally) risk increases but the return on growth may outweigh this risk.  However if the risk proves too high for the expected return it may be best to look into different market penetration methods or wait till the timing proves more suitable.

This strategy involves selling current products or services into the existing market in order to obtain a higher market share. This could involve persuading current customers to buy more and new customers to start buying or even converting customers from their competitors. This could be implemented using methods such as competitive pricing, increase in marketing communications or utilizing reward systems such as loyalty points/discounts. New Strategies involve utilizing pathways and finding new ways to improve profits, increase sales and productivity, in order to stay relevant and competitive in the long run.  

Market penetration although it can be preformed throughout the business’s life, it can be especially helpful in the primary stages of set up. It helps establish the businesses current station and which direction it needs to expand in to achieve market growth. Successful outcomes stem from careful monitoring by key staff and leaders. Timing is key to a successful market growth; this can be dependant on the overall market welfare, the business’s competitors and current events.  Questions, brainstorming and discussions can help distinguish whether it is the best time for market growth. These can include questions surrounding market share increases or decreases. Sales can be declining but shows opportunity for the business, it could be the perfect time to make alterations so as to grow market share. Market penetration can also be helpful when sales are proving to slow down, customers often need to be re-introduced to a company or reminded why they need your company’s goods/services. With the consumers attention span becoming less and less, organizations need to constantly keep on top of competitors to stay relevant.

Some factors of market penetration are holding costs, advanced inventory management practices and technology (e.g. ongoing replenishment and vendor managed inventory), supply chain problems and economies of scale (e.g., Chang and Lee 1995, Chen et al. 2005, Gaur and Kesavan 2005, Gaur et al. 2005, Hendricks and Singhal 2005, Huson and Nanda 1995, Lieberman et al. 1996).

Market penetration, market development, and product development together establish market growth for a company. Overall the major growth opportunities they implement, attempts to peak sales through stressing current products in present markets and present products in new markets. This includes developing new products for existing markets, subsequently. It is about finding new ways to boost sales and keep customers loyal and increase market share. When implementing change companies must be careful not to compromise their existing revenue or customers. If you drastically alter packaging or visual aspects of a company, existing customers may not recognise your brand and opt for a competitor’s product or service. Too much alteration can make consumers wary so change must be implemented in a subtle manner so as to only increase market share and build on your profits. Managers and leaders should monitor this throughout the entire process to ensure smooth changes.  Clear and precise planning will also help minimise this risk and will lead to a successful improvement and boost in market share.

A few different options for market penetration are as followed

·      Developing a new marketing strategy to entice more customers to purchase or continue purchasing.

·      Become price competitive as a swaying factor for customers to choose your product or service over another company.

·      Use special promotions or offers to grab attention.

·      Utilise the Boston Matrix to decipher which product or service benefits further investment and time and which can be disregarded.

·      Purchase a competitors company (in mature markets) to expand market share.

For a business to come up with a decision using the grid, key personal must consider numerous factors such as market penetration, product development, market development and diversification Richardson, M., & Evans, C. (2007

It measures the brand popularity. 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, divided by the size of the relevant market population. 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 penetrates a market in which current or similar products already exist. A 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.). Ansoff developed the Product-Market Growth Matrix to help firms recognize if there was any advantage to entering a market. The other three growth strategies in the Product-Market Growth Matrix are:

• Product development (existing markets, new products): McDonalds is always within the fast-food industry, but frequently markets new burgers.
• Market development (new markets, existing products): Apple introduced the iPhone, in a developed cell phone market.
• Diversification (new markets, new products):

Market penetration is a measure of the amount of sales volume of an existing good or service compared to the total target market for that product or service (Higuera, n.d.). Market penetration involves targeting on selling existing goods or services in the targeted markets to increase a better market share/value (Arkolakis, 2010). It can be achieved in four different way including growing the market share of current goods or services; obtaining dominance of existing markets; reforming a mature market by monopolising the market and driving out competitors; or increasing consumptions by existing customers (Free Management Ebooks, n.d.).

(Farris, Bendle, Pfeifer & Reibstein, 2006)

Purpose

Often, managers must decide whether to seek sales growth by acquiring existing category users from their competitors or by expanding the total population of category users, attracting new customers to the market. Penetration metrics help indicate which of these strategies would be most appropriate and help managers to monitor their success. These equations might also be calculated for usage instead of purchase.

Strategies

Price Adjustments

One of the common market penetration strategies is to lower the products’ prices. Businesses aim to generate more sales volume by increasing the number of products purchased by putting on lower prices (price competition) for consumers comparing to the alternative goods. Companies may alternatively pursue strategies of higher prices depending on the demand elasticity of the product, in hopes that it will generate an increased sales volume and result higher market penetration (Joseph, n.d.).

Increased Promotion

Businesses can also increase their market penetration by offering promotions to customers. A promotion is a strategy often linked with pricing, used to raise awareness of the brand and generate profit to maximise their market share (McGrath, 2001).

More Distribution Channels

A distribution channel is the connection between businesses and intermediaries before a good or service is purchased by the consumers. Distribution can also contribute to sales volumes for businesses. It can increase consumer awareness, change the strategies of competitors and alter the consumer's perception of the product and the brand, and another method to increase market penetration (Joseph, n.d.).

Product Improvements

Product management is crucial to a high market penetration in the targeted market and by improving the quality of products, businesses are able to attract and out-quality the competitors’ products to match customers’ requirements and eventually lead to more sales made. Product improvements can be utilised to create new interests in a declining product, for example by changing the design on the packaging or material/ingredients.

Market Development

Market development aims at non-buying shoppers in targeted markets and new customers in order to maximise the potential market. Before developing a new market, companies should consider all the risks associated with the decision including the profitability of it (QuickMBA, n.d.). If a company is confident about their products and believes its strengths and is enticing to the new consumers, then market development is a suitable strategy for the business.

Penetration Pricing

Penetration pricing is a marketing technique which used to gain market share by selling a new product for a price that is significantly lower than its competitors. The company begins to raise the price of the product once it has achieved a large customer base and market share. Penetration pricing is frequently used by network provider and cable or satellite services companies. Many of the providers will initially offer an unbeatable price to attract customers into switching to their service and after the discount period has ended, the price increases dramatically and some customers will be forced to stay with the provider because of contract issues (Applebaum, 1966).

Penetration pricing benefits from the influence of word-of-mouth advertising, allowing customers to spread the words of how affordable the products are prior to business increasing the prices. It will also discourage and disadvantage competitors who are not willing to undersell and losing sales to others. However, businesses have to ensure they have enough capital to stay in surplus before the price is raised up again.

Construction

Market penetration can be defined as the proportion of people in the target who bought (at least once in the period) a specific brand or a category of goods. Two key measures of a product’s 'popularity' are penetration rate and penetration share. The penetration rate (also called penetration, brand penetration or market penetration as appropriate) is the percentage of the relevant population that has purchased a given brand or category at least once in the time period under study. A brand’s penetration share, in contrast to penetration rate, is determined by comparing that brand’s customer population to the number of customers for its category in the relevant market as a whole. Here again, to be considered a customer, one must have purchased the brand or category at least once during the period.

Methodologies

The penetration that brands and products have can be recorded by companies such as ACNielsen and TNS who offer panel measurement services to calculate this and other consumer measures. In these cases penetration is given as a percentage of a country's households who have bought that particular brand or product at least once within a defined period of time.

References

1. ^ Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Upper Saddle River, New Jersey: Pearson Education, Inc. ISBN 0137058292. The definitions, purposes, and constructs of classes of measures that appear in Marketing Metrics are part of the Marketing Accountability Standards Board (MASB) ongoing Common Language in Marketing Project.
2. "Market Penetration Strategy: Everything You Need to Know". Inevitable Steps. June 6, 2015. Retrieved January 31, 2016.
3. Higuera, V. (n.d.). How to develop market penetration. Retrrieved March 20, 2016, from http://smallbusiness.chron.com/develop-market-penetration-31423.html    
4. Arkolakis, C. (2010). Market penetration costs and the new consumers margin in international trade. Journal of Political Economy, 118(6), 1151–1199. Retrieved from http://www.nber.org/papers/w14214.pdf
5. Free Management Ebooks. (n.d.). Market penetration strategy. Retrieved March 20,2016, from http://www.free-management-ebooks.com/faqst/ansoff-02.htm
6. Farris, P.W., Bendle, N.T., Pfeifer, P.E., & Reibstein, D.J. (2006). Marketing metrics: 50+ Metrics every executive should master. Philadelphia, Pennsylvania: Wharton Press.
7. Joseph, C. (n.d.). Examples of penetration strategies. Retrieved from March 20, 2016, from http://smallbusiness.chron.com/examples-penetration-strategies-11699.html
8. McGrath, M.E. (2001). Product strategy for high technology companies (2 ed.). New York, NY: McGraw-Hill 
9. Joseph, C. (n.d.). Examples of penetration strategies. Retrieved from March 20, 2016, from http://smallbusiness.chron.com/examples-penetration-strategies-11699.html
10. QuickMBA. (n.d.). Market share. Retrieved March 20, 2016, from http://www.quickmba.com/marketing/market-share/
11. Applebaum, W. (1966). Methods for determining store trade areas, market penetration, and potential sales. Journal of Marketing Research, 3(2), 127–141. doi:10.2307/3150201

Richardson, M., & Evans, C. (2007). Strategy in Action Applying Ansoff's Matrix. Manager: British Journal Of Administrative Management, (59), i-iii.

• Markets (customer bases)
• Marketing terminology