Market penetration strategy
Understand what market penetration is, how to measure it and tactics to use to help you gain market share or grow revenue through sales.
Market penetration is one of the four main business growth strategies. It involves selling your existing products or services into your existing markets with the aim of increasing your market share.
According to the , this growth strategy typically carries the least risk, especially in the early stages of starting a business.
Market penetration tactics
For an effective market penetration strategy, you must have a successful product and a detailed understanding of your market and competitors. Common tactics include:
- increasing the market share of current products
- increasing the usage by existing customers
- dominating growth markets
- driving out competitors from a saturated market
Different strategies can help you to increase the market share of existing products, including:
- price adjustments
- sale promotions
- targeted advertising
- opening of new distribution channels, such as online sales
You can also segment your customers to identify a new demographic for your product, eg a different age group. Businesses often rely on advertising and marketing to attract and sell to specific demographic groups in their markets.
If your market is saturated, you may need to find another approach to drive out competitors. For example, raising or lowering your prices and heavily promoting your products can help make the market unattractive or inaccessible to smaller competitors.
If you can compete on price and offering, you may look at ways of increasing usage by existing customers. For example, you can introduce loyalty schemes or add value to the existing product or service to encourage more frequent use.
How to measure market penetration
Market penetration is often expressed as a rate or a ratio that measures your product's performance against the total market. It also relates to the number of potential customers that buy your product instead of a competitor's product.
As a metric, market penetration is expressed as a percentage. You can calculate it by taking the current sale volume of your product and dividing it by the total sale volume of all similar products on the market. The result is then multiplied by 100 to move the decimal and create a percentage. As a formula, this looks like:
You should regularly monitor your market penetration to identify any upward or downward trends. The higher the market penetration rate, the more likely it is that your business will be considered a market leader in the industry.
If market penetration isn't suitable for your product, service or business, you may want to consider other business growth strategies such as market development or diversification.