Market Penetration

What Does Market Penetration Mean?

Barron's Marketing Dictionary: Depth of sales of a particular product in a given
market. The deeper the penetration, the higher the volume of product sales. In order to expand the sales of current products in markets where their products are already being sold, marketers utilize market penetration strategies such as cutting prices, increasing advertising, obtaining better store or shelf positions for their products, or innovative distribution tactics.

Investopedia explains Market Penetration:- A measure of the amount of sales or

adoption of a product or service compared to the total theoretical market for that product or service. The amount of sales or adoption can be an individual companys sale or industry while the theoretical market can be the total population or an estimate of total potential consumers for the product. For example, if there are 300 million people in a country and 65 million of those people have cell phones then the market penetration of cell phones would be approximately 22%. This would mean in theory there are still 235 million more potential customers for cell phones, which may be a good sign of growth for cell phone makers. In general, the older the offering or industry, the greater the market penetration.

Wikipedia on Answers.com:- 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 enters/penetrates a market in which current products already exist. The best 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 of entering a market. The other three growth strategies in the ProductMarket Growth Matrix are: Product development (existing markets, new products) Market development (new markets, existing products) Diversification (new markets, new products)

"Penetration is a measure of brand or category 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." [1]

Advantages of market penetration

Market penetration strategy is the preferred route to growth for many businesses because it appears safe. Focus is on selling more of the existing products to: 1) Existing customers 2) Customers similar to your existing customers who are buying from your competitors 3) Customers similar to your existing customers who should be buying buying the product because they have a clear need but arent doing so. The emphasis is on increasing market share through more marketing promotions, more effective marketing and by strengthening the offer by creating more customer value. However, an organization should only pursue a market penetration growth strategy if at least one of the following conditions exists: a) Current market is not fully saturated b) Market share of your competitors is decreasing while the industry growth rate is increasing c) Existing buyers have the potential to purchase the same products and services in more quantity d) Economies of scale provide a competitive edge

Disavantages of market penetration

The downsides of the market penetration strategy are: 1. If you already have a high market share, the opportunities for growth may be limited. Some markets (and customers) naturally limit the share of the leading player because they feature the concentration of market power. 2. Aggressive market penetration strategies will increase competitive rivalries in the industry and may provoke a price war of similar competitive battle which damages

industry profitability. To make significant increases in market share, the business must be willing to drive competitors out of the market. 3. Increasing exposure to one product-market segment can make the business more vulnerable to future changes in competition because of the all the eggs in one basket problem. 4. The business may become complacent and ignore opportunities and threats from new products and service solutions to the customers underlying problems which are made possible through technological advances.

Tools of Market Penetration

There are various tools available to a marketer in Market Penetration, but the most important one is Price. Others include: Product Differentiation, Tactical Distribution and Massive Advertising.

Price
With both the market skimming and market penetration strategies there is a distinct advantage to being the first in the market. This advantage is referred to as the pioneering advantage. The market pioneer generally enjoys a competitive advantage stemming from higher market share and lower unit cost structures than do later market entrants. [1] Being the market pioneer does not always guarantee market dominance and success. Some pioneers become complacent. They fail to continue to improve their products, have inadequate marketing programs that fail to properly position the product and, consequently, create and maintain sufficient customer demand. These weaker pioneers are highly susceptible to aggressive "followers" that enter a market later with lower prices, improved technologies and products, and more precisely targeted marketing programs. With a 'market penetration' strategy, price is set low for the product's initial introduction. Price is used aggressively to quickly buy market share via an appeal to the mass market -the early majority and late majority adopter categories. This strategy is attractive when the market is highly price elastic as the innovator and early adopter segments are rather small, but there exists a large mass market. The strategy is also attractive when the firm anticipates dramatic reductions in average unit costs of production and marketing, as a result of scale economies and experience curve effects that may be obtained with larger production runs.

Advantages
In many markets, consumer demand is elastic; in other words, people will buy more of a product the lower it is priced. A penetration pricing strategy creates a significant advantage for a firm that can identify and act on this type of price sensitivity. Penetration pricing often has the effect of blocking, or at least delaying, competition. In addition, it can help to lower

per-unit costs of production when manufacturing processes are subject to economies of scale.

Risks
If sales volume fails to build as fast as projected in response to penetration pricing, a firm may have trouble recovering its research and development costs. Its overall profitability will suffer if it has produced far more than it can sell. Additionally, penetration pricing can hurt a brand's value image by suggesting to consumers that it is the cheapest -- not necessarily the best. This can unintentionally create a perceptual opportunity for competitors with higherpriced goods.

Industrial Market
A market consists of two parts consumer market and Industrial market. Companies manufacture products for consumer market but industrial market is equally large and strong. Typical industrial markets consist of manufacturing plants, machinery, industrial equipments, Services, etc.

Characteristics of Industrial Market

In a industrial market, organizations buy goods and services for production of goods and services. In terms of overall value industrial market is bigger than the consumer market. There are many characteristic which set industrial market apart from consumer markets. 1. Business buyer base is smaller in comparison to consumer market. 2. Consumer-supplier relationship is much stronger in an industrial market owing to few players in the field. 3. Customer and supplier are very dependent on each for survival. For example, if car companies falter then tyre companies will suffer. So companies not only have to monitor industrial market but also pay attention to end consumer market. 4. Buying for the business is a responsibility of purchase department which adheres to company rules and regulations. 5. The buying decision is influenced by many players ranging from technical experts to the finance department. This means that sales people have to do multiple visits and present information to different departments. 6. In industrial market there is no distribution channel, thereby reducing overhead cost.

Service
American Marketing Association:- Activities, benefits and satisfactions, which are offered for sale or are provided in connection with the sale of goods.

Quinn, Baruch and Paquette, (1987):- Services include all economic activities whose output is not a physical product or construction, is generally consumed at the time it is produced, and provides added value in forms (such as convenience, amusement, timeliness, comfort or health) that are essentially intangible concerns of its first purchaser. Characteristics of Services Intangibility: It refers to the total lack or perception of a services
characteristics before and (often) after it is performed

Inseparability of production and consumption: It refers to the simultaneous production and consumption of services. The production process of services has been called servuction process (Eiglier and Langeard, 1977). The customer is present when the service is produced. The customer plays a role in the servuction and the delivery process. Heterogeneity: It refers to the potential for high variability in the performance and the quality of services, caused by the interaction between the service employee and the customer. The performance of the employees delivering one same service varies: o Between different hour zones of the day o From employee to employee o From service company to service company Perishability: It refers to the fact that services cannot be saved, stored, resold or returned. Difficulties in synchronising supply and demand for services.

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