Market penetration as a factor in brand development

Market penetrationu may be the biggest contributor to brand growth. Yet there are a surprisingly large number of companies in the market with chronically low penetration rates. In many categories, a significant proportion never achieve a penetration rate above 5%. What does this mean? Read in the post below. 

What will you learn from the article?

In a dynamically changing business environment, market penetration is a key indicator that every business owner should know and understand. Our latest article will provide you with essential information on what penetration of the market, how to interpret its indicators and how it can contribute to the development of your business. You will also learn how to effectively carry out a strategy market penetrationto succeed despite the competition. We have also prepared inspiring examples market penetrationwhich you can implement immediately in your company. Have a read!

It is not uncommon that of the customers who have purchased a brand's products in a given year, the vast majority will not buy them in the next. Even the best brands can experience a churn rate of nearly 50%. Consequences? Companies must constantly take action that translates into increase in the market penetration rate. Even the biggest players accept that this is a long-term strategy.

Market penetration - definition  

In simplest terms, the indicator market penetration determines what percentage of the population or target group uses the company's product or service. By analysing market saturation two perspectives should be taken into account. Nominal market penetration includes all registered customers or those who have ever bought a particular product or service. In contrast, real market penetration refers to active consumers/users of a product or service. Alternatively, it includes those who have purchased the product or used the service over a certain period of time. Factor market penetration can be calculated using the following formula: 

Indicator market penetration = (number of customers ÷ size of target market) x100 

Determining the size of the market may be difficult depending on the nature of the product. In some cases, potential customers database it can be global in scope and generally apply to "everyone." The more detailed the demographics of an ideal audience are available, the better targeted target group, the easier it will be to make these calculations. 

How to interpret the market penetration rates?

Market penetration with a low ratio indicates its high potential. Depending on the situation (customer and competitor analysis), the company should adopt different strategies. It can develop its production capacity and the capacity of its distribution network, or it can expand its offer by targeting new customerswho so far have not been able to find the right products for themselves. Each method is generally intended to serve as sales supporty. That is, if the penetration rate is low, companies focus on increasing access to their products and attracting new customers. As the number of customers who already use the products/services increases, so does the rate of market penetration. The focus of the strategy then shifts towards building loyalty and increasing revenue per customer, along the lines that 20% The company's customers are generated by 80% income.

Market penetration and market development 

For a start, brands need to realise that market penetration is a marathon not a sprint. Based on research by Bain & Company, those brands that do all the right things can hope to increase penetration by around 1% per year. At this rate, a brand starting with 10% penetration will take nearly 15 years to reach 25% penetration. Unfortunately, few companies choose to creating plans and strategies in a perspective longer than the next 12 months. Moreover, many managers who are introducing a new brand will change everything from SKU types to advertising strategy rather than sticking to their course. 

Companies that change everything risk losing out to rivals who stick to a plan of slow and steady growth penetration. Achieving the desired market position requires unwavering discipline and patience. As many companies have discovered, it's easy to stray off course in search of income to meet short-term financial goals or increase your sales volume. A brand may be tempted to temporarily increase revenues by increasing prices. There is then the risk of losing buyers who simply cannot afford higher prices. 

The brand can also temporarily increase sales volume by, for example, offering products only in multi-packs. However, this risks losing occasional buyers (light users) - for example, those who would buy a single product but not a six-pack. Meanwhile, such consumers are necessary in the long term to market penetration went beyond so-called heavy users, i.e. customers who buy more frequently. Over time, such a strategy damages the brand. Companies proficient in this area know that they must avoid short-sighted moves in order to maintain a long-term and absolute focus on the market penetration. 

How to carry out a market penetration strategy? 

In principle, there are three ways to create a strategy market penetration. One of these is improvement of an existing productto increase its market share and eliminate competitors. The method seems quite simple. The company needs to improve and modernize its product in such a way that people want to use it even more. It then retains its customer base and acquires competitors' customers who decide to choose a product that better meets their needs. Let's analyze it on the example of a company that provides services and products in the field of performance management. In an effort to increase its market share and double its revenues, the company surveys its customers over the past two years to better understand why they chose its solutions. It then uses this information to improve its products and services before starting a marketing campaign. The need to improve products is due to the simple principle of reciprocity. The company needs to have successful customers because it enables the company itself to be successful.  

Price reduction

Market penetration It can also consist of adjusting the price of an existing product. This approach consists of reducing the price of the product in relation to competitors' products. The aim is to arousing the interest of customers. This allows the company to enter the market immediately and gradually gain a reputation as a supplier of high-quality and inexpensive products. When is the best time to use this strategy? According to experts, this will work when companies try to enter into insufficiently served markets with the product, where there is a demand, and customers are looking for opportunities. It can also work if competitors are unable to lower prices without incurring losses. After implementing this strategy, the company can gradually increase the prices of its products in order to achieve more and more profits. 

Scalability

The third approach is based on scaling market presence. Market penetration This can be done in various ways. The first is to maintain or increase market share by selling a wider range of products. To see how this works, let's look at Apple and what it does when it feels an imbalance in any of its markets. Firstly, it starts selling more of its products in its target markets. It expands the range of its products, for example iPhones and iPads, to best meet the needs of its target audience. By selling more different products to more customers in its current markets, Apple is reaching customers in all market segments. Another way to gain more market share is to expand its influence into other countries' markets. Of course, this strategy applies to global companies. 

Market penetration - success despite competition? 

Market penetration can mean focusing on current products and current markets to increase market share. A good example of a company that has demonstrated success in market penetration, is the American company Under Armour - a manufacturer of sports footwear, apparel and accessories. Competing with world-famous brands, this relatively young company, founded in 1996, has continually focused on activities that would enable it to become a leader.

This strategy required a strong and consistent approach to pricing, promotion and distribution. Under Armour promoted its products through sponsorship agreements with well-known athletes, teams and college sports teams. As a result, the company has been very successful - especially against its main competitors Nike and Adidas - in the battle for its share of the fitness apparel market. According to estimates, it should continue to strengthen its image as a brand offering some of the highest performing, trendiest and most innovative apparel products.

Market penetration examples

Market penetration is a market development strategy that aims to increase sales by introducing products to new markets or improving current market shares. Examples of effective market penetration strategies include selecting appropriate distribution channels and intensifying marketing activities. It is worth paying attention to relationship marketing, which allows you to build lasting bonds with customers, which can significantly affect loyalty and repeat purchases. The use of these practices can help increase sales and strengthen the company's position on the market.

Market penetration - examples to be implemented

Having the right strategy market penetration - competing on price, quality and uniqueness - can determine whether your business succeeds or fails. When starting a business, a company needs to penetrate the market and compete with established players. Even once established, it needs new strategies to maintain its market share. Success stories from the business world show that this can be done in several ways. Market penetration cutting prices to attract customers is one method. Consumers lured by the promise of a cheap sale tend to spend more money than they planned. However, such a strategy may not work in every market, so you need to know your industry. For example, 45% of wine buyers prefer liquors in the range of 21 to 30 zloty, believing that cheaper ones are of low quality. 

Instead of competing with existing companies, you can penetrate the market by finding new customers. Diet Coke turned out to be Coca-Cola's success, but hers target group was overwhelmingly limited to women. The solution to this problem was the introduction of Coke Zero. The drink offers the same benefits as Diet Coke (cola flavor without calories), but is viewed as more "masculine". This opened up a completely new market for him. 

If your product or service has a feature that sets you apart from the competition, market penetration with this tool can be extremely effective. For example, Dove Cream bar soap is sold at a higher price than the average soap. How is this possible? The manufacturer emphasises that its soaps are not harsh and do not dry out the skin. These arguments appeal to customers more interested in moisturising than just cleansing their skin.  

You are worried that market penetration is it a futile effort when there are giants and "old-timers" all around? There is room for everyone. One way of competing with the larger players is to give your company a "personality" so that consumers perceive their shopping experience as unique. Many mini-companies are masters of this strategy. Their profiles and advertisements describe how they came to be and why they want to provide their customers with unique products. Every company has a unique story. You too should weave yours into your strategy public relations.

Breakdown of market penetration strategies

To better understand, what is market penetrationTwo main approaches should be distinguished: a fast-track strategy penetration and a strategy of slow penetration. The first strategy is based on aggressive product launches at attractive prices accompanied by intensive promotional activities, allowing a high market share to be achieved quickly. In contrast, a slow market penetration strategy uses minimal promotional efforts with equally low prices, focusing mainly on consumer awareness of the product. This strategy will be effective especially in industries where consumers are price-sensitive and the product can gain popularity gradually, without significant marketing investment.

Risks associated with the penetration strategy

When looking to launch a new product, it is worth remembering that penetration strategy can carry various risks. The first risk of choosing such a method will be the triggering of a price war, during which competitors can quickly cut prices, reducing the margins of the entire sector. Secondly, a low price resulting from market penetration strategy can be interpreted by consumers as a sign of poor quality, which ultimately undermines the product and brand image. Another risk associated with choosing a strategy based on intensive market penetrationis the possibility that it may be difficult to increase prices in the future without losing customers who are already used to a low price. Therefore, companies considering market penetration should conduct an in-depth market analysis before deciding on price reductions and intensive promotional campaigns.

Benefits of market penetration

Implement an effective strategy that aims to market penetrationcan bring significant benefits to businesses. First and foremost, market penetration is accompanied by a rapid increase in the company's market share, especially if competition is not yet very strong or customers are highly price-sensitive. Another positive effect of using penetration strategies is to achieve economies of scale, so that unit production costs fall as sales increase, allowing the company to expand further. In addition, effective market penetration strategy increases brand awareness and attracts new customers who, having had a positive experience, are likely to remain loyal even after future price increases.