Market penetration can mean two things. The first is a measurement. It compares the volume of products sold compared to the total target market, given as a percentage. For example, if you estimate that there are 100,000 people who need your product, and you are able to sell 20,000 units, your market penetration is 20% (20,000 / 100,000 x 100).
Market penetration also refers to strategies and activities that help increase a product’s market share. These include advertising and promotional initiatives.
Both definitions are important to startups, since both penetrating markets and gaining traction are important to success.
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The concept of market penetration is among the four strategies in the Product Market Expansion Grid or the Ansoff Matrix proposed by Igor Ansoff. Based on the matrix, startups must focus on selling their products and services to their current markets to gain broader market shares. How can one achieve a considerable market share? The answer is simple: By coming up with a market penetration strategy.
How to Increase Market Penetration
Ideally, a startup can expand its market share by maintaining its user base and attracting new customers, which can come from competitors. How can one successfully do this? Here are some ways:
Make Product or Service Improvements
This strategy is pretty straightforward. Business owners must carefully study their own products and services. What are their strengths and weaknesses? How can they address their shortcomings to make sure their target markets would patronize their products or services?
Companies can use customer surveys and feedback forms to identify weak spots. That way, it would be easier for them to improve their products or services even before they launch marketing campaigns.
Study Pricing Schemes
Ideally, consumers go for similar products with lower price points. As such, organizations must find a way to lower their product or service prices to ensure that consumers choose these over their competitors’. They must, however, make sure that lower prices do not translate to lower product or service quality. This market penetration strategy can quickly get a brand recognized for affordable but high-quality offerings.
Scale Market Presence
Startups can gradually make their presence felt by offering products and services on their own at first. They can then slowly leave the selling to authorized distributors or resellers. At this stage, startups can divert their resources to conducting extensive marketing campaigns through multiple channels instead.
Another way to scale one’s market presence is by expanding your company’s influence in smaller markets. You can do so by localizing products and marketing campaigns, depending on the consumers’ needs and wants by geographical location.
Example of Market Penetration
For a market penetration campaign to work, it must be efficiently executed and have the right product or service pricing structure, be backed by strong promotional activities, and come with an effective distribution strategy.
A notable example of a market penetration strategy done right is that of Under Armour. If you think about it, the brand came a little late into the sporting goods industry, as it was only launched in 1996 compared with Nike and Adidas, which have been in business since 1964 and 1949, respectively. As such, Under Armour faced giants. But it still managed to topple Adidas from second place in the list of top sporting goods companies in the U.S.
How did Under Armour do it?
The brand fueled its growth through intense promotion, distribution, and production strategies that focused on producing inspiring ads that featured famous athletes. The company also collaborated with various professional and college sports teams. You can watch two of the videos Under Armour released to get an idea on how to penetrate the sporting goods market successfully:
Rule Yourself | Stephen Curry
Misty Copeland – I Will What I Want
Startups face many challenges because the competition is extremely tough. But beefing up their marketing strategies while keeping costs and hence prices down without letting quality suffer can work to their advantage. That makes market penetration a necessary measure of success.