Market penetration: Difference between revisions
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* [[Market development]] (new markets, existing products): Apple introduced the iPhone, in a developed cell phone market. |
* [[Market development]] (new markets, existing products): Apple introduced the iPhone, in a developed cell phone market. |
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* [[Diversification (marketing strategy)|Diversification]] (new markets, new products): |
* [[Diversification (marketing strategy)|Diversification]] (new markets, new products): |
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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.).<ref>Higuera, V. (n.d.). ''How to develop market penetration''. Retrrieved March 20, 2016, from http://smallbusiness.chron.com/develop-market-penetration-31423.html </ref> Market penetration involves targeting on selling existing goods or services in the targeted markets to increase a better market share/value (Arkolakis, 2010).<ref>Arkolakis, C. (2010). Market penetration costs and the new consumers margin in international trade. Journal of Political Economy, 118(6), 1151–1199. Retrieved from <nowiki>http://www.nber.org/papers/w14214.pdf</nowiki></ref> 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.).<ref>Free Management Ebooks. (n.d.). ''Market penetration strategy''. Retrieved March 20,2016, from http://www.free-management-ebooks.com/faqst/ansoff-02.htm</ref> |
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[[File:Formula of Caluclating Market Penetration.png|left|thumb|549x549px]] |
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(Farris, Bendle, Pfeifer & Reibstein, 2006)<ref>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.</ref> |
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== Purpose == |
== Purpose == |
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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.<ref name=Marketing_Metrics/> |
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.<ref name=Marketing_Metrics/> |
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== Strategies == |
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=== Price Adjustments === |
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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.).<ref>Joseph, C. (n.d.). ''Examples of penetration strategies''. Retrieved from March 20, 2016, from http://smallbusiness.chron.com/examples-penetration-strategies-11699.html</ref> |
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=== Increased Promotion === |
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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).<ref>McGrath, M.E. (2001). ''Product strategy for high technology companies'' (2<sup>nd</sup> ed.). New York, NY: McGraw-Hill </ref> |
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=== More Distribution Channels === |
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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.).<ref>Joseph, C. (n.d.). ''Examples of penetration strategies''. Retrieved from March 20, 2016, from http://smallbusiness.chron.com/examples-penetration-strategies-11699.html</ref> |
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=== Product Improvements === |
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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. |
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=== Market Development === |
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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.).<ref>QuickMBA. (n.d.). ''Market share''. Retrieved March 20, 2016, from http://www.quickmba.com/marketing/market-share/</ref> 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. |
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=== Penetration Pricing === |
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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).<ref>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</ref> |
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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. |
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== Construction == |
== Construction == |
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Revision as of 04:48, 1 April 2016
 | This article relies largely or entirely on a single source. (October 2013) |
Definition
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.[1] 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. The best way [citation needed] 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.).[2] 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.).[3] Market penetration involves targeting on selling existing goods or services in the targeted markets to increase a better market share/value (Arkolakis, 2010).[4] 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.).[5]
(Farris, Bendle, Pfeifer & Reibstein, 2006)[6]
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.[1]
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.).[7]
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).[8]
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.).[9]
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.).[10] 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).[11]
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.[1]
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
- ^ a b c 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.
- ^ "Market Penetration Strategy: Everything You Need to Know". Inevitable Steps. June 6, 2015. Retrieved January 31, 2016.
- ^ Higuera, V. (n.d.). How to develop market penetration. Retrrieved March 20, 2016, from http://smallbusiness.chron.com/develop-market-penetration-31423.html
- ^ 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
- ^ Free Management Ebooks. (n.d.). Market penetration strategy. Retrieved March 20,2016, from http://www.free-management-ebooks.com/faqst/ansoff-02.htm
- ^ 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.
- ^ Joseph, C. (n.d.). Examples of penetration strategies. Retrieved from March 20, 2016, from http://smallbusiness.chron.com/examples-penetration-strategies-11699.html
- ^ McGrath, M.E. (2001). Product strategy for high technology companies (2nd ed.). New York, NY: McGraw-Hill
- ^ Joseph, C. (n.d.). Examples of penetration strategies. Retrieved from March 20, 2016, from http://smallbusiness.chron.com/examples-penetration-strategies-11699.html
- ^ QuickMBA. (n.d.). Market share. Retrieved March 20, 2016, from http://www.quickmba.com/marketing/market-share/
- ^ 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