A market penetration strategy should be one of your first considerations if you are looking for low-risk business growth strategies. Before proceeding, it’s important to understand what market penetration means and how it is implemented?
This article will give you market penetration examples and help you understand how to use this strategy for your business.
Now let’s get started.
Before we look at the market penetration examples let us define market penetration.
Market penetration (sometimes called market share) is the act of reaching a certain number of customers in a given market.
It is an important metric for businesses to track, as it provides insight into how well a company is doing with its products or services.
Companies that have achieved strong market penetration can be considered successful in their industry. And they are also likely to continue to grow and expand in the future. Companies with strong market penetration are more likely to prosper than companies with weaker market penetration. This is because they have more customers who buy more products and services.
Before we look at market penetration examples, it’s important to understand why market penetration is so important.
Market penetration can be used to estimate a product’s potential market size. It might be attractive to new entrants to enter a large market if they have the potential to gain market share.
For example, the market penetration of cell phones would be approximately 22% if 300 million people owned cell phones in a country with 65 million.
The theoretical potential of 235 million additional cell phone users, or 78% of the population, remains untapped. There may be growth potential for cell phone makers based on the penetration numbers.
As a result of market penetration, companies gain valuable insight into how their customers and the overall market view their products. Using these figures, you can assess how well the company is doing in terms of sales and how its products and services stack up against its competitors.
Here are market penetration examples that can help you gain a better understanding of market penetration.
Smartphones are an excellent market penetration example. The iOS and Android platforms are always competing with each other. As the Apple iPhone is grabbing everyone’s attention with its amazing operating system, Samsung entered the picture with the Penetration Pricing Strategy. As a result, Samsung was able to offer a smartphone at a lower price, which increased sales. Using the same strategy, many brands followed suit later.
With the advent of Smartphones, digital entertainment companies like Netflix, Amazon Prime, and Spotify are gaining wide attention. New Netflix subscribers receive a free one-month subscription as part of the company’s marketing efforts.
The Food Industry commonly uses penetration pricing. It is common practice for packaged food industries to launch products at a lower price than their competitors in order to gain visibility. As their popularity grows, they increase their prices.
In order to understand market penetration examples, let’s first discuss the market penetration formula.
It is essential for new companies that plan to enter the market to measure market penetration. Their market share and revenue are estimated by calculating this ratio based on their evaluation of the industry and its potential. The penetration formula can also help business owners determine how actively customers purchase their products and services relative to their estimated total market.
For you to calculate the rate, you must know how many clients you have and how large your target market is. Here is the formula you can use to estimate ratio for your business easily.
Market Penetration rate = Number of customers / target market size * 100
As soon as you obtain your penetration rate, keep an eye on it constantly to see if it has changed. Consider estimating it after you run a marketing or sales campaign. You can measure the success of your campaign by how much it increases or decreases.
The first thing we need to know before we discuss market penetration examples is market penetration strategy.
Increasing your penetration rate can help you:
To achieve this goal, you can employ a variety of strategies. Let’s discover the best of them.
Your first step should be to inform people about your product or service if you are just entering the market. Use various marketing tools to attract well-established companies to your brand, such as social media ads, pay-per-click ads, and optimizing your website. The Cabot Creamery brand, for example, used social media and Pinterest ads to promote its cheddar cheese.
Diverse distribution channels are also important for companies that aim to grow. Don’t rely solely on traditional outlets, particularly when digital channels are growing. To sell your products, you can take advantage of:
Try to think of ways to increase your market share if you want to achieve this goal. Improve an existing product that customers enjoy. You have a massive advantage over your competitors if you know the pros and cons of your product. Enhance the product by adding possible technology perks and adding new accessories based on these insights.
Companies often consider expanding their services to other locations. As a result, you can scale, gain access to new markets, and reach a larger audience. However, it is also subject to financial risks, as is any business. To succeed, you need to have an excellent value proposition and a plan to compete with your competition.
Certain products are popular in certain geographical areas and in certain seasons. Research is key to learning where there is the greatest demand for your product or service. Take a sunblock manufacturer, for example, and compare their demand in Los Angeles and Seattle. Los Angeles is undoubtedly a sunny place, so the demand is higher.
A good online shopping system on your website is the first thing you need to do. Simple purchase processes result in more clients reaching the checkout. There is no doubt that buyers do not want to waste their time and energy filling out long forms. Their preference would be to search for another company that offers a more convenient and shorter process. Furthermore, you should offer different payment methods to your customers.
Let us look at the pros and cons of market penetration before we explore market penetration examples.
Low prices are exploited as a market penetration strategy to increase product demand and market share. Due to the greater volume of production, the organization is able to save money on product creation costs while the demand grows. In some cases, however, different marketing strategies work better than market penetration strategies for a given business or product.
A market penetration strategy is the most effective way to expand your consumer base. It becomes easier to lure out your competitors’ customers when you offer better prices than they do. Therefore, fast growth is strongly correlated with low prices, the lower the prices, the greater the impact.
Although it’s a responsible decision, market penetration can lead to cost advantages if your business development goes according to plan. When prices are low, you can increase the number of products ordered from the supplier, resulting in a higher profit. Some companies also risk more by buying in bulk (for discounts) before implementing penetration pricing.
Combating your competitors is one of the best aspects of market penetration. Suppose you have many competitors who are striving to advance and evolve. You are losing customers because they steal them from you. This has a negative effect on your revenue and profits. Considering that you intend to remain the market leader, your only option is to outperform them. Having low upfront prices, for instance, will force your competitors to change strategies with different pricing regulations. Consequently, you will attract lost customers and put your competitors on the defensive..
You can’t always lower the price of the product as you wish. It can be costly to produce products, and small businesses often struggle to produce enough to lower product prices and production costs. Competing against large companies is more difficult. In these circumstances, small businesses would benefit from focusing on:
This is because these strategies are potentially as effective as lowering prices.
There is a tendency for luxury brands to make mistakes like marketing their products as cheap. When it comes to luxury products, customers will definitely avoid products that were marketed as “cheap luxury.” So, if you’re selling luxury products, remember that lower prices could make them look less elegant.
The use of a market penetration strategy can be harmful to your company if you have multiple product lines (including a luxury line). The implementation of a market penetration strategy for one product may negatively affect the rest of your product lines. You will lose your luxury clients if they use the cheap product frequently. This is because if they use cheap products, they will forget that you produce luxury goods as well. Thus, the brand will soon lose its reputation as a luxury producer.
Market penetration strategy can harm the entire industry. If competitors sell similar products and one of them decides to lower prices, it’s natural that others will try to match them to create a balance and avoid consumer shifting.
Furthermore, the competitor that was first to lower prices, will have to continue doing the same in order to maintain its market leadership. So, the results can be severe because competitors might end up selling their products at an extremely low price and generate almost no profit.
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In general, consumer goods market penetration rates range between 2% and 6%. Penetration rates of 10% to 40% are ideal for business products. Market penetration is calculated by some brands at quarter-end while others do so at the end of each ad and marketing campaign.
Increasing market share can be achieved in four different ways, such as:
Market penetration strategies aim to launch products, enter markets quickly, and capture a significant market share as quickly as possible. In some cases, market penetration can be used to determine how well products are performing on the market.
In order to boost your business, you can utilize market penetration. This involves increasing your market share by targeting a new market or increasing market share in your current market. There are a few different ways to do this, and it will vary depending on your business. We have shared market penetration examples to inspire your marketing efforts.
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