Market Penetration Explained: What Is Market Penetration?

In the world of business strategy, market penetration typically refers to a company’s sales of a product or service as a percentage of the estimated total market for that product or service. However, there is some nuance to the concept of market penetration.

• More than just market share: Market penetration goes beyond the concept of existing market share, which is a measurement of how many existing customers are claimed by a current brand. Market penetration strategy considers both the existing customer base and other potential customers who don't yet consume a good or service.
• Can be defined with an equation: A market penetration rate can be quantified with the following formula: (Number of Customers) / (Target Market Size) x 100 = Market Penetration Rate.
• Can be one pillar of a strategic growth strategy: Market penetration is one of four components of the Ansoff Matrix, a strategic development matrix developed by Russian-American applied mathematician Harry Igor Ansoff. The Ansoff Matrix uses market penetration, market development, product development, and diversification strategy as four key pillars of a brand's overall strategic planning.

Market penetration rates can reveal a lot about existing brands and potential startups.

• Market penetration metrics can reveal the health of existing products and brands. A brand with a high market penetration rate is often assumed to have long-term stability. Established brands with minimal market penetration must either increase market share or risk insolvency.
• Market penetration metrics can aid strategic planning for startups launching new products. When a company enters a new market, it has multiple ways to gain new customers. One way is to pick off competitors' customers using lower prices or higher-quality products. Another way it can boost sales is to identify a target audience that does not currently participate in the marketplace. By targeting both types of customers, a company can penetrate a product market from multiple angles.
• Market penetration metrics can paint a picture of an overall market. Even if you do not have a vested interest in a particular brand’s market penetration percentage, a market penetration analysis can still offer you an overall portrait of a product market. It can show the sales volume of current products, existing distribution channels, demographics of current customers, names of the market leaders, and a history of price adjustments.

Market penetration strategy is a concerted strategy aimed at giving a company a greater overall share of the existing market and potential market for a product or service. A market penetration strategy might include one or more of the following tactics.

• Researching existing products and brands: To penetrate a market, a company must understand the scope of similar products or services. Researching competitors’ products, pricing strategies, and ad campaigns can help company leaders get a handle on the overall market and identify market gaps.
• Formulating a pricing strategy: Market penetration pricing often involves undercutting competitors with low prices designed to sweep up new customers. While penetration pricing can increase sales quickly, it may not be sustainable for long-term profitability.
• Building partnerships: Companies can grab valuable market share by partnering with retailers, governments, or other brands to get their products in front of consumers.
• Launching new ad campaigns: Commercial advertising can help new companies enter new markets and increase brand awareness. Company leaders must decide if the marketing plan will target competitors' customers or potential customers who may have never bought a similar product before. As part of its strategic planning, the company will tailor its commercials to those specific types of customers.
• Pursuing ramped-up availability: Sometimes the way to penetrate a market is by making your product ubiquitous. By offering robust inventory, reliable distribution channels, multiple retail locations, and an e-commerce platform for twenty-four-hour sales, a brand can win over customers via sheer availability.

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