When a company decides to enter a new market, it’s essential to use market penetration strategy. The aim of market penetration is to effectively use your product, enter the market as quick as possible and seize a large market share.
Furthermore, market penetration is frequently used a measure to determine, whether your product or a service is capable of capturing a fixed percentage of the market.
Although market penetration strategy doesn’t make any radical changes to the firm’s corporate marketing strategy, it has an unbelievable potential to grow profitability and revenue.
Also, if a business plans to increase market penetration, it’s important to implement certain tactics & strategies that will increase your sales and decrease the competitors.
Though, before deciding to use market penetration strategy, it’s crucial to understand the advantages & disadvantages and risks it carries.
Marketing Penetration Strategies and Tactics
Price Adjustment – One of the most frequently used market penetration strategy is price adjustment.
For instance, when a firm aims to increase sales, lowering prices is an effective tactic to attract potential customers.
Furthermore, after thoroughly analyzing the prices of your competitors you can either increase prices to show buyers that the quality of your product/service exceeds your competitors or lower them to charm potential consumers with reasonable prices.
In both cases, don’t overdo it because it may seem suspicious (lowering prices too much may indicate to low quality and high prices might seem as a company that has only one objective-gain profit) and might make customers doubt your quality, fairness, and trustworthiness.
Increased Promotion – Investing more time and strength in a promotion can dramatically increase market penetration.
For example, advertising is one of the most effective ways to increase brand awareness. Moreover, companies can create either short or long-term campaigns and structure them according to their budget and needs.
Note, that the campaign must be well-planned and analyzed because if your ad looks like “XX% off on Y Product for a limited time” can be easily countered by competitors with their own promotional campaigns and also retrieve their lost market share.
Distribution Channels – One of the most constructive components of market penetration strategy is distribution channels. For example, if your organization’s primary source of income is selling through retail outlets, it can open other channels like email marketing, telemarketing, etc.
Also, this way you can increase product sales, distribution channels, gain extra space on the market and overall profitability.
Improving Products – The best practice of engaging and interacting with customers is to inform them that your product has changed to better.
Consumers mostly fall for the trick because the interest and curiosity that the improved product drives are irresistible. Buyers always want better and when the opportunity comes, they always shift towards the best.
So, periodically updating your product (always to better, never lower the quality) and changing its packaging will, most probably, benefit your business.
Increase Usage – Market penetration can be increased through product consumption. For instance, if we use an effective marketing strategy that will increase product awareness in certain areas it’ll result in higher product consumption that will also increase market penetration.
Advantages and Disadvantages of Market Penetration Strategy/Pricing
Market penetration strategy takes advantage of low prices to increase product demand and increase market share.
While the demand is increasing, the organization saves money on product creation costs due to the greater volume of production.
Though, market penetration strategy doesn’t work for all products and businesses, so some companies use different marketing strategies that seem to be more beneficial.
Advantages of Market Penetration Strategy
Fast Growth – If your business and marketing objective is to enlarge your consumer base, then market penetration is the most effective way to act.
When you offer better prices than your competitors, luring out their customers becomes easier that previously expected. Consequently, fast growth is heavily linked with low prices, and the more reasonable they are, the higher the impact will be.
Economic Advantages – Definitely, it’s a responsible call, but market penetration can bring cost advantages if your business development goes the way you predicted and hoped.
Low prices that guarantee customer base growth, means that you can increase the quantity of products ordered from the supplier, which will result in higher profits gained from low prices.
Furthermore, some companies risk more and first buy products in bulk (for discounts) and then implement the penetration pricing strategy.
Combat Competitors – One of the best parts of the market penetration strategy is combating your competitors.
Imagine, you have numerous competitors that are trying to evolve and progress, they are stealing customers from you that results in lowering your profits and revenue. So, considering that you’re willing to stay as the market leader, the only choice you have is to outplay them.
For instance, low upfront prices will oblige your competitors to shift to alternative strategies with different price regulations. This way, your company will attract the lost consumers and it’ll put competitors on defense or the edge of leaving the market.
Disadvantages of Market Penetration Strategy
Unmet Production Costs – It’s not always possible to lower the product price as you will. Sometimes, products are expensive to create and small businesses tend to struggle while trying to produce enough to lower the production and product price. It becomes more complex when competing with large firms.
Under these circumstances, it would be wiser for small companies to focus on product packaging, marketing campaign, and public image because it has the potential to be as effective as low prices.
Missed Opportunities – Brands that produce luxury products often make mistakes like marketing it as a cheap item.
Customers who love luxury products will definitely avoid the product which was marketed as a “cheap luxury.” So, if you’re focused on luxury products keep in mind that lower prices might make it look disappointing.
Poor Company Image – If your company has several product lines (that includes a luxury line), then using market penetration strategy might be harmful.
For instance, if you implement a market penetration strategy for a single product, it may badly reflect on the rest of your product lines.
For a better understanding, if the large number of your customer base becomes familiar with the cheap product, it’s highly possible that everyone will forget that the firm also produces luxury items. So, the brand’s reputation as a luxury producer will shortly disappear.
Lowering Industry Prices – Market penetration strategy can harm the entire organization.
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.
Lack of Results – Market penetration strategy isn’t always effective, especially when a company enters an industry where prices are already set low.
For example, when prices are already low, it means that consumers have already built trust towards an existing company, so entering the market and trying to beat the price of the competitor is an ineffective way to act.
A new company should concentrate on gaining its worthy place in the industry, rather than trying to beat other’s low prices.