Market Penetration: Definition and How to Do It

All businesses have the goal of achieving continuous growth, and in order to do so, they must implement effective strategies. One such strategy that businesses should seriously consider is market penetration. However, before moving forward with this strategy, it is important for businesses to fully comprehend its definition and how it can contribute to the development of their business.

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What is Market Penetration?

Market penetration is the measurement of how much of a specific product or service is used by consumers compared to the estimated total market for that product or service. It is usually expressed as a percentage.

Businesses can use market penetration to develop strategies that aim to increase the market share of a particular product or service. To calculate market penetration, the following formula can be used:

(Number of consumers/target market size) x 100 = percentage market penetration

For instance, if Indonesia has 300 million people and 65 million of them have bank accounts, then the banking market penetration is roughly 22%.

Consequently, there are still over 235 million people who have not opened bank accounts, which accounts for approximately 78% of the untapped population. Accordingly, this 78% figure has the potential to be interpreted as growth potential for the financial and banking industry.

Ideally, market penetration calculations should be performed with every marketing and sales campaign. This is vital because it can indicate any changes in penetration and offer insights into whether the campaign was successful or not.

Why is Market Penetration Important?

Market penetration can help identify a business’s potential in an industry to expand its market share or increase revenue through sales.

For instance, the market penetration of financial facilities, such as opening bank accounts, can be used to estimate whether a financial business or bank can achieve the desired revenue.

If the market is already saturated, it means that the business has acquired the dominant market share, and the chances for new sales growth are very low. On the other hand, if the market is still underserved, there are significant opportunities for new revenue growth.

Businesses that employ a market penetration strategy aim to increase revenue by expanding the number of consumers in markets where similar products already exist. This strategy aims to gradually increase market share and outperform competitors.

How to Perform Market Penetration

Now that we understand what market penetration is and why it’s important for businesses, let’s look at some strategies we can use. Below are a few examples.

Product pricing penetration strategy

The first strategy is to adjust the pricing of products. By intentionally pricing products or services below their actual value, businesses can stimulate consumer interest, encourage them to try the product and achieve early sales quickly, thus gaining market share.

Creating new products

Although market penetration typically involves existing products, businesses can also address consumer issues by introducing new products. Through research and development, businesses can analyze existing products, determine why they fail to meet consumer expectations, and subsequently develop new products based on these findings.

Targeting new territories

If a business has dominated the market share in a certain area, the next step is to target new territories for continued growth. These new territories are areas where the business’s products or services are not yet well-known or even entirely unknown to potential consumers there.

Partnering with other parties

In addition to expanding into new territories directly, businesses can also penetrate the market through collaboration with others. For example, a beverage business could collaborate with a bookstore by opening a café inside the bookstore. This way, the beverage business can enter a market they have not reached before.

Upgrading existing products

The next step in market penetration involves improving existing products. This is often seen with app-based products, where users are prompted to update.

Through these updates, businesses can enhance product quality and introduce new benefits. It’s possible that consumers who have used the previous version will be interested in upgrading after seeing positive reviews.

Acquiring other companies

Previously, we discussed collaboration between two different entities, where neither had access to each other’s products. However, if a business acquires another entity or business, it immediately gains access to new products, new markets, and even ongoing research and development in the acquired company.

Making promotions

The last strategy for market penetration is to create different offers or promotions for each campaign, such as discounts, additional benefits, or other promotional activities. This enables businesses to achieve success or increase sales in a short time.

Find the Right Areas for Your Business’s Market Penetration

Previously, we discussed that one method of market penetration involves expanding into new areas. To identify suitable geographic areas for marketing your business’s products or services, you can leverage LOKASI Intelligence.

LOKASI Intelligence is a geospatial analytics and big data platform integrated with location intelligence. It simplifies the process for businesses to search and identify suitable areas to penetrate their target markets.

Learn more about how LOKASI Intelligence can help businesses by contacting email: [email protected] or WhatsApp: 087779077750

FAQ

What does market penetration mean?

Market penetration measures the extent to which consumers use a product or service compared to the total estimated market for that product or service.