It is very common that we talk about market penetration in a company. We even have targets in our annual business and marketing plans to achieve higher penetration. Consider the following advice before making your decision on how to implement an effective market penetration strategy.
Think and calculate before you make your decision. There are a few issues to consider before you decide if you really need to apply a market penetration strategy at your company’s current stage. Furthermore, you must think about where you are and if “penetration strategy” is the appropriate strategy amongst other possibilities.
Ask yourself the following questions.
- Why do I need higher market penetration?
- Do I need it in order to increase total profitability?
- Do I need it in order to increase profitability per product line?
- Do I need it to secure profitability?
- Do I need it to survive in the market situation?
- Is it necessary for my immediate or future development?
If you decide a market penetration strategy is called for after answering these questions, start drawing up business scenarios and calculations. Before moving to action, you have to think about and calculate whether or not you can gain the additional market share with the same products and structures. Decide what sort of investment you need to make.
Since a new marketing strategy implies expensive investments that will not be translated into profits for a reasonable time span, you should reconsider the approach of your market penetration strategy. For example, if you have to design new processes or train a lot of people or advertise heavily, you need to estimate in advance what your return on investment is expected to be. Of course, you also need to designate a specific budget and time plan that will be monitored.
So in your scenarios for market penetration strategy, you should consider the four following factors:
- Market size and potential for growth
- Costs for investments — from price offers to advertising, training and even processes & systems modifications to adapt to new strategy , etc.
- Possible change in product positioning with all negative and positive implications
- Advantages for the whole product line and company from publicity or advertising to your competitors’ reactions
Consider your competitors’ reactions and expect to invest more and more in some marketing activities such as special offers or advertising. Once your market penetration strategy takes effect, your competitors will react to protect their market share. You need to keep this in mind and be prepared not only with strategic plans and clever marketing activities, but with budgets too.
The following are the various marketing penetration strategies your company can use:
Cut price or lower your offer. The easiest and most commonly used market penetration strategy is to offer lower prices through special offers and coupons or more product at a cut price.
- Pros: A cut price can attract new customers to try your product. This means that new clientele will get to know the product and will create a new market share immediately. Some of these clients will like the product, repurchase and become loyal, leading to a more long term market share increase.
- What to consider:Monitor this marketing strategy carefully because your competitors will react in a similar fashion. Your company may need to further reduce price or maintain the same offer for longer than planned in order to match their offer.Customers get used to lower prices and offers; in this way, you can train them to look for the cheapest. Besides that, your company may enter a price war with competitors and, in the end, only the cheapest will survive. Therefore, you should only follow this strategy for a short period of time and only occasionally. Otherwise, your company may end up with a repositioned product.
Promote a new use of the product and enhance its features.This is a very clever and subtle market penetration strategy — use the same product, but promote it with additional features. For example, a company well known for its ready made soup in powder started promoting the same mix as a mix for fresh salads seasoning. It was a brilliant idea that almost immediately picked up! Same product, same price, but it was promoted to both new and existing customers with a new use.
- Pros: This marketing strategy has the potential to attract both new and existing customers to try the product in a new use. Therefore, it increases the purchased quantity and leads to higher market penetration. Also, it leads to more new customers that get to know the product and offers new market share.
- What to consider: Be careful not to ignore or depreciate the current characteristics and uses of the product. You don’t want to lose your existing customers by any means. After the new use is adopted by customers, remind them of the typical use of the product in order to preserve your customer basis. Again, there is a risk of repositioning by mistake, so monitory your activities and your customers’ feedback and take any suspicious signs into consideration.