Market Penetration Strategy
Market penetration is one of the four alternative growth strategies in the Ansoff Matrix. A market penetration strategy involves focusing on selling your existing products or services into your existing markets to gain a higher market share. This is the first strategy most organizations will consider because it carries the lowest amount of risk.
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This strategy involves selling more to current customers and to new customers who can be thought of as being in the same marketplace. For example, if your current customer base consists of men aged between 16 and 25 then this strategy would involve attempting to sell more of your existing products or services to this same group.
One key constraint is that you cannot allow anything in your drive to grow market share to compromise your existing success. You need to be aware of what has made the product a success so far and ensure that nothing you do will undermine it.
You should give this strategy careful consideration if you are not in a position to invest heavily or are not comfortable with taking risks, as the amount of risk associated with this strategy is relatively low.
There are four approaches you can adopt when implementing this strategy:
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Maintain or increase the market share of current products
You can achieve this by adopting a strategy that is made up of a combination of competitive pricing strategies, advertising, and sales promotion. This would involve focusing on the areas of sales and marketing responsible for managing the pricing and promotion of the product.
Secure dominance of growth markets
Another approach you could take is identify a new demographic for your product, for example another age group. An excellent example of such a strategy would be for you to identify a change in the age distribution of your product users and to then aggressively market your product to this age group.
This was exactly what happened in the cell phone market when it was realized that teenagers were emerging as a key demographic. Previously it had been users in their 20s who were seen as the biggest group of first-time users. Substantial growth in market share and dominance in this sector was achieved by ensuring cell phone companies' promotions met the needs of this younger group.
Your role in the discussion senior executives will have in defining their strategy is that of providing the market intelligence or customer feedback that helps to inform the executive team of the current dynamics of the market. The data you provide will help the team decide whether a growth market is an extension of the current market or is truly a 'new' market. This decision is likely to be based on how your organization is going to approach this growth market.
If the team's chosen approach defines the growth market as a 'new' one then a market penetration strategy will be replaced with one of market development, which is covered in the next section.
Restructure a mature market by driving out competitors
Many organizations find themselves in a mature or saturated market and to achieve further market share requires a different approach. This strategy requires an aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for smaller competitors.
With a mature market there are no more demographic sectors to exploit and the only way to attain market share is to take it from competitors. Examples of this strategy can be seen in the newspaper, telecoms, and cable TV industries, where the larger players now dominate. Another good example is the rapid growth of the supermarket chains, which have taken market share from small high street grocers who are unable to compete on price and product range. More recently there has been the introduction of loyalty campaigns, where the supermarkets compete for market share through customer loyalty programs.
Increase usage by existing customers
Another approach to market penetration is to persuade your existing customers to use your product or service more frequently. There are several tactics you could use to do this, including loyalty schemes, adding value to the current product, or making alterations to the product that encourage greater use.
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The tactics of this approach all aim to 'tie in' your customers to your product or service by making it more difficult for them to move to another supplier. The ability of your organization to achieve higher usage by customers can be greatly enhanced by rapidly changing technologies that encourage users to upgrade or that offer more reasons to use the product or service. A good example of this would be cell phones: models are now upgraded every six to 12 months with the addition of new features and capabilities.
A successful market penetration strategy relies on detailed knowledge of the market and competitor activities. It relies on you having successful products in a market that you already know well.
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The key role you are likely to be asked to perform is capturing the intelligence that is required to make informed decisions. Understanding why this information is being asked for should help you to capture and pass on the most relevant and significant information.
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You may also be interested in: Introduction to the Ansoff Matrix, Market Penetration Strategy, Market Development Strategy, Product Development Strategy and Diversification Strategy.
