Put simply, a market penetration strategy is a process of infiltrating an already existing market (where current or similar products already exist) with a new product (from your company or organization).
It can also refer to the strategy a company or organization uses to expand or further saturate their customer base in a market they are already in.
For example, you may develop a market penetration strategy if you are launching a new product that would appeal to a different segment of your current market.
This is all part of the Ansoff Matrix, a strategic framework developed in 1957 that helps company leaders plan for future growth.
A good market penetration strategy all depends on what a ‘good’ market penetration rate looks like will depend on your product, industry, and your total addressable market (TAM).
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If you know your TAM, you can use this formula to calculate your current market penetration: Market Penetration Rate = (number of customers / TAM) x 100
Now, compare your rate to the average market penetration rate to see where you stand:
Average market penetration:
Consumer products = 2 to 6%
Business products = 10 to 40%
If your penetration rate is looking a little low, there are ways to increase it...
There are a few common ways to optimize your market penetration strategy:
Channeling further investment into marketing and advertising efforts
Updating your product so that is better addresses customer concerns or roadblocks, and/or improving its functionality
Acquisitions or partnerships with other companies in your space
Market penetration rate is a measurement of how successful or unsuccessful a market penetration attempt is. It measures how much customers use a particular product or service. This amount is then compared against the total estimated market for that product.
For example, let's say that your business has developed a widget. The widget market size is estimated to be 100 customers, and you have 10 widget customers. That would mean that your market penetration rate is around 10%.
Of course, market penetration rate isn't a perfect measurement. And there are different ways to measure it, by comparing numbers of customers, market share, and so on.
Increased market penetration is generally a great thing for your business! It means that the total number of customers in your target market is going up.
Or at least, it's going up in pace with the total number of customers within that market. There's always the chance that the total number of customers is decreasing while your customers remain the same, which would inflate your market penetration rate.
In other words, an increasing market penetration rate is a good thing. Most of the time, it will be a direct result of a successful push for market penetration.
However, it could also be a lucky side effect of some larger trend, like Zoom's explosion in users at the beginning of the pandemic.
A market penetration strategy is your company's unique approach to increasing its total market share. Market penetration strategy is usually handled by members of your marketing team and is a standard process for businesses that rely on market penetration.
Generally speaking, market penetration strategies fall under four categories:
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