Market Penetration

Pricing Strategies in Marketing

John O'Shea

It’s disheartening to see a brand you’ve worked so hard to build lose its market share to competition. Often, this is not about what you’re doing right about the brand rather, what you’re not doing that is hindering growth.

This is where market penetration strategies come in.

In this guide we cover:

-Market penetration strategies
–How to calculate market penetration

–Pricing strategies in marketing

What is market penetration?

Market penetration is the ratio of services/products sold against the projected total estimate. Brands need to know their market penetration to have a sense of their estimated total market size and percentage of customers buying their services and products. This, ostensibly with the aim of eliminating competition and owning the entire market share. Market penetration also refers to actions brands take to surpass competitors and control a large market share to become a market leader. Knowing the percentage of the market size you control is critical for both established and new brands.

How Do You Calculate Market Penetration?

Calculating the market size in its entirety and getting an estimate of the proportion you own is useful for both established and new brands. Thankfully, there’s a formula you can use to know how much of the market share you control against the total market share as below:

(The number of customers/The target market size) x 100 = Market Penetration Rate

It’s important to monitor your market penetration to determine any decreases and increases. It’s recommended that you calculate your market penetration after running a sales and marketing campaign. This way, you can tell the changes in penetration and gain better insight on the success of your marketing efforts.

Market Penetration Strategy

You need to have a good strategy to increase penetration. Market penetration strategy refers to where your company deliberately works towards attaining a higher market share by leveraging existing markets and products. It’s essentially how an existing company can grow through increasing sales among those already in the market.

Market penetration strategies are anchored on four growth strategies for entering an existing or new market for established or new product or service based on the Ansoff Matrix. Here are 10 common market penetration strategies are:

1. Dynamic Pricing

Brands engage in vicious price wars with the aim of persuading customers to purchase their services and products for the best price. This market penetration strategy becomes complicated and more intense with price adjustments all day long.

With dynamic pricing, the systems are automated so that the software researches the set prices and the market in general to deliver actionable intelligence.

2. Add distribution channels

3. Target specific territories

While some services and products are seasonal, others are location based. When you target a specific location, you can boost sales within the area.

4. Change or update your product

If you can trace your market share to a specific service or product then you can rely on the feedback from customers to improve product features. When you understand consumer preferences for your products you can even change it to make them love it more.

5. Expand to new territories

You need to identify new territories where your brand can expand and grow. Think about the new areas where you can prospect or open stores. You could also consider franchising as an expansion strategy.

6. Create entry barrier

Creating an entry barrier for competing brands using existing resources or identifying those who want to make a superior product. This will make it difficult for another brand to compete with yours.

7. Partner with another business

Think of mutually beneficial ways you can partner with another business or brand to push sales. It could be a simple co-marketing campaign.

8. Purchase a competitor or small business within your industry

When you have the resources, acquire your competitor or small business within your industry. The idea here is so you can broaden your offerings and customer base.

9. Run a promotional campaign for boosting loyalty

You can run a promotional campaign that will get consumers customers to sign up in return for freemium products like discounts, inside information and discounts.

10. Craft a new marketing campaign

Craft and launch a new marketing campaign that promotes your product line in a new and unique way that customers have not seen before. Carry out an analysis of the success of your campaign for future reference.

Pricing Strategies in Marketing

Pricing is one of the most preferred market penetration strategies yet quite confusing. A price penetration strategy isn’t the same thing as low price. While the intention of a low price strategy seeks to permanently keep the prices low, market penetration pricing strategy is employed to keep prices low at the introductory stage when entering a new market.

What is penetration pricing?

Penetration pricing strategy is where businesses or brands attract customers to a new product by offering a discounted price in the initial stages of the launch. Once the brand or product has generated enough interest and gained a significant market share, you can then begin raising the price to the market levels.

The aim of this strategy is introducing consumers to a product at a low risk, drawing interest in the product and building brand loyalty. At this point, profit is not one of the major goals. Rather, the objective of a penetration pricing strategy is to:

– Introduce consumers to your product
– Attract new users
– Gain market share
– Destabilise existing market leaders
If you choose to use this strategy, you must also take advantage of a price monitoring software that’s instrumental in tracking the average market prices within a specific period. You can then leverage the data to determine your introductory price.

Penetration pricing vs Price Skimming

Most people confuse penetration pricing with price skimming yet, these strategies are distinct. When it comes to market penetration, companies are willing to forego margins if only to draw users to their brands/products.

This strategy is relevant where you want to enter a new market and your main goal is getting as many users as can be. The margins in penetration pricing strategy are slim making this strategy less flexible.

On the other hand, price skimming is the strategy where you leverage luxury or high ticket brands in maximising profit margins. Rather than set a low price for products, companies using price skimming will have a high price tag on their products. Skimming is common where you enjoy high brand loyalty and recognition or your products have a significant differentiation from your competition. Now you know why Apple charges a relatively high price for innovative and new products but still have their customer base intact.

Advantages and Disadvantages of Penetration Pricing

Before you decide to use penetration pricing, it’s advisable to check against the advantages and disadvantages. While there’s no doubt that this strategy is excellent when you want maximum visibility, it could also harm your brand when improperly executed.

Advantages of Penetration Pricing

1. Influences perception of price – Penetration pricing is an excellent way of influencing the price of your brand or product from the start. You can build an image around your product value influencing how consumers see your brand with strategic marketing campaigns.

2. Introduce new customers to your brand at low risk – This strategy is a great ways of entering a new market, drawing attention to your product and getting sales traction from the start

3. Market shake up – Penetration pricing will overhaul a market where there’s an established leader. This often paves the way for ‘underdog’ companies to enter a new market and sell while attracting customers from established brands/services.

Disadvantages of Penetration Pricing

Even with the advantages discussed above, penetration pricing can also be risky especially if you can be proactive in accounting for hazards that come along with the strategy. The two main disadvantages are:

1. Race to the bottom – Sometimes the reaction to penetration pricing could end up being a race to the bottom for your brand especially if your competitors react by lowering their prices too. However, you can protect yourself from this with dynamic pricing.

2. Lack of value – The greatest strength of penetration pricing is also the greatest weakness; you could end up with disgruntled consumers that may not return to buy your product when you normalise your price.

Market Penetration Examples

When you execute market penetration strategies well, you can be sure to enjoy market dominance. An example of a company that has had great success with market penetration is Coca Cola. The company initially presented itself as a beverage company with a strong leaning towards snacks. With this, the company enjoyed the advantages of the refreshment market.

However, as people’s tastes started changing to healthier choices, the company introduced Coke Diet to gain a significant share of the beverage market by capturing the health minded individual. After research found that more women prefer Diet Coke, they introduced Coke Zero to cater for all.

Conclusion

It’s evident that understanding market penetration can be quite beneficial to the long term success of your business. This growth strategy is low risk yet highly effective. With so many market penetration strategy options, you must make sure you choose a strategy that will help you achieve your goals.

Book a call with Growthonics today to learn how we can support your business growth.