Market Penetration

Market penetration is probably the first – almost default – option of small businesses hoping to grow and expand their operations. This works best in a scenario where there are no new products, and there are no new markets to enter. Left with no choice, the small business will then look at what it currently has, right where it currently is. That means the focus will be on the current products or services, in the current market.

It is pretty straightforward: the small business will market its existing products or services in the same market it is in, with the aim of increasing its market share.

This is a competitive way of doing things, because the small business will be facing its competitors head on, implementing various strategies in order to increase its market share. Some of the market penetration strategies employed by small businesses are:

  • Reducing the selling prices of the products or services, with the intention of attracting consumers with the lower price. This works best in a market with very little differentiation. Walton effectively used this strategy when it set up its first Walmart store. There were other retail stores at the time, but what made his market share go up is because he was able to offer the products at lower retail prices than the other retailers.
  • Increasing promotions for products or services to improve their pull strategy. Aside from both conventional and non-conventional forms of advertising, small businesses can also employ other means to attract customers. Examples are special offers, special promotional events, offering trade and sales discounts, rebates and similar schemes. Not only will this appeal to your current customers, it will also catch the attention of the users in the market that were initially unaware of your product, brand or company.
  • Expanding distribution channels to widen your reach. 
  • Usually, this is done by looking for more distributors, retailers and dealers, making the distribution channel wider. Small businesses should also consider entering into partnerships with these major channel players, and nurturing the relationship so they will want to continue working with you. A wider and more stable distribution channel means greater chances of reaching your customers, and staking a claim on a bigger market share.
  • Effecting improvements on the product. You can encourage more people to buy your product if you are able to improve on its existing features, or find alternative uses for it. However, in many cases, there is usually no need to actually do any changes to the product. A change in packaging and an assertion in advertising about the “new and improved” product is often enough to attract the attention of customers.
  • Zeroing in on the competition’s customers and distribution channels. Naturally, if small businesses can win over the customers of their competitors to their side, they will gain a larger market share, and make their rival’s smaller. It’s striking two birds with one stone. In this strategy, the efforts are focused specifically on the customers of the competitors. But it also extends to the dealers, retailers and distributors currently working with the competitor. If you can offer them a deal better than what they are currently getting from their partnership with the competitor, they may consider jumping ship.

It is important to note that, in market penetration, the size of the target market is fixed or unchanged. This is markedly different when the strategy used is Market Development.

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