©) SMARTLING® The Complete Guide to Market Penetration What is Market Penetration? > Market Penetration is a business growth strategy in which a company Initiatives to expand the customer base forits products and services within a certain ‘market space. Market penetration can be both a measurement, and a projection of how successful newcomer businesses have been, or will be, against the established ‘competition ecutes Knowing When Market Penetration is Appropriate Usually performed by startups and early-stage businesses, market penetration is the first step toward business growth. Successful market penetration requires careful assessment. And perhaps the most import factor to assess is whether or not the time. BD a righ te eapan ofthe organization to attempt market penetration, nightinta ‘that question can be gained by considering a set of related questions. Forstarters, doos market share appear to be increasing or decreasing? If sales are decreasing, but increasing seems possible, then ‘market penetration may be the right course. Also if sales appear to be flatlining compared to previous years then market. penetration may be appropriate. If sales figures show a growth trend, then the time may not be right. But, if sales show a growth trend but the trendis less sharp than competitors sales growth trend that could mean market share is actually shrinking despite a gross increase, Inthat case market penetration may be of some benefit. f there are additional customers in a business primary market who aren't being reached, then marketing penetration may be in order. Butif there is potential to increase sales to current customers, maybe not. Market Penetration Planning AA solid market penetration plan begins with identifying the products or ‘services that the research will focus on, This establishes the scope of tthe primary research project. Primary research data typically comes from internal archives like financial and sales reports. The next step is ‘the market research process, which typically includes data gathering, and interpretation, as well as the compiling of competitor data with regards to pertinent products andior services. ‘The secondary competitor research may be compiled from trade Publications, news media, and government agencies such as the SEC and US. Census bureau, among other sources. With the findings from the primary and secondary research stages in hand, it becomes. possible to formulate a reliable market penetration plan. Every business has its own quirks and nuances, just ike every market. But the five steps outlined below are a good, for estimating potential market penetration. eral guidelineig-Picture Demagraphic— Begin by thinking broadly about potential customers in national census categories such as age,__ @ 1 SAMIPRR FELEN GAD to determine where divisions and overlaps may be. If potential customers are limited to orf {Eénder or another, a certain income level, and/or ethnicity, and fll within certain generational age, say millennial generation \wiite women who earn more than $70,000 annually, for example, From that point, you can calculate the total number of potential customers nationwide using US Census data Immediate Market Demographic — Geography becomes increasingly important as a brand begins to facus its marke penetration plan, It may be that the new brand entering a given market has litle or no interest in marketing their product on the national level.’ also possible that the immediate market could be a statistical outlier in terms of demographics. If for exampl the local population is more ethnically homogenous than national averages, or more diverse in some respect, then it becomes important to determine a more focused target demographic. Knowing the the general area in geographic terms like radius helps to determine the gross population of potential customers. From that point the number can be adjusted downward, becoming more and more accurate, by a process of eliminating those whose sensibilities fall outside the target model.f,for example the immediate market exists within a20 mile radius, and census data indicates that 100,000 people ive within that radius, but approximately half of those are the wrong gender, then the number of potential customers is reduced to about $0,000, and so # Caleulating Range — Once the total size ofthe target market has been calculated, the number of potential customers in the rational market can be added to the number of potential customers in the immediate market, ‘Setting Reasonable Expectations —Dr, Marlene Jensen, and MBA professor at Lock Haven University states in her book The Everything Business Planning Book: How to Plan for Success in a New or Growing Business that its reasonable to expect @ ‘consumer product to achieve between 2 and 6 percent market penetration, while the reasonable range for a business product is between 20 and 40 percent. From there, the determined population numbers forthe target demographic can be multiplied by the numbers at each end of the market penetration range—either 2 and 6, or 20 and 40 respectively. The resulting numbers give the ‘estimated market penetration range. For example, ifthe target market was calculated at $0,000, multiply that by 02. Next, ‘multiply 50,000 by 06, The resulting pair of numbers are the market penetration estimate, which would be a range between 1,000 and 3,000 customers © Projecting the Cost-Benefit — The estimated market penetration range, as compared to the number of customers required to tum a profit willbe the centerpiece of a successful business plan. It’s a simple metric to calculate. If success requires converting, a number of customers that is greater than the high end of the market penetration range, then the probability of success in the given market is low. The Challenges of Market Penetration Market penetration is supposed to be a low-risk business growth strategy typically centored around increasing marketing and sales cfforts, and sometimes increasing the number of business locations inthe interest of capturing greater shares of an existing customer base. Done well, market penetration yields valuable gains in market share. However, lke any low-risk endeavor, market penetration has limits For instance, before entering anew market, businesses must devote time and resources to estimate their market penetration potential—the primary and secondary research stages previously described. And in the end, ifit is determined that a new market shows the likelinood of profitable market penetration potential, a business should take it as a given that the market will eventually reach the point of saturation. The research findings may even reveal a predictable timetable for that. At that point there is no other choice but to shift focus into other area like the development of new markets. Market Penetration in a Saturated Market Market saturation is one of the primary limitations to market penetration. There is always a measurable, and predictable point at which all the customers with potential interest in a given category of products and/or services have been reached by either a newcomer or an existing business. ‘Thats the definition ofa saturated market. At that paint, it may still be possible to capture more market share, thereby achieving deeper market penetration, but the cost-benefit ratio tends to be unfavorable. Gaining deeper market penetration in a saturated ‘market typically involves investment in aggressively competitive marketing and advertising initiatives intended to persuade members of a competitors customer base to switch loyalty from one brand to another. In those cases, there's always a chance that. the competition may respond in kind. ‘There is also the potential for legalissues to arise if false, or libelous claims are posited by the competitive ads. Except in very rare cases, additional customers gained through these methods in a saturated market do not yield enough return to justify the investment in time, energy, creative resources, and expense.May SM ARTUINGD Y*- Market Development = Market development is distinct from market penetration in that market development redefines the target market from the outset. In ‘a market penetration strategy the market size is a fixed number, Market development involves expansion of the potential market to ew customers or new uses, whereas market penetration involves competing to capture a greater share of an established customer base. New users defined by market development plans may include those of similar tastes, and demographic categories who are located ina different geographic region than the primary market. Or they may be potential customers currently in the non-buyer category who need to be introduced to alternate uses for a product. Market development may be as simple as low-cost as expanding an existing customer mailing list by buying third-party mailing ists inthe interest of targeting new customer demographics. It may be a subtle pivot from the established market penetration plan in hich potentially profitable demographics are targeted with new advertising initiatives. Or, it may be as in-depth as adding new locations in regions competitors have yet to target. In any of those cases, the desired market expansion involves capital investment, Obviously that’s a given, and so are the risks Expanding into new markets may be more complex than simply establishing new locations. If, for example, a cable TV company provides services in which fuel costs, fleet maintenance, and transit times between customers and service technicians factors into both the quality value, and profitability of the enterprise, then expansion into new territories will involve the company either spreading itself too thin, or commiting to investing in much more than just the establishme f new locations along. Expansion of vehicle fleets, as well as maintenance facilities and staff would also be necessary in that case. And, if the new market fails to yield adequate returns, then capital and resource investments that could have been applied in other ways go to waste. Here are a fow factors to consider when contemplating a market development and positioning strategy https://www.smartling com/marke ositioning-strate 1. Does research indicate thatthe markets favorable for development? 2. Can the business be adapted to the new market? 3, Does the company have both the resources, and the willto commit to new market development? 4.Will expansion into new markets cost the business any competitive advantages ints current market? If the market development plan involves developing new product lines, expanding the scope of existing product lines, consider these questions: ‘LWill established customers benefit from the expanded product lines? Are they asking for that? 2 Can shifts in manufacturing, distribution, and marketing be optimized for maximum efficiency? 3.Will current assets ike personnel, production facilites, distribution channels, and brand messaging resources, ie. marketing, and advertising, be sufficient to handle the expansion? 4, Does the business have the expertise and skills to produce and deliver what it proposes? = 5, Does the business truly understand the culture and social climate of the regions where it proposes to expand? For example, does the proposal involve building giant warehouse stores in small, quiet communities? 6, Can brand recognition be leveraged in the proposed expanded market? For example, awell-known clothing company that ‘makes foray into offering shoes, or handbags, may be able to rely on a certain amount of brand recognition Ifenough of these questions are satisfactorily affirmed and market expansion appears to offer a legitimate chance at growth and profitability, then there are a few common approaches to the process. * Targeting the competition's customer base — Competing agencies in any form are defined by their similarities, the most important of which is customer demographics. But market research may reveal subtle demographic subcategories that can be leveraged by using advertising and marketing resources to establish a distinction between one business organization and another. Here are a few ideas for that: © Appearance — If your company makes a physical product you can tallor product designs to establish aesthetic distinctions that will appeal tothe sensibilities of the new market segment.