Have you ever watched a startup with early success begin to flounder and lose momentum? Losing market share to competitors often isn’t about what you’re doing wrong – it’s about what you’re not doing at all.
Highly successful brands turned household names like Amazon and Apple use various strategies to position themselves for consistent growth, but market penetration is a valuable one that can help elevate an existing product in an existing market. If a company, whether an established business or an early startup, is lacking a strong market penetration strategy, this deficiency can greatly impede its opportunity for growth.
The right market penetration strategy slightly varies for every company. Understanding the goal of this growth strategy, various ways to further penetrate the market, and the benefits gained when you develop your market penetration strategy will help you hand-pick the tactics that will have the most return for your startup.
Market Penetration Strategy Defined
Market penetration strategy comes from the Ansoff Matrix, also known as the Product/Market Expansion Grid, created by H. Igor Ansoff. The grid contains four strategies: market penetration, product development, market development, and diversification. Of these four strategies, market penetration carries the lowest risk, making it a safer option for startups when they want to grow their market share. Diversification holds the highest risk.
Market penetration strategy concerns existing products within an existing market and aims to capture a larger portion of the market’s customers to drive sales and increase overall brand awareness.
Different Types of Market Penetration Strategies
Successful businesses rely on several market penetration strategies to corner the market, but not every business needs to use every strategy. Different strategies take different approaches, and some lend themselves better to certain products, markets, or businesses than others.
Explore the different types of market penetration strategies to discover which options may work best for your startup.
- Penetration Pricing – To increase market share, you may want to lower your product price so it’s closer in value to your competitors. To illustrate, if there are tons of similar lemon-lime sodas in the market, offering the same product at a lower price could help make your soda more attractive and increase the likelihood someone would choose it over the more expensive options.
- Multi-Channel Marketing – Where and how are you marketing your product? Expanding your promotion across multiple channels can ramp up brand awareness. For example, if an online clothing brand was only creating digital ads on websites, then expanded to include advertisements on Instagram and TikTok, it would boost awareness, particularly among millennials and Gen Z. This would likely increase sales of their product and help claim a greater share of the ecommerce market.
- Distribution Expansion – Reconsidering your distribution channels can increase the opportunities a consumer has to see, engage with, and potentially buy from your brand. If you’ve been limited to online sales, and then work out an agreement with a retail chain to carry your product, it’s a perfect example of expanding your distribution.
Using resellers can be a fast and inexpensive way to expand distribution and get your product to market by capitalizing on a more established company’s sales and marketing team that is selling to the same customer. You can simply pay these resellers a commission, then use the money generated to create your own sales team for more direct sales.
- Product Improvement – Product improvement starts with understanding your target audience: what they prefer, what their pain points are, how the product could eliminate those pain points if modified. Once you pinpoint ways to modify the product to satisfy their expectations, you can get ahead in the market. Think about how vastly different phones are today than they were years ago; that’s product improvement in action.
- Rewards Program – A rewards program works by incentivizing current customers to stay loyal. When there’s so much similarity between products, a loyalty program like this can be the deciding factor between purchasing from you or your competitor.
- Partnership – In a deeply competitive market where startups may struggle to make any noticeable traction, sometimes partnering with other businesses is the key to getting ahead. In certain situations, joining a larger, more established company in a partnership can provide some additional resources and access to a much greater customer base.
- Optimizing Marketing Campaigns – Many of the above strategies involve pretty drastic changes, but sometimes smaller adjustments can have the biggest impact. Slight changes, like optimizing your messaging in advertisements, offering new incentives, or relaunching campaigns with slight changes based on market research can help you more effectively reach consumers.
Why is a Market Penetration Strategy Important?
Having a market penetration strategy in place for your business is essential to find traction in an existing market when you’re selling an existing product. Without it, you’ll fail to differentiate your offering or will burn through your budget trying.
While market penetration strategies are the least risky growth strategies, they don’t come without challenges. Some may even argue that the challenges are much steeper, having to find a way to stand out in a mostly homogenous environment and earn loyalty among many consumers who have already placed their loyalty elsewhere.
Without creating a clear market penetration strategy and using it as a roadmap to break through these barriers, startups will struggle to stay ahead of the pre-established competition.
Creating and Implementing a Market Penetration Strategy That Works For Your Business
Market penetration strategies cover a broad range of tactics, from making physical product changes to expanding distribution channels and slight tweaks in marketing campaigns. They won’t all work every time; you have to find the ones that work for you.
To create and implement a market penetration strategy that best supports your business growth, you need to first understand your market, your business stage, the product you’re selling, what your competition is offering, what your current market penetration is, and what your market penetration goal will be.
Take Amazon as an example of a company that has found market penetration strategies that work for them. With Amazon Prime, Amazon has created a “club” of sorts with members that have access to free and fast shipping and special deals, like on Prime Day. Over 100 million American shoppers currently hold Amazon Prime memberships, making up 62% of its customer base in the US, so this attractive “membership” has clearly been successful in recruiting loyal customers.
Components of a Successful Market Penetration Strategy
A strong market penetration strategy consists of three main components. While each component will play out differently from company to company, including the following ensures you’re starting on the right foot.
- Research. Research the existing market and competitors, understand how long they’ve been in the industry and what kind of sales they are experiencing for similar products, how they price their products, what their common problems are, and how your product may be able to add more value.
- Differentiation. Differentiation is the key to capturing more of an existing market. You have to be both different and better than the competition. This may come through pricing, incentives, partnerships, rewards programs, or product improvement.
- Marketing. Your marketing is what will allow you to share your differentiation, build brand awareness and drive brand loyalty. This could include expanding the marketing channels or an optimized marketing campaign.
Market Penetration Strategy Outline: How to Develop a Market Penetration Strategy
If you’re ready to get started on your market penetration strategy today, use this outline as a guide.
Step 1 – Perform a Market Analysis
Before you can strategize how to penetrate a market, you need to understand the market itself. Find out who the major players are in the industry, and learn everything you can about them. What works for them, what hasn’t worked for them, and, if possible, their market penetration percentage.
This can be a lengthy process, so the sooner you start, the sooner you can make power moves within your market.
Step 2 – Find a Way to Differentiate
Next, find something that you can offer, a value or benefit you can provide, that the competition can’t. This might look like a cheaper product, an improved product, or expanded distribution channels. To find the right way to differentiate, consider your buyers. What do they need, want, and what’s lacking? Are there any gaps your product could fill?
Step 3 – Make a Marketing Plan
Next, begin developing a marketing plan that will best reach your target audience. Explore your buyer personas and learn where they spend time digitally, what methods of advertising they’re most receptive to, and what price level is reasonable to them. The goal is to find ways to get their attention through marketing within an already noisy market and offer a tempting alternative, which can be a challenge.
Step 4 – Execute and Analyze
Once you begin executing your market penetration strategy, keep a close eye on the results to learn what is and isn’t working. You will need to make adjustments as you get more data to support the right tactics.
What are the Benefits of Market Penetration?
Despite the challenges, when you commit to a market penetration strategy, you’ll see benefits within your startup. Advantages of an effective market penetration strategy include:
- Accelerated Growth – Market penetration strategies may help customers quickly adopt your products over the competition because of its differentiation.
- Brand Loyalty – When customers see that you provide a similar product at a better price or slightly improved in some way, they will grow in their loyalty to you and may refer others to your company.
- Cost-Effective Operations – By selling a product at a lower price, startups can keep their sales volume high, which allows them to continue ordering more materials from vendors to keep up with the growing demand. By purchasing bulk orders, you can lower production costs and increase profits.
- Discouraging Competition – With a stronghold on the market, you may discourage other competitors from entering in the first place, allowing you to maintain your position.
Standing Out In Noisy Markets With Market Penetration Strategies
Both established businesses and early-stage startups need to find strategies that help them compete in today’s market. For startups selling products that already exist, the barrier of entry can feel especially high. With a well-developed market penetration strategy based on research and a thorough understanding of the market, even early-stage startups can stand out in a noisy market and earn the business and loyalty of their target audience.
Sometimes the best recommendations for a marketing penetration strategy come from experienced entrepreneurs who have spent time within the existing market you’re entering. Angel investors often bring this kind of experience to their investments, and their startups reap the benefits of their learned lessons.
If you’re preparing to launch a tech product and could benefit from the insight of a seasoned entrepreneur and angel investor to develop an effective market penetration strategy, reach out to MacDonald Ventures.