Market Penetration [Definition & Strategy]

What is market penetration?

Market penetration is a measure that tells how much a product or a business has gain market share above the whole potential market. This is calculated as a rate in percentage. The market is shared by competitors in the same sector concerning the same product or service on the same target people. 

For example, Apple, Samsung, and Huawei are sharing the smartphone market. They are all calculating their market penetration by comparing their own results (volume of smartphones sold for example) above the market potential (numbers of people willing to buy a smartphone). 

What is a market penetration strategy?

The market penetration strategy has the goal to increase the market penetration in terms of percentage. The main objective is to make the product be the majority in the market. For example, Google is the one that stands out in the search engine market industry. 

Market penetration strategy leads companies to growth. It is one of the 3 tactics for company development among product development and diversification.

How to penetrate the market?

Market penetration strategy depends on what you are trying to do. Do you want to introduce a new product to an existing market? Are you trying to target a new segment? Focus on one main goal where there are growth opportunities, to decline your plan. 

Then, you will need product development, tech, sales, marketing, and financial services to help you achieve the objective: opening new distribution channels, pricing modification, increasing sales efforts, optimizing product, etc.

How to measure market penetration?

The measurement calculation of market penetration is very easy. 

Market penetration = (Number of products sold or customers / Target market size) x100 

For example, for a vegan and organic hand cream, the target market size is 200 Million young city women. The beauty brand has sold 12 Million of these hand creams. The calculation: (12 Million / 200 Million) x 100 = 6% is the hand cream market penetration rate.  

What are the business tools to calculate market penetration?

There is no need to use a specific tool to do the calculation. However, some software can help you get easily the two metrics of the calculation, which is the most difficult part of the market penetrate measurement.  

  • Number of product sold or number of customers
  • The target market size 

To have the number of products sold or customers, you need to use your CRM or accounting software/database. 

To know the target market size, several paths are possible. Depending on the nature of your target market, you need to access data. How many young women between the age of 18 and 25 that live in cities in the country? How many parents between 30 and 45, that have more than 2 children and live in the countryside in this specific geographical area? This is data you need to have and some geomarketing tools provide it for you, like OALLEY. 

In OALLEY, you can draw your market areas and then access demographics (age, gender, socio-economic classification, households…) in terms of volume and percentage. You can compare this with your data from your CRM or accounting software. To compare it, you can also import this data into OALLEY to visualize them in the area. Start analyzing your area.

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