In a competitive market, customers are distributed across various competing businesses. So, how do you navigate to acquire customers, including those of competitors, using the same array of products and services? The solution lies in “Market Penetration.” Market penetration involves capturing the entire market share. The deeper you penetrate the market, the more benefits you reap:
1. More Economies of Scale: Increasing production efficiency through economies of scale.
2. Cost Advantage: Lower average costs due to increased production.
3. Bulk Production: Catering to a larger customer base through increased production.
4. Manage Costing: Efficiently managing costs with increased sales volumes.
5. Lower Price: Offering competitive pricing to attract more customers.
6. Bargaining Power: Having a stronger position to negotiate beneficial deals with suppliers.
Upon achieving substantial economies of scale, you gain the financial capability to engage in advertising and promotional activities. Advertising and Promotion plays a crucial role in:
1. Increasing Market Share: Expanding your portion of the overall market.
2. Gaining Customers: Attracting customers from competitors and new potential buyers.
3. Improving Brand Image: Enhancing the perception of your brand among consumers.
4. Becoming the Preferred Product: Positioning your products as the top choice within the market.
A successful increase in market penetration streamlines the process of introducing new products, as it conserves working capital and generates additional revenues. For instance, Maggi, with a notable market share of 60%, has effectively launched an array of new products such as Atta Noodles, Pazzta, Dip & Spread, Sauces, Oats Masala Noodle, Baked Sweet Corn Noodle, Atta Masala Noodle, Peri Peri Noodle, and Barbeque Noodle.
Strategies for Market Penetration
When looking to expand a business, there are several approaches that can be pursued. These include geographical expansion, merger and acquisition, strategic alliances, new product development, diversification of business, and turnaround management. However, it’s important to note that these strategies can be quite expensive.
Market penetration offers a more cost-effective alternative, as it does not require significant financial outlays or large-scale acquisitions. Here are 10 specific market penetration strategies that can be employed to successfully enter and establish a presence in a new market.
Attract and Create New Customers in the Market
To attract and create new customers in the market, one effective approach is to address the barrier of high prices that prevent potential customers from making a purchase. For instance, individuals from the middle-class demographic may find the cost of certain products such as air conditioners prohibitive. However, offering the option of purchasing the air conditioner on an Equated Monthly Installment (EMI) basis at zero interest could make the product more accessible to them. In order to implement this, forming partnerships with small banks and credit card companies to facilitate such EMI schemes can be beneficial.
By successfully acquiring new customers through initiatives like this, businesses can expand their customer base and consequently increase their market share, ultimately leading to significant growth and success in the market.
Technology Integration to Gain Competitors’ Customers
Incorporating technology into an unorganized market can be a game-changer. By leveraging technology, businesses operating within unstructured markets can greatly enhance their market penetration and share. The integration of technology allows for the collection of valuable customer data, which can be used to implement effective re-marketing strategies, reposition products and services, develop customer loyalty programs, and introduce new schemes to reconnect with existing customers. Additionally, technology facilitates seamless business expansion by providing the tools to efficiently manage multiple offices and branches.
Innovative Schemes of Pricing and Positioning
When it comes to selling products, it’s important to find ways to offer them at a lower price than your competitors. This can be an effective strategy for attracting customers who usually buy from your competitors. By enticing them with lower prices, they may end up purchasing more items than they originally intended. To achieve this, businesses can develop innovative pricing schemes such as Buy One Get One Free, Diwali Offers, and Festival Offers.
For example, a scheme like Buy 2 Get 5 Free allows customers to purchase two items at full price while receiving five additional items at a lower price. This not only attracts customers but also helps in increasing market penetration and ultimately market share.
Discounting can be classified into two types – helpless discount and strategic discount. Helpless discount is offered when a product is not selling well in the market, whereas strategic discount is given with a plan to recover the discounted amount later. It’s important to note that strategic discounting is more effective with loyal customers who are likely to return to make future purchases.
However, offering discounts to new customers can be risky, as there’s a chance that they may not come back after the initial purchase, resulting in losses for the business. Strategic discounting works best with recurring revenue, as it can help in increasing market penetration, making it a viable approach for businesses looking to expand their customer base.
Strategy to Increase the Usage
Strategies to Increase Product or Service Usage
Enhancing the usage of your product or service can significantly boost your market penetration and market share. One successful example is the approach adopted by Colgate, which involved enlarging the opening of the toothpaste tube to dispense a larger quantity of toothpaste with each use. This resulted in quicker depletion of the toothpaste, prompting more frequent purchases by customers.
To increase usage, consider employing the “gun and bullet” strategy, where the purchase of a primary item necessitates the acquisition of complementary items. Similarly, bundling products in a way that encourages increased usage, such as selling a game with its corresponding CD or a razor with extra blades, can be effective.
Moreover, implementing exchange schemes during festivals and offering special promotions during festive seasons can stimulate increased product or service usage. Such schemes and offers have shown potential in incentivizing customers to utilize the product or service more frequently.
Improving the Imperfection of Innovator
When introducing a unique or innovative product to the market, it is not uncommon for it to have some imperfections. However, these imperfections can be addressed, leading to the development of an improved version that can gain more traction in the market.
For instance, in the telecommunications industry, established players such as Vodafone, Airtel, Idea, and Reliance Communications coexisted. However, Mukesh Ambani identified and rectified the imperfections in these existing mobile networks, subsequently launching Jio, a network that quickly gained popularity. Jio’s success can be attributed to its advancements over the older networks, boasting newer technologies such as 4G and 5G, while its predecessors were operating on older 3.5G technology. This example underscores the impact of addressing imperfections in existing products and introducing superior alternatives.
Focus on Intangible Service Dimension
Focusing on the intangible service dimension is crucial for businesses. While the quality of the product is undoubtedly important, the after-sales service should not be overlooked. By providing exceptional after-sales service, companies can cultivate a loyal customer base. In fact, some customers may choose to exclusively purchase products from a company that offers exceptional after-sales services. Therefore, integrating top-notch after-sales service into your business strategy can lead to increased customer satisfaction and loyalty.
Sales and Delivery Innovation
When you’re unable to alter the actual product because you’re not the manufacturer, but rather responsible for selling or delivering it, you can still introduce innovation in the sales and delivery processes. Take Amazon, for instance, which has expanded its operations to include exceptional logistics services. The company has successfully delivered products from remote locations such as Leh-Ladakh to Andaman & Nicobar, and from Ahemdabad to Agartala. Their efficiency has been evident through overnight delivery services, and they are currently exploring the possibility of using drones for product delivery.
Accessibility through Distribution Network
To ensure accessibility through the distribution network, it is essential to establish strong connections with distributors and retailers. This strategic approach facilitates entry into the distribution network. A prime example of this is the market expansion plans of Oppo and Vivo. By cultivating relationships with distributors, offering favorable margins to retailers, and providing training to promoters, these companies have successfully penetrated tier 2 and tier 3 cities as well as rural areas, significantly amplifying their market presence.
Another illustrative case is the launch of Bingo Mad Angles by ITC Limited. Despite the dominance of Lays Chips in the chips market, ITC Limited managed to carve out a niche by introducing the new product. To achieve this, the company began distributing Bingo Mad Angles in local cigarette shops, leveraging strong partnerships with distributors to enhance its market reach and influence.
Advantage of Mind Share to Market Share
Consider the advantage of Mind Share over Market Share. By implementing creative and low-cost marketing strategies, you can effectively position your brand in the minds of your customers. Once you establish a strong presence in your customers’ minds, your market share is likely to grow organically.
For instance, during the frequent floods in Chennai, Aircel implemented a compelling advertising campaign featuring a boat that could be used for emergency rescues. When the floods occurred, Aircel’s rescue boats were prominently featured in the news, reinforcing the company’s branding and showcasing the support it provided during the crisis. This proactive approach not only promoted Aircel’s brand but also left a lasting impression on the public, ultimately leading to an increase in the company’s market share in the South.
Share of Preference and Brand Voice
In order to enhance your brand equity, it’s important to conduct extensive advertising campaigns to ensure that your brand becomes permanently ingrained in the minds of consumers. This is often referred to as the “voice” of the brand.
For instance, Patanjali has opted to sponsor all prime time television shows, leading to the frequent appearance of Patanjali advertisements during these shows. Consequently, these products become deeply embedded in the consciousness of consumers, resulting in increased sales for Patanjali products.