Market Penetration – Low-Risk eCommerce Business Growth Strategy
How to grow your business effectively with low risk? eCommerce professionals advocate different techniques and approaches, each per personal knowledge and experiences.
As the eCommerce market is risky and fast-paced, no matter what industry you belong to, more or less, you will face business changes, the way people buy online, the constant increase in competition, and the number of customers and their needs. At the same time, you are expected to grow your business. Nowadays, business growth is more of a necessity to keep up with the demand and retain loyal clients than a desire to step out of a comfort zone. eCommerce market user penetration will be 57.2% this year and 66.6% by 2027 when the expected number of users will grow to 5.29 billion.
One of the low-risk business strategies for growth is market penetration. We thoroughly investigated it for all eCommerce businesses. Let’s start from the basics, and we will get to the best practices and examples.
What is Market Penetration?
We will explain market penetration from two angles. There is market penetration as a measurement. The rate indicates your sales and marketing success on the market. On another hand, market penetration represents an activity of promoting an existing product or service in an existing market.
Market Penetration – Activity
To understand market penetration as an activity and subsequent strategy, let’s introduce the Ansoff Matrix, also known as the product/market expansion grid. The matrix is a two-by-two frame and represents the four growth strategies. Combined with other business tools, it analyzes growth opportunities and risk levels of four growth strategies.
If you enter a new market with a new or old product or introduce a new product to an existing or new market, what is the risk level? As you can assume, the market penetration strategy is the least risky. This strategy implies increasing sales of existing products in an existing market.
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Market Development strategy serves to introduce an existing product into new markets, and this strategy is evaluated as riskier than market penetration. Product Development strategy is considered riskier than the previous two because it focuses on introducing the new product into an existing market. The highest risk level comes with the diversification strategy because its concept is to enter a new market with a new product.
The main reason the market penetration strategy is not subject to risk is the opportunity to utilize known data. As the market has been created, it can be the subject of study. Also, a business is familiar with a product and its users’ needs and expectations.
Market Penetration – Measurement
This measurement has a formula to help you calculate how much of a product has been sold compared to the total estimated market for that particular product.
This simple rate gives you an insight into your standing in the market. This allows you to track your progress over time and compare yourself with the competition, and therefore set goals. Also, it is highly recommended to calculate the penetration rate after each conducted campaign to keep track of a campaign’s success or quarterly.
Market penetration rate formula:
Market penetration rate = (number of customers/target market size) * 100
For example, if you are selling a price monitoring software and you estimated that 3,500 businesses would potentially purchase your type of software, but you had 200 sales in the first quarter, your market penetration rate is 5.7%.
The number of customers can be tracked over a certain period (for example quarterly). These people chose your product over your competitors. Customers are everyone who bought the product from you. On the other hand, the total target market size is all the people who would potentially be interested in buying that product. You can get this number by adding up all the sales of the same and similar products on the market over that same period.
Considering the example mentioned, this business is not doing great, as the estimated penetration range for B2B businesses is between 10% and 40%. This tells us that the software has the potential to grow since the total market size is much larger than the number of its customers. Now it is up to business decision-makers to find a way to take over competitors’ customers.
Best Market Penetration Strategies
When it is determined that you can penetrate the market, you have to find the best practices to differentiate from competitors to acquire competitors’ customers and those undecided about the product’s brand or a retailer.
Based on the data available about the familiar market, products, and competitors, you must choose the best business growth strategy to penetrate. The foundation of any strategy implies a good knowledge of market forces and current and potential customers of your product. Below, we listed the best market penetration strategies for eCommerce businesses:
- Product upgrade
As has been proven many times, price is a significant factor when choosing a product or service for many. This is why price manipulation is such a powerful weapon to outsmart your competition. In the eCommerce world, known as fast-paced, prices change several times a day in some industries, which is tough to keep up with. Luckily, there are numerous eCommerce software solutions for price monitoring and optimization to save your resources and allow you time for decision-making processes. In a real-life scenario, it is more likely that setting up your pricing strategy to be cheaper than competitors will allow you market penetration by increasing sales volume.
Of course, in a competitive market, the price must be proportional to the value for the customers you steal away from competitors to become loyal. By continuously studying your buyer’s persona, you will learn an ideal way to upgrade your product. In other words, you will know all the bells and whistles that can convert your potential customer into a loyal one. The tech industry is a good example of how sellers tend to upgrade the products they sell and offer better products to an existing market. The biggest rivals, Apple and Samsung, lounge new smartphones every year. Each with new and improved features from the one in the previous series.
Acquisition to increase share is costly but still low-risk, especially if you acquire a company with a decent market penetration rate, good image, and loyal clients. This is one of the shortest paths to choose toward the goal, yet one of the most expensive. Buying a company means buying its customer base, technology, labor, new products, and markets. Out of many examples, we chose the greatest deal of the last century, when two giants from the oil and gas industry merged in the US and conquered the market. After the acquisition, Exxon and Mobil became the largest company in the world by market share.
Of course, increasing visibility increases the possibility of acquiring more customers. Therefore, investing resources in marketing activities can boost your penetration rate. A well-tailored marketing campaign attracts new customers. It can also strengthen relationships between your brand and current customers and convince them to become loyal and advocate for your products. Improve and execute a marketing plan to increase brand awareness, drive traffic toward your online shop, and boost sales.
Best Examples of Market Penetration Strategy Implementation
McDonald’s can serve as an ideal example of an aggressive market penetration strategy. As the world’s largest fast-food restaurant chain, McDonald’s is the sixth-highest global brand value according to reports from 2022. However, their go-to strategy is pricing, keeping prices lower than the competitors’. Combining clever pricing and bundle pricing strategy, McDonald’s is a prominent player in the global fast food market, with a 28.12% market share in 2022.
When listing leading world brands, we can’t bypass Apple. Apple relies on a product upgrade strategy. As mentioned in this article, the smartphone industry, led by Apple, set a pace of launching new series yearly. Its high market penetration rate made it the most valuable brand in the world. The latest statistics from January 2023 show Apple as a leader, with a market share of 27.63%, meaning that nearly 3 in 10 smartphone users worldwide use iPhones.
As the best example of a company that capitalizes on its strong brand, let’s take Coca-Cola and its marketing strategy. As a persuasive leader in the soft drink industry, Coca-Cola held 20.8% of the global market share in 2020. Coca-Cola has the most aggressive and finest marketing activities. Wherever you look, you can recognize the brand, TV commercials, social media ads, and billboards, not to mention identification of the brand with holidays. Via product placement and endorsement activities, they took over the world market.
Good Luck with Market Penetration
If your goal is to conquer the world or slowly gain dominance in your market, consider the market penetration strategy. It will grow your business and boost your sales, brand value, and client base. Thus your revenue will increase.
A good starting point is to develop a strategy for increasing your penetration rate. A high market penetration rate means you are a leader in selling that product. As a market leader, you experience numerous benefits, inter alia, a marketing advantage due to the popularity of your product compared to the competition and enjoying better terms and conditions with suppliers due to the high sales volume guaranteed.
Keep in mind that we never said market penetration is easy, but only that it is the strategy for business growth with the lowest risk level. Choose your best one for the fight. We wish you good luck conquering your market and hope this article will inspire you to grow.