What Is Market Penetration?
Market penetration refers to the metric of how much your product or service sells compared to the total market for that same product or service. Measuring it can indicate how many customers chose your brand instead of a competitor. So, your strategic marketing plan should include effective market penetration strategies that aim to boost sales without altering your product. The most common tactic SaaS marketing leaders choose is lowering their prices to become more competitive while remaining profitable.
To create a successful strategy, you must first understand the share your company holds within your industry and then target your core buyers. But this is not the only approach you can follow to stimulate business growth and increase revenue—you can also invest in market development. What is the difference, you ask?
Keep reading, as we have all the answers ready for you.
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How Do You Calculate It?
Calculating this metric is quite simple. All you need to know is how many buyers are purchasing your product and how many potential clients are in your target market. Let’s take a company selling payroll software as an example. We assume that the audience size is estimated at 10,000, while you have 1000 paying customers. If you divide 1000 by 10,000, you get 0.1. Multiply that by 100, and your market penetration is 10%.
You can calculate this metric another way. If you have a SaaS startup and want to identify your market position within small businesses, you can do the same math but replace the number of potential clients with the number of small businesses in your niche. Knowing where you are among your competitors allows you to curate better content marketing to increase brand visibility and establish thought leadership. Clients want to feel like they are choosing the best available option, and you have to show them that this is you. eLearning Industry can help you promote your content to thousands of buyers looking to purchase products like yours.
Market Development Vs. Market Penetration
These two terms are not opposites; they are “partners” whose collaboration boosts your marketing results. Many companies that want to boost market penetration start by doing market development to identify small niches that can help them tap into new markets. Let’s assume that there’s a company selling leggings whose clientele mainly consists of women. Then, the company does some research and discovers two small niches they could target: men’s and kids’ leggings. They start targeting these audiences with low marketing costs and begin generating traffic. Their promotional campaigns may not bring a significant number of customers or revenue, but they create buzz. On the website, visitors can browse both brand-new and established products, so the company can tap into completely new niches and expand its target audience and market penetration strategy.
Both market development and market penetration are very low-risk, as you can lean into your existing products and don’t spend too much money or effort developing new ones. Surely, market development is a bit riskier, as you don’t know how the audience is going to react to this new approach. Your promotion efforts are quite different, though. Market development tries to generate new leads and customers, so you may need to rebrand your product and market it from a completely new angle with the possible addition of special prices. On the other hand, when you penetrate the market, you can provide coupons and special prices to your existing customer base.
Market Penetration Vs. Market Share
Often used interchangeably, these SaaS metrics have some key differences. Market share refers to the percentage of revenue a company earns in a specific market. To calculate it, you simply divide the revenue of your company by the total sales of your industry and multiply the result by 100. If your industry makes $200 million annually and you sell products worth $20 million, then your market share is 10%. You can evaluate your market share based on audience segments and product categories.
As mentioned earlier, market penetration doesn’t calculate your revenue but the number of clients your company has already reached within a certain industry. Its goal is to get people to buy your product while tapping into new markets. But why are SaaS market penetration and market share metrics important? Because they help you identify how your business performs against competitors and how loyal your clients are. Do they keep purchasing your SaaS product or churning? Additionally, you highlight opportunities and threats to your company and understand how you can increase your revenue through demand generation campaigns.
6 Successful Strategies You Can Implement
1. Alter Product Pricing
To achieve successful sales penetration, you need to either increase or lower your pricing. Some companies research their competitors’ average price points and go below that to get more customers. Other SaaS businesses slightly increase their prices but enhance their services and offer flexible payment plans. As a consensus, most businesses lower their prices initially until they receive a satisfactory market share and have leverage to increase them. Before deciding to cut your prices, check which new customer types you’ll bring in and whether they align with your goal to foster long-term business relationships.
2. Create A Brand-New Product
A market penetration strategy typically focuses on existing products. Yet, some companies may be able to invest in new product development to tap into a new market with a groundbreaking solution. It is a risky choice, as nobody guarantees this new product will prove successful. If, however, you want to explore this approach, you can start by researching similar products in the industry and analyzing their value, and then highlight where they fall short and how you can improve them. Once you complete these steps, you can start developing your new product. Small business content marketing will help you promote your product and establish credibility and awareness.
3. Target Wider Markets
Some companies tend to target local customers at the beginning of their journeys. But as they take over a certain geographic area, they start dipping their toes into broader markets. A market penetration strategy allows you to target audiences regardless of location. Digital marketing and your eCommerce store ensure people from all over the globe can see you and buy from you. If you have a SaaS company, you can try banner ads and popups, as well as PPC directory listings. eLearning Industry can help your brand get promoted to thousands of monthly visitors. Click the link if you want to get listed.
4. Invest In Partnerships
Sometimes expanding means having to open up new locations and dealing with the burden of construction and operational costs. However, market penetration boosts sales enablement. Partnering up with collaborators allows you to join forces and increase your revenue. A good example is that of Starbucks and Barnes & Noble. The two parties decided to introduce small cafes inside bookstores, resulting in increased revenue for the coffee giant. Keep in mind, though, that collaborating with another brand means that your image should align with theirs so it doesn’t confuse your target audience and drive them away.
5. Offer Promotions
Companies of all kinds, including SaaS businesses, often launch special offers and discounts to attract new clients. B2B content marketing is a great starting point to highlight your product’s usefulness and your brand’s expertise in the field. Don’t pick a market penetration strategy if you plan to offer high-value and high-priced services. Yes, your promotion may bring a sea of new one-time customers, but they may disappear once you return to your original pricing. So, if you want to run promotions, make sure to make it clear that the price cut applies for a limited time window.
6. Hire Sales Reps
Any SaaS market penetration strategy can fail if you don’t have enough expert sales reps that communicate your product’s value effectively. No matter how groundbreaking your product is, it won’t sell much if your sales professionals lack knowledge of the product and expertise in converting clients. So, if you have very few salespeople working for you, you must increase their numbers. Customer service is fundamental for any SaaS company to converse with its clients, answer their queries, onboard them efficiently, and foster long-lasting relationships that will flourish over time. You don’t simply want paying customers but loyal advocates.
7. Make Upgrades
If you can’t afford to develop a new product, you can focus on upgrading your existing services, as clients always search for enhanced experiences. For instance, you can make your SaaS product compatible with any device and operational system while improving your design and making it user-friendly. Don’t waste your time adding features and add-ons that look great on paper but no one is actually looking for. Research the market to understand what your customers need and make the necessary adjustments. This is a tactic most smartphone companies follow by releasing updated phone models based on rising consumer needs.
8. Aggressive Marketing
Content marketing for B2B is the best way for any SaaS business to take its promotional activities up a notch and reach new audiences. You may utilize lead generation techniques to capture the interest of potential clients and show them how useful your services are. You can target your biggest competitor and emphasize what makes you better. This method is usually implemented by large conglomerates who always fight for the top spot in their niche. For instance, we often see campaigns comparing Coca-Cola and Pepsi, Dawn and Tide, and Apple and Samsung. You can enforce this tactic, too, even if your company isn’t as prominent yet, and choose a budget that is equal to or more significant than your competitor’s.
Examples Of Triumphant Market Penetration Strategies
Dunkin’ (Dunkin’ Donuts)
You’ve probably heard this name before and likely purchased coffee or donuts from them. The company has successfully implemented a market penetration strategy to boost its revenue and take advantage of its competitive edge. Dunkin’ boasts about 12,500 stores in 46 countries. Notably, in Boston, they have opened ten stores within walking distance so customers don’t have to walk more than a block to find one. In 2019, the company decided to change its name to Dunkin’ and drop the word “donuts.” The decision came after the realization that 60% of their sales derive from coffee and other drinks rather than donuts. The name change came with significant menu alterations, including adding vegan snacks. As a result, the company broadened its audience.
Apple Inc.
Many of you are probably reading this article on your iPhone, iPad, or MacBook. And there is a good reason Apple has a 17% market share of the smartphone industry. The company’s market penetration strategy includes introducing new versions of its famous phones with technological and design enhancements. They have succeeded in differentiating themselves from competitors, leaning on their unique features and design. Therefore, they can establish a higher price point. Their content marketing highlights how fast and user-friendly their smartphones are, making them irresistible. They have also partnered up with mobile carriers, ensuring their phones are widely available. Apple’s success can be attributed to correct identification of its target audience, differentiation from competition, and top-notch marketing efforts.
Advantages Of Market Penetration Strategies
Product Awareness
Market penetration strategies increase your brand awareness and product visibility as they target new audiences that may not be aware of your solution. That’s because you break into new geographies and niches and expand your customer base. There are many ways you can achieve that, including paid ads, lead magnet ideas, and public relations. You should ensure your customer service is impeccable and your website features answers to frequently asked questions so customers don’t have to contact you for basic information. Also, you may need to invest time and money to step up your social media, where you can share blog posts, case studies, infographics, and videos of your product in action.
Increased Revenue
It’s only natural that by increasing your market share, you will most likely increase your company’s sales volume and revenue. Thanks to marketing penetration, your demand increases since you target new audiences and geographies larger than your original target domain. As a result, you boost long-term profitability and ensure financial safety. You also add an extra protective layer against industry slumps, as you have a decent reserve in case your revenue takes a dip. It’s not only SaaS startups that utilize market penetration strategies but also larger companies wishing to stabilize their revenue.
Competitive Advantage
As already established, market penetration is a strategy that intends to grow sales and gain market share. To achieve that, you need to beat your competition and prove to clients that your SaaS product is better than all the others. How can you do that, though? By altering your pricing, payment options, and unique offers, you differentiate yourself from other companies. Even if your pricing is a bit higher, you can offer more features and enhanced customer service. Customers usually expect top-notch guidance and onboarding after purchasing software, and not every company can excel at that. Your high-performing marketing team should work tirelessly to position you as an excellent guide that offers the best tools.
Loyalty
So, what happens after you satisfy your audience’s needs and showcase exceptional customer service? Clients remain loyal to your brand, and your retention increases drastically. They understand your value and won’t be swayed by competitors, no matter how hard they try. Fostering long-term relationships also creates advocates for your brand who are willing to promote your company to their peers. You may utilize referral and reward programs for your most loyal customers so they feel appreciated.
Challenges Of Market Penetration Strategies
High Costs
No matter how well you fill out your marketing plan template, product penetration can fail if your expenses are higher than your revenue. This is especially possible in industries requiring upfront investment, including product development, manufacturing, marketing, and distribution. So, before investing time and money in market penetration strategies, you should assess the situation and forecast your ROI. If you think the risk is too high and your product may not meet your audience’s expectations, it’s best to seek other paths.
Legal Barriers
When you break into new markets and geographies, you must be aware of the unique laws and regulations to adhere to. Some industries are subjected to frequent regulatory checks to ensure everything is done lawfully. Ensuring compliance can be complex and costly, as you may need to employ Subject Matter Experts depending on your location. Not abiding by these strict regulations can mean hefty penalties and legal action, in which case, your market penetration efforts would fall flat.
Resistance To Change
Convincing customers that they should switch providers when they are happy with their current situation is a tough feat. Even if your offering is superior in quality and price, they may still be hard to convince. This is where the expertise and patience of your sales reps come into play, as they need to highlight your additional benefits and compelling value proposition. Essentially, you need to show them that their current provider lacks something that you have. Educating them on your product’s benefits, usability, and payment flexibility is a solid sales penetration formula.
Added Pressure
When you try to penetrate the market, you need to act swiftly to capture your audience’s interest. If lowering your price is your main tactic, you should know that the manufacturers of your product may not be able to lower their prices. This puts you at risk of having a negative ROI. Also, sales reps may not be able to push your products and services to potential clients as quickly and efficiently as you would like, since SaaS products need a lot more convincing and nurturing.
Ways eLearning Industry Can Help You With Lead Generation
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Key Takeaway
Market penetration is a proven and effective way of breaking into new markets and geographies without necessarily spending too much on advertising and promotion. While some companies may choose to develop new products, others simply lower their prices or add new features to justify their higher pricing. To achieve a better market position, companies should invest in expert salespeople and marketing tactics—such as gated content—that increase sales. After all, the main goal is to beat the competition.
