Background
Ever since Igor Ansoff developed the product market growth matrix in the late 1950’s, it has been cornerstone of business strategy and growth planning. With its quadrants, consisting of market penetration, product development, market development and diversification, it provides a practical and easy to engage with framework for considering options based on varying degrees of growth and risk appetite.
Whilst many firms will have a portfolio approach to growth, it may be the case that many businesses, especially in particularly impacted sectors, may have a reduced risk appetite and reduced funds to invest in growth following the Budget. For these businesses, focusing on market penetration may provide a focused strategy, with the overall aim of driving and enhancing current business performance and optimisation.
Examples of market penetration
Practical examples of activities to drive market penetration include reviewing customer needs and undertaking a competitive analysis to benchmark and identify if product (or service) improvements can be made, such as enhancing quality and/or existing product features.
Ensure that the product value proposition – the promise to its customers and users – is clear, well-articulated and substantiated with evidence, and delivers competitive advantage and differentiation from alternatives.
Potentially, and tactically change the product price to either drive cost leadership or its premium offering, subject to the products market positioning.
Review and drive marketing strategies and campaigns, focusing on those that deliver a tangible return on investment, specifically, achieving sales within an acceptable cost of acquisition. Sounds obvious, but not always are the heart of marketing analysis.
Assessing current distribution channels to either expand them or concentrate and focus on the most effective, subject to performance and market structure. And potentially including tactical promotional offers and incentives to drive purchase and/or usage.
Finally, acquiring direct competitors is another common market penetration strategy to build market share, economies of scale and achieve operational efficiencies.
Some classic case studies
Increased promotion, extending distribution and partnerships, in various forms, are key strategies for market penetration. Starbucks successfully achieved this by opening new stores in new locations to extend its reach and drive revenue.
Coca-Cola increased national advertising targeting more customers in traditional product market sectors, as well as expanding distribution channels. And it famously aligned the brand to Christmas resulting in a 13% increase in revenue at the time.
Utilising pricing is also a typical strategy in market penetration. Netflix have successfully deployed this with periodic monthly subscription increases in exchange for additional media content. Conversely, reduced introductory or promotional pricing is also used by many brands to acquire customers, for example in FMCG brands and internet providers.
Nestle deployed more aggressive marketing campaigns and encouraged its users to try some new flavours, and consume more of its products through trial and sampling and other promotional tactics. It also acquired smaller and complementary competitors.
Benefits of market penetration
The primary benefits of a market penetration strategy are that it is a relatively low-risk strategy, and it is focused on the firms existing products and on existing strengths;’ albeit with potential areas for improvement.
A successful market penetration strategy can also drive customer retention, loyalty and advocacy, as well as increasing market share.
Market penetration is not a forever strategy though, as the business will likely need to pursue other strategies to drive and sustain growth; however, it may provide an appropriate short-term focus whilst these new costs are being absorbed and managed.
Having assessed and implemented the possible market penetration options to optimise performance, then the business may still benefit from considering product and/or market development activities to drive business performance and sustained growth.
Pursuing growth through more than one of the matrix quadrants at the same time is very common as this provides a portfolio of growth initiatives with different investment and risk profiles. They are not mutually exclusive, but the initiative and the aim and the desired outcome should be clear.
As always, strategy is always a function of the overall business ambitions, market context and the options available to achieve long-term goals, subject to the attitude to growth, risk and funding appetite as demonstrated by the leadership team. This is true for short to medium term planning, as well as responding to unexpected market changes.
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Established in 2012, Whitecap Consulting is a regional strategy consultancy headquartered in Leeds, with offices in Manchester, Milton Keynes, Birmingham, Bristol and Newcastle. We typically work with boards, executives and investors of predominantly mid-sized organisations with a turnover of c£10m-£300m, helping clients analyse, develop and implement growth