Reviewed by Sep 30, 2020| Updated on
The concept of market penetration is a measure of how many customers use a product or service as compared with the total estimated market for that product or service. Market penetration can also be used to develop strategies employed to increase a particular product or service's market share.
The size of the future demand can be determined with consumer penetration. If the overall market is large, new industry entrants might be encouraged to gain market share or a percentage of the total potential industry consumers.
For instance, if there are about 300 million people in a particular country and 60 million people own mobile phones, then the market penetration of mobile phones would be approximately 20%.
Theoretically, there are still 240 million potential consumers for mobile phones, or 80% of the total population remains unreached. These penetration numbers might show the potential for growth of mobile phone manufacturers.
In other words, the penetration of the market can be used to analyze an industry as a whole to assess the potential for companies within the industry to gain market share or increase their revenue through sales.
If we revisit our example, the global mobile phone market penetration is generally used to estimate whether the manufacturers will be able to meet their revenue targets or not. If the markets are deemed competitive, it means existing firms have the vast majority of market share, leaving little room for new growth in revenue.
While market penetration is a metric for assessing the amount of market share gained and the potential for new revenue, market growth focuses on the measures to achieve market share gains.
Market development is often a strategy requiring specific information or effective measures to increase the number of potential consumers. Many approaches include ads, social media campaigns, and direct sales outreach efforts against untapped market segment prospects.
In previously untapped parts of the market, lowering prices and bundling product offerings may also help to gain traction.
For instance, an established business may have a product that holds a large percentage of women's market share. After its study of market penetration, the company admits they have a small market share of male customers. As a result, they might build a new marketing and public outreach strategy designed to increase their male customers.