Loading the player...

What is 'Market Penetration'

Market penetration is a measure of the amount of sales or adoption of a product or service compared to the total theoretical market for that product or service. In addition, market penetration can also include the activities that are used to increase the market share of a particular product or service.

BREAKING DOWN 'Market Penetration'

For example, if there are 300 million people in a country and 65 million of those people have cellphones, then the market penetration of cellphones would be approximately 22%. In theory, there are still 235 million more potential customers for cellphones, which may be a good sign of growth for cellphone makers. In general, older offerings or industries have greater market penetrations.

Market penetration encompasses the activities used to gain additional market share, such as advertising and price changes, and it serves as a measurement for the amount of market share.

Market Penetration Techniques

Market penetration techniques include any action done for the purpose of increasing overall market share, whether by encouraging consumers of similar products to switch to the company's product or by increasing the amount of the population that can be considered potential customers. Lowering prices and most forms of advertising are done to promote market penetration. Bundling products can also help gain traction in previously untapped portions of the market.

Market Penetration As a Metric

As a metric, market penetration relates to the amount of potential customers that have purchased a specific company’s product instead of a competitor’s product, or no product at all. Most commonly, market penetration in this form is expressed as a percentage, calculated by multiplying the current sales volume by 100, and then dividing that amount by the total sales volume of all similar products, including those sold by competitors.

Market penetration, as a measurement, can be used to determine the success of a company’s marketing techniques, as well as provide insight into how their product is viewed in comparison to a competing product.

Market Penetration versus Market Development

While market penetration focuses on obtaining more customers from those seen as potential customers (often those who have expressed in interest in the product category but not necessarily the business's specific product), market development focuses on increasing the number of potential customers.

This can be accomplished with some of the techniques used to increase market penetration, such as advertising and bundling, but it directs the message towards previously untapped market segments. For example, if a company with a product typically purchased by women is looking to develop the market further, it may choose to direct its advertising towards men in hopes of increasing their interest.

RELATED TERMS
  1. Marketing

    Marketing refers to the activities of a company associated with ...
  2. Loss Leader Strategy

    A business strategy in which a business offers a product or service ...
  3. Bundling

    Bundling is a marketing strategy that joins products or services ...
  4. Competitive Pricing

    Setting the price of a product or service based on what the competition ...
  5. Tailored Advertising

    Tailored advertising places an emphasis on the needs and wants ...
  6. Advertising Budget

    An advertising budget is estimate of a company's promotional ...
Related Articles
  1. Investing

    Investing In Apple: The Risks & Rewards

    Apple has been synonymous with growth and innovation, and its stock reflects this. But can it stay as inventive and competitive as it has been?
  2. Investing

    Facebook's Giant Profit Opportunity in Africa (AFK, ERIC)

    Facebook wants to bring the Internet to sub-Saharan Africa, where 209 million people could come online in the coming years.
  3. Small Business

    6 Common Advertising Phrases To Be Wary Of

    Things are rarely as they appear, especially in the marketing and advertising world.
  4. Financial Advisor

    Behind Verizon's Decision to Change Its Plan Model (VZ)

    Take a look at Verizon's new cellphone service plans, and learn about what is behind Verizon's decision to make a major change in its service delivery.
  5. Financial Advisor

    How to Create a New Financial Product in 10 Steps

    The 10 steps outlined here are essential to the creation of a new financial product.
  6. Small Business

    How Google's Search Engine Makes Money

    A deep analysis of how Google's search engine and related services have made it one of the biggest companies on the planet.
  7. Small Business

    How is Programmatic Advertising Changing Media?

    Understand what programmatic advertising is as well as the technology that drives it. Learn about the top four ways programmatic advertising is changing media.
  8. Investing

    Are Brick and Mortar Retailers Headed Into Bear Markets?

    The online sales revolution has altered the playing field for brick and mortar retailers, placing them at a disadvantage to purely web-based operations.
  9. Investing

    Netflix Will 'Rule' World by 2020: Piper Jaffray

    Analyst Michael Olson suggests the media giant can reach 100M international subscribers in next three years.
  10. Investing

    Chinese Rivals Move on Facebook, Google Ad Revenue

    Emarketer reports that Tencent, Alibaba and Baidu are chipping away at the US firms' dominance.
RELATED FAQS
  1. What is the difference between absolute and comparative advantage?

    Learn about the difference between absolute and comparative advantage and how these two key economic concepts help shape ... Read Answer >>
  2. What are some ways a company can expand its product line?

    Understand what a product line is and why it's important. Learn about specific ways in which a company can expand its product ... Read Answer >>
  3. Do production costs include the marginal cost of production?

    Learn more about marginal costs of production and production costs. Find out how businesses can use marginal cost calculations ... Read Answer >>
  4. What are the biggest telecommunication companies in the world?

    Learn what the five largest companies in the telecommunications industry are, ranked by both total revenue figures and market ... Read Answer >>
  5. What is the difference between research and development and product development?

    Understand the difference between research and development and product development. Learn why a company would want to invest ... Read Answer >>
  6. What are examples of key operating activities in a company?

    Discover the things that make up a company's operating activities, including examples of some the key operating activities ... Read Answer >>
Hot Definitions
  1. Capital Asset Pricing Model - CAPM

    Capital Asset Pricing Model (CAPM) is a model that describes the relationship between risk and expected return and that is ...
  2. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  3. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  4. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  5. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  6. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
Trading Center