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Market Penetration: Examples, Definition, Advantages & Disadvantages

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  • 0:01 Market Penetration Defined
  • 0:24 Market Penetration Tactics
  • 1:16 Advantages of Market…
  • 2:05 Disadvantages of…
  • 3:06 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
Often the hardest part of marketing is gaining a foothold for your product or service. In this lesson, you'll learn about market penetration and some of its advantages and disadvantages. A short quiz follows.

Market Penetration Defined

Market penetration is both a measure and a strategy. A business will utilize a market penetration strategy to attempt to enter a new market. The goal is to get in quickly with your product or service and capture a large share of the market. Market penetration is also a measure of the percentage of the market that your product or service is able to capture.

Market Penetration Tactics

Aggressive pricing is a very common tactic. You can use penetration pricing, which is setting the price of your product or services lower than that of your competitors. This strategy may work well in price-sensitive markets. You may be able to maintain a decent level of profits due to the volume of sales decreasing your costs per unit for the product. Additionally, once you have obtained your market share goal and have achieved a sufficient level of brand loyalty, you may be able to increase prices.

You can also achieve market penetration through aggressive marketing campaigns and distribution strategies. For example, you may saturate the market with an aggressive advertising campaign consisting of TV, radio and direct mailing ads. You may also penetrate the market by saturating your product in the market. For example, in some cities, it seems there's a Starbucks on every street corner.

Advantages of Market Penetration

Advantages of market penetration pricing include:

  • It may cause quick diffusion and adoption of your product in the market. If your product is cheap enough and of similar quality to competing products, it should spread out into the market and be purchased by customers quickly.
  • It may create goodwill among the first customers that purchase the product due to the aggressive pricing. This may create customer referrals.
  • Efficiency is encouraged because of thinner profit margins due to the aggressive pricing. Efficiency will be needed to maintain profitability.
  • It may discourage competitors from entering the market.
  • If there is high product turnover for a distributor due to fast sales, it may help create enthusiasm for your product from the distributors of the product, such as retailers.

Disadvantages of Market Penetration

Market penetration pricing does present some disadvantages:

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