Understanding Market Penetration

market penetration8 questions you need to be able to answer about Market Penetration…

Market penetration is a term thrown around quite frequently for those in the know. For those who aren’t, it can be a bit puzzling. What exactly does it mean and how on earth can we effectively determine what ours is? There is no doubt that for any successful company, they have to know their market penetration in order to know their opportunity and ultimately their true road map to continued success. In this article, we explore the concept of market penetration and how to go about getting an accurate understanding of what level your company currently has.

At Aerostrat we have a simple model to help you get started and believe that there are 8 questions you need to be able to answer in order to come to a meaningful conclusion on what level of market penetration you have. There are many other sub-questions to understand this area in depth. By answering these eight questions you can begin to have a reasonably deep understanding.

What direct market do you serve?

This point may seem straightforward, but unfortunately for some businesses it isn’t. Many businesses either do not know, or worse, they think they know but are misinformed. How many businesses do you know who say they specialise in a market but actually only have one customer in that segment? Being honest with yourself when you answer this question is critical.

What alternatives are available for your product,

Who are your indirect competitors and therefore potential parallel markets. This question is often overlooked by businesses, but again is extremely important. Your competition aren’t just companies that do the same thing as you. They are also those that do something in a different way to take away your customer’s problem. For example, as a marketing agency your competition is not only other marketing agencies but also the in house facilities of your customer. If you understand this, your market opportunity takes on a very different shape.

How many companies exist that compete with you in this market?

This is a matter of understanding how to source real meaningful data for the market you’ve defined. It is of course an obvious component of understanding your market penetration. If you don’t know how many others are competing with you than you can’t know the size of your piece of the pie.

Who are your customers in this market?

Define both existing customers and potential customers. I can’t stress this point enough. You need to know who is a potential and existing customer in order to really understand your market opportunity and who you could sell to.

How many customers exist in current and potential markets?

Again, this is a data led question which becomes much easier to answer once you have answered question number four. Data is incredibly important because it takes your “gut feel” and turns it into real hard facts (or proves it otherwise).

How many of these customers do you service so far?

This question speaks for itself. Make sure you delve into the data you produced for question five and get down to the detail about how it applies to your customer base currently. Do you know these customers, have you done business with them recently or in the past? If so, what proportion?

How much on average does each company use of your product?

Ensure you capture the size of the company too. I.e. does a company with 10 employee’s use 10 units per month when a company with 200 employee’s uses 200? This is important information to capture. Question 6 is where most businesses stop. But this question starts to take basic market penetration information and make it work for you in a way that helps you form a strategic plan. All potential customers are not created equal and you need to understand where you should be spending your time.

What percentage of your customer’s business do you estimate that you have?

Increasing your footprint within a customer is often the quickest win. When understanding what level of market penetration you have it’s important to include and factor in those customers of which you only have a portion of the business. Whilst most of us would like to believe that we have 100% of our customer’s business, the cold reality is that it is not often the case.

Once you’ve answered these questions for your own business, you’ll be well on your way to having an accurate understanding of the market penetration for your business. It’s not an easy question to answer, but get it right and it could change and vastly accelerate the strategic direction of your business.

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