There comes a point for most businesses regardless of the industry, when they strive to expand beyond their home markets. Some are looking to attract different audiences by introducing new products, others are looking to reach new geographical frontiers.
While the ambition to grow is only natural, market penetration is becoming more and more challenging given the rise in competition, constantly changing customer behaviour and demand for better and faster services and products, and the rapid growth of technology forcing companies to be more innovative and disruptive in entering new markets. It is therefore important to understand and evaluate your company’s strengths and weaknesses, as well as determine key opportunities and risks in order to help you gain a broader sense of where you stand against your rivals and which market penetration strategy would be best for your business.
Analyze your company
It is best to start with self-reflection – take an objective look at your company and try to determine whether you are ready to expand, and what could be the areas you may want to strengthen. Here are some relevant questions that can help with the analysis:
- Define your new target market through research
- Should you sell to the same target group but in a different location?
- Should you change the target group?
- What is the demand for similar products and services in this new market?
- Is there a need to glocalize your product?
- Is there sufficient demand for your products and services in the new market?
- Define your competitive advantage
- How long has your business operated in the industry?
- How long has your average competitor been in the industry?
- Where can your product add more value than your competitor product?
- In what aspects are your products or services weaker than those of your competitors?
- How do your competitors price their products and services?
A detailed market research will give you solid background information to decide if market expansion to this specific location is the right decision at the moment.
Let’s assume you’ve done your due diligence, and you’re sure it’s time to expand.
Below you will find a few market penetration strategies to choose from, as well as pros and cons of each.
Gaining New Audiences With Penetration Pricing Strategy
As businesses continue to grow, there is greater competition to enter a new market. That being said, the penetration pricing strategy is one of the standard approaches adopted by companies to boost their initial sales.
Fundamentally, penetration pricing strategy is an act of reducing product and service prices as you enter a new market with the objective of attaining new customers quickly. The entry price is always relatively cheaper compared to the average market price. This gives customers the ability to try your product with less financial risk
This strategy focuses on gaining market share over profits until the business is perceived to have matured in the new market. The cycle is: start by generating demand, create customer base and eventually maximize brand loyalty over time. Many large businesses have used this tactic to revolutionize and become market leaders today.
For instance, Netflix, an online video streaming service originally started in the US, has successfully penetrated the markets of 190 countries since its first year of going international in 2010. Although it has multiple international expansion strategies, Netflix started in the new markets with a relatively low price with significant benefits considering subscribers have access to more tv shows and movies compared to renting videos. With an ever growing subscribers of 167.1 million across the world, they just recently announced a price increase in the monthly subscriptions as the company is deemed as matured despite multiple new players competing in the market, like Amazon Prime Video, Hulu, and Disney+.
Benefits
- Easier customer acquisition
- Entering the market with prices that are significantly lower than the competition will undoubtedly attract the attention of potential customers. You’d be able to achieve a large number of initial sales to start making the product or service profitable
- Reduced Competition
- Penetration pricing can help you compete against other market players at below-average market price until you gain brand recognition and customer loyalty. You’d be able to eventually increase your price again once your brand has matured in the market.
Risks
- Price war
- There is always a chance of starting a price war with your competitors if they decide to undercut you on pricing.
- Damage to brand image
- Penetration pricing has the possibility of impacting your brand reputation. The low price of a product can often be associated with lower quality, and with penetration pricing strategy you are risking to start off with positioning yourself as a cheaper brand in a new market.
Getting On The Inside With Strategic Partnerships
Entering strategic partnerships with other companies is another approach to take into account if you want to penetrate a new market effectively. You’d be able to grasp first-hand essential knowledge about the market in all aspects like cultural, social, business, language, and more. Few types of strategic international partnerships would be joint venture, acquisition, franchising.
Depending on the type, partnerships can go beyond sharing market knowledge and also include sharing branding efforts, resources, marketing, and distribution channels.
Kroger, an American retail company, is one of the companies that chose to expand by partnering with Alibaba, China’s e-commerce giant. Kroger brought their products to Alibaba’s platform aiming to meet the growing demand for high-quality organic food among Chinese consumers. Eventually, Kroger has managed to scale up quickly to reach new customers and markets. Shortly after this massive announcement of Alibaba partnership, shares of Kroger Co. were reported to spike by 2.8 percent.
Benefits
- Speed up entry into a new market
- You can easily reach customers and avoid initial challenges and hassle of establishing new business by getting into alliance with already existing companies that have their own pool of loyal customers in the market.
- Organizational learning
- Knowledge sharing is usually an essential part of strategic partnerships. Your company gets to know about your partner’s best practices and vice versa, so both businesses benefit from collaboration.
Risks
- Conflicts
- There is a risk of various conflicts that can arise between partnering businesses at different stages of their relationship. It could be conflicts based on cultural differences or conflicts of interest – in any case these should be considered at the stage of discussion of partnership terms and necessary precautionary measures should be put in place.
- Loss of autonomy
- Shared decision making and wider accountability with more partners and stakeholders need to be considered, as well as information sharing – with more people having access to your sensitive information, the risks of data leakage is increasing.
Getting Brand Exposure and Credibility Through B2B Events
Another strategy worth considering is to partner with a B2B event relevant to your product or service. This is a shortcut to introduce your business to a new market and to meet your target audience directly.
Businesses often sponsor events such as trade shows, exhibitions, networking events organized by associations or nonprofit organizations to attain specific business potential and increase their competitive advantage. Presenting your company and product or service at these events can help effectively introduce your brand to the new market and allow you to get a better understanding of your target audience’s needs and challenges.
Take a look at Benify, an HR tech company based in Sweden, that met one of their big clients, Lidl Sweden, at Management Events 600minutes Executive HR and after successfully completing a project in Sweden, has expanded into The Netherlands and is now looking at another contract with Lidl in the US. Benify had the opportunity to meet targeted prospects, like the HR Director of Lidl Sweden, through Management Events’ B2B networking platform in a series of matched 1-to-1 meetings. The meetings allowed them to gain a deeper understanding of their prospects’ challenges and at the same time to showcase how their solution can help. Such personalized networking and 1-to-1 communication can establish a stronger connection between the solution provider and their prospects potentially leading to years of fruitful collaboration
Benefits
- Build awareness
- Partnership with a B2B event could expose your business to a wider and more relevant audience and create a positive association with your brand. It is an additional benefit when event organizers provide exposure of the partner companies in their official website and across social media channels, giving you a wider digital outreach.
- Meet the right people
- Knowing your target market is the core of your marketing strategy, but once you’ve identified your “ideal prospects”, it can be a challenge to reach them. If you partner with a relevant industry event that is likely to attract your ideal clients, it can be a great opportunity to directly connect with your niche target audience.
- Gain exclusive audience insights
- Partnership also gives you audience insights that include, but are not limited to, insights during, pre-and post-events. For example, with an established event provider such as Management Events, the sponsors are provided with trend reports prior to the event with an outlook on the issues facing the attendees. This knowledge may be of benefit to your representative in order to customize solutions and determine the correct approach to the sales pitch.
- Become a knowledge leader
- Often, event partners have the opportunity to deliver a presentation during the event and share valuable insights about the latest technology solutions. Through a presentation like that, you can establish a stronger perception of your brand and company representatives and solution experts and knowledge leaders in the field.
Risks
- Power of first impression
- Trying to impress a potential client at a B2B networking event means you will have only one opportunity to make the right impression. Even if you have a 1-to-1 meeting scheduled with the prospect, there will be time constraints, which means you need to do your research and make sure you thoroughly prepare for the pitch. Luckily, some event organizers can help. For example, at Management Events we always provide an industry report to our partners that identifies investment priorities of our participants and helps both event partners and attendees to have a meaningful conversation.
- No guaranteed returns
- Of course, partnering with an event doesn’t guarantee you closing a big client right away. However, you will get great brand exposure, extensive networking opportunities within your target industry and high-quality leads that could potentially turn into strong connections and long-term business relationships. Particularly for a company that is not known in a new market, this could be a great first step to venture in.