What is Market Penetration?

Market penetration is a term that indicates how deeply a product or service has become entrenched with a given consumer market. The degree of penetration is often measured by the amount of sales that are generated within the market itself. A product that generates twenty percent of the sales made within a given market would be said to have a higher rate of market penetration that a similar product that realizes ten percent of the total sales within that same market.

Determining what constitutes the consumer market is key to the process of properly calculating market penetration. In some instances, the market is defined as being consumers who actually use a given type of product or service. Other situations call for including not only current consumers, but potential consumers as well. The former is more helpful when assessing the degree of market penetration of a given product among active users today, while the latter is usually helpful when seeking to identify new markets for those same products, based on various demographics.

If the idea is to approach existing consumers within the market and entice them to purchase a new and improved version of something they already use, calculating market penetration may focus on identifying how many sales the product currently generates. For example, manufacturers of a new window cleaner may look at the sales for window cleaner in general, and compare that to how many sales their current product generates. If the current product is purchased by thirty percent of the consumers who buy window cleaner, the company will consider the remaining seventy percent as potential buyers for the new product, and aim their marketing campaigns at winning over those consumers.

Market penetration can be considered in broader terms, and be used as a way of identifying a wider consumer base. If research indicates that one out of every four people living in a specific city own laptop computers, then the market penetration of laptops within that city is considered to be twenty-five percent. That leaves seventy-five percent of the population as potential customers. Armed with this information, a manufacturer of laptop computers will build advertising campaigns around ideas that will motivate those untapped consumers to buy their products, before they have the chance to consider the laptops made by competitor. Here, the focus is not in up-selling enhanced products to existing clients, but to expand the influence of the penetration of the product to new consumers and thus increase the sales and general proportion of the consumer market that the manufacturer controls.