Market penetration: the art of ‘stealing’ customers from your competitors
New customers nearly always come from your competitors or from people who do not yet buy what you sell. Knowing how much of the market you already reach tells you how much room you have left to grow.
Market penetration is the growth strategy of selling more of your existing products in your existing market, by winning customers from competitors or from people who do not yet buy the category. It is measured with the market penetration rate: customers who have bought your product divided by the total target market, multiplied by 100.
Key takeaways
- Market penetration is one of the four quadrants of the Ansoff matrix: products you already have, sold in the market where you already operate.
- The market penetration rate is calculated as (customers who bought in the period / total target market) × 100. A shop with 18,000 customers in a market of 400,000 buyers has a penetration rate of 4.5%.
- The penetration rate counts buyers; market share counts sales. They are different metrics and can give different figures for the same company.
- Cutting your price to win customers means selling more units to earn the same: with a cost of €22 and a price that drops from €40 to €34 excluding VAT, you need 50% more sales.
- The usual strategies are penetration pricing, acquisition offers, segmentation, content marketing, loyalty programmes and new sales channels.
What is market penetration?
Market penetration is a growth strategy that aims to gain market share with the products or services a company already sells, in the markets where it is already present. The goal is to sell more without creating new products or entering new markets.
The term comes from the Ansoff matrix, which Igor Ansoff introduced in 1957 in Harvard Business Review, in the article ‘Strategies for Diversification’ (vol. 35, no. 5). The matrix crosses products and markets, existing or new, and gives four growth strategies:
| Existing products | New products | |
|---|---|---|
| Existing markets | Market penetration | Product development |
| New markets | Market development | Diversification |
Market penetration is the lowest-risk quadrant of the matrix, because the company already knows its product and its customers. There are three ways to grow in this quadrant: winning customers from competitors, attracting people who do not yet buy the category and getting existing customers to buy more often.
The term ‘market penetration’ is also used for the metric that measures how much of the market you have reached: the penetration rate, explained in the next section.
When does a market penetration strategy make sense?
Market penetration suits a company that has not yet exploited the full potential of its products in its current market: the penetration rate is low, the category is growing or competitors have unhappy customers.
The second condition is being able to keep those new customers thanks to the quality or advantages of your products compared with your competitors’. If customers won with an offer leave as soon as it ends, the strategy has only bought temporary sales.
How do you calculate the market penetration rate?
The market penetration rate is the percentage of the target market that has bought your product or brand in a given period, usually a year. It shows the relationship between the customers you have and the customers you could have.
The formula is:
Penetration rate (%) = (number of customers who bought in the period / size of the target market) × 100
The number of customers comes from your own sales data, counting unique customers rather than orders. The size of the target market is an estimate of the people or businesses that could buy your product, and it usually comes from official statistics, industry studies or trade association reports.
Market penetration rate calculation example
An online shop selling cat products operates in Spain. For this example, we assume there are 1,000,000 households with a cat and that 400,000 of them buy products for their cat online: that is the shop’s target market. Over the last 12 months, the shop has had 18,000 unique customers.
| Item | Value | Calculation |
|---|---|---|
| Target market (cat-owning households that buy online) | 400,000 | Assumed figure for the example |
| Unique customers of the shop in 12 months | 18,000 | Own sales data |
| Current penetration rate | 4.5% | 18,000 / 400,000 × 100 |
| Penetration target | 6% | Company decision |
| Customers needed to reach the target | 24,000 | 400,000 × 0.06 |
| New customers to acquire | 6,000 | 24,000 − 18,000 |
The result turns an abstract goal (‘gain market share’) into a specific figure: 6,000 new customers in a year. With that figure you can work out how much you can spend to acquire each customer and what discount you can afford.
The same formula works at category level. If 400,000 out of 1,000,000 cat-owning households buy online, online penetration in that category is 40%. A category with low penetration leaves more room to grow by reaching people who do not yet buy; a category with high penetration forces you to grow by taking customers from competitors.
Penetration rate, market share and penetration pricing: the differences
The penetration rate, market share and penetration pricing are often confused, but they measure or describe different things. The table uses the same shop from the example, with assumed sales of €1.2 million in a market worth €30 million.
| Concept | What it is | Formula | Example |
|---|---|---|---|
| Penetration rate | Percentage of the target market that has bought your product | Customers / target market × 100 | 18,000 / 400,000 = 4.5% |
| Market share | Percentage of total market sales that are yours | Your sales / market sales × 100 | €1.2m / €30m = 4% |
| Channel penetration in the category | Percentage of category buyers who buy it online, from any shop | Online category buyers / category buyers × 100 | 400,000 / 1,000,000 = 40% |
| Penetration pricing | A tactic that sets a low entry price to win customers and raises it later | Not a metric | Selling at €34 a product whose usual price is €40 |
The shop in the example has 4.5% penetration and 4% market share. The gap shows that each customer spends an average of €66.70 with it (€1.2m / 18,000), less than the €75 an average buyer spends in the category (€30m / 400,000): the shop has plenty of buyers, but captures a smaller part of what they spend.
Market penetration strategies
Market penetration strategies combine price, communication and distribution. These are the most common actions to put them into practice:
- Measure the penetration rate: work out your starting point with your customer data and an estimate of the target market, and repeat the calculation every quarter or every year to check whether the strategy is working.
- Make an aggressive offer: a penetration price, a first-order discount or a trial period encourage users to leave your competitors. The price has to remain profitable or have an end date; the guide on competitive prices to outperform your rivals explains how to set it.
- Develop a content marketing strategy: useful content builds audience and visibility among people who do not yet know your brand, which in the medium term can cost less per customer than paid advertising.
- Introduce engagement and loyalty strategies: points schemes, subscriptions or personalised communications increase how often existing customers buy, which is also growth in the same market.
- Use audience segmentation techniques: identifying which groups of potential customers are most likely to buy lets you concentrate your budget on them. The article on audience mapping explains how to do it.
- Explore new distribution channels: selling on marketplaces or price comparison sites where your potential customers already shop widens your brand’s presence without leaving your market. If you are a manufacturer, more channels mean more retailers, and it pays to check that they respect the recommended retail price with RRP monitoring.
- Set up a price tracking system: a price intelligence system records your competitors’ prices and lets you adjust yours so that your offers stay competitive and attractive to potential customers.
Advantages of market penetration strategies
Market penetration brings several benefits to a company that applies it well. These are the most important:
You gain market share
The main goal of market penetration is to gain market share: reaching potential customers who have not yet given you a chance because they do not know you or because they are loyal to another brand.
Winning a bigger share requires a specific plan, for example more brand exposure, negotiating with retailers to give your products more prominence, or an acquisition offer.
You increase your sales
More customers mean more sales. However, higher sales do not equal higher profit: if the offer is very aggressive, you can sell more and earn less, or even make a loss.
That is why you need to calculate your costs carefully and put a time limit on your targets. If you have cut prices to the bone, plan in advance how you will return to a profitable price without disappointing new customers, for example by raising it gradually or compensating with service.
You build brand awareness
Market penetration strategies help a company stay in consumers’ minds and improve how they see the brand. The more people try the product, the more recommendations and reviews it generates.
Keep the same message and the same look across all channels so that people who discover you through the offer recognise you later.
Disadvantages of market penetration strategies
Price-based market penetration carries risks that are worth measuring before you start:
- Price war: if competitors respond by cutting their prices too, nobody gains share and everybody loses margin. When a rival consistently sells below cost, the problem comes close to dumping in ecommerce.
- Lower profitability: every euro of discount comes out of your margin, and acquisition costs (advertising, promotions) go up at the same time.
- Disloyal customers: people who come only for the price tend to leave when a better offer appears.
- Brand image: a very low price for a long time links the brand to a cheap product and makes it harder to raise the price later.
- Legal limits: in Spain, selling at a loss is regulated by article 14 of Law 7/1996 on Retail Trade (in Spanish) and article 17 of Law 3/1991 on Unfair Competition (in Spanish). Selling below the purchase price is not banned in general, but it is considered unfair if it misleads customers about the price level of the rest of the shop, discredits another product or retailer, or is part of a strategy to eliminate a competitor. Rules on below-cost selling differ from country to country, so check the ones that apply where you sell.
Example: how much more you need to sell if you cut your price
A product with a usual price of €40 excluding VAT and a cost of €22 leaves a margin of €18 per unit. With a penetration price of €34 (15% lower), the margin drops to €12 per unit.
| Scenario | Price excl. VAT | Margin per unit | Units | Total margin |
|---|---|---|---|---|
| Usual price | €40 | €18 | 1,000 | €18,000 |
| Penetration price | €34 | €12 | 1,500 | €18,000 |
To earn the same with the penetration price, you have to sell 1,500 units instead of 1,000, which is 50% more (18 / 12 = 1.5). If the price cut does not deliver that increase in sales, the strategy reduces profit even though sales grow.
Tips for a successful market penetration strategy
The first step is to weigh up the pros and cons and assess the risks against the benefits. Once that is clear, define the specific market penetration strategy you are going to follow. These three tips help you get it right:
Learn from the big players
The useful questions are which strategy the companies with the largest share followed and what they do today.
Benchmarking helps you identify their strengths and weaknesses, the opportunities to set penetration prices and the challenges you will face. Look also at who moves prices first and who simply follows, the idea behind First-Mover technology. The article on rivalry between competitors helps you interpret those reactions.
Focus on your buyer persona
Reaching potential customers requires knowing what they want and what they expect. These questions guide the strategy:
Is it a question of money? Or do they want good service or a quality product? What do they value? What would make them leave your competitors and come to you?
The answers decide which lever to pull. If your buyer persona buys on price, an entry offer works; if they buy on service or quality, cutting the price gives away margin without winning more customers.
Set a price limit and a time limit
A penetration price needs two limits decided in advance: the minimum price below which you will not sell and the date on which you will review whether the strategy is working. With the previous example, the limit would be €34 and the review would check after three months whether sales have grown by at least 50%.
Market penetration examples
Market penetration strategies depend on a company’s goals, position and budget. These examples show the most common ones:
Telecoms companies
Mobile operators such as Vodafone, Orange or, in Spain, Movistar compete constantly to take each other’s customers. They do so with offers tied to minimum contract terms and with extras such as TV and film streaming platforms or sports packages.
Low-cost operators also push to win the customers who value a good price more than a list of extras they do not need. In a market where almost everyone already has a mobile phone, growth means taking customers from another operator.
Low-cost companies
Low-cost companies enter the market aggressively in almost every sector, from airlines such as Ryanair to smartphone makers such as Xiaomi. They offer acceptable service or quality at a price clearly below the competition’s.
The low price removes potential customers’ objections and lets the company gain market share quickly. For it to work, the company needs a lower cost structure than its competitors, not just a lower price.
Legendary rivalries
Pairs such as Coca-Cola and Pepsi or McDonald’s and Burger King have been competing for each other’s share for decades in mature markets. In those markets, penetration is fought mainly on brand and advertising rather than on price.
Knowing your competitors is essential for any pricing strategy
Market penetration is a useful strategy when you want to increase your share with the products you already sell. It delivers sales growth and brand awareness, but when it relies on price it puts your margin at risk.
Whatever strategy you follow, knowing your competitors and tracking their prices helps you increase your sales and spot opportunities. A competitor price monitoring tool shows the prices your rivals sell at and how they react when you change yours.
How can you cut prices to gain market share without losing margin?
A price-based penetration strategy needs to know what your competitors charge, what your real margin is and how far you can go down. Boardfy is a SaaS platform for competitor price monitoring and dynamic pricing for e-commerce, with direct price updates on Amazon, eBay, Google Shopping and Mirakl marketplaces.
- Boardfy reads your competitors’ prices every 6 hours and keeps the price history.
- Boardfy calculates your margin from cost, deducting commissions, payment fees and other costs, and never goes below your minimum.
- Boardfy detects products your competitors sell and you do not.
Boardfy does not decide your strategy: it applies the rules you define. On channels without a direct connection, the new price is sent to your shop or your ERP. Try Boardfy free for 7 days, no card required.
