There is a difference between the two.
If 1,000 users are willing to buy EVs and Tesla manages to sell 300 of them, this could indicate that it has a penetration of 30%. On the other hand, if the net revenue generated from the EV industry is one billion and Tesla’s revenue adds up to 4,500,000, it indicates a market share of 45% in the car market.
See the difference? In this article you’ll find answers to the topics such as:
And additional: 4 reasons why you should enhance your market penetration
We use a metric as market penetration rate, because the size of realized sales (offset) compared to potential sales says something about the (geographical) reach of the brand and brand recognition.
Market penetration is the way of maximizing sales through existing products or services without having to change them. As the market is known territory for a company, it minimizes risks siginificantly.
So, the number of sold products or services divided by total addressable market (TAM) x 100 makes the right market penetration rate.
Penetration rate and Brand Equity: The size of realized sales compared to potential sales says something about the (geographical) reach and brand recognition.
The average market penetration rate is different for each market. Market size and product adaption both have a direct influence on the market penetration rate.
Markets that sell products and services to consumers tend to be bigger in offset and smaller in revenue. Small, Medium and Large-sized and even corporate enterprises on the other hand, often have a smaller sales market, but gain higher revenues.
Also, product or services that are very specific and/or not that easy to adapt, like actuators, or film festival software, grow slower in penetration rate.
Although determining a market penetration rate can be difficult, there are some generalized parameters as a reference to provide you a rough guideline. These are:
Before you start calculating your market penetration rate, the size of your company’s total addressable market (TAM) must first be estimated. Tracking your company’s market penetration helps to assess its competitive standing relative to its competitors. The company’s current market penetration can also be insightful in understanding the upside remaining in the market.
If the potential to capture additional market share is limited, then the company might need to consider expanding into different markets to reach more customers.
Knowing your market penetration rate can be key in expanding your business. You'll get a better understanding of your position relative to the competition and need it to valuate your brand value. We give you 4 reasons why you should enhance your market penetration.
Faster reach of the tipping point
A single person can start an epidemic of the flu, so too can a small but precisely targeted push cause a fashion trend, the popularity of a new product, or a drop in the crime rate. Malcolm Gladwell wrote about it in his book “The Tipping Point: How Little Things Can Make A Big Difference”.
The tipping point is the moment when an idea, trend, or social behavior crosses an important threshold and spreads like a virus.
Future prospects
If a firm manages to engage and retain its customers, they also have the opportunity to sell them any new products or services in the future. Market penetration provides that insight.
Fast growth
Good quality attracts customers. When a brand has a reputation of delivering good quality, customers are willing to come back. Word-of-mouth is kicking in, the reputation spreads quickly in the market. Good quality is the quickest way to amplify the customer base and establish one’s presence in the market.
Easy diffusion in the market
A strong market penetration helps to make it easier to reach larger masses. People start noticing the brand and they might shift to a new product or service quickly.
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