For some organizations, it is difficult due to one or more reasons to enter new markets. To solve such an issue, many of these organizations enter into a kind of strategic alliances with one another to operate in a particular market. Although strategic alliances can be differentiated in many ways, the more common one is the joint venture business, in which each partner business holds an equity position. The most common and natural strategic alliances are found in the pharmaceutical industry.
The product penetration tactic of diversification entails manufacturing new products for new markets. The strategy of diversification is usually followed whenever, there is saturation in the current market or when environmental changes such as societal, economic, technological or regulatory make it very hard to generate new sales in those markets. This strategy is most commonly followed by those businesses in the health sector, such as hospitals. Hospitals have now diversified their services in the form of long-term care facilities, reimbursement, network referrals, and utilization. Those firms that have diversified on opportunities of their strengths have been able to gain the most.
Pros & Cons of Market Penetration Strategies
The Market penetration strategies make benefit of reduced prices to upsurge product demand and increase your market share. As the demand for your product increases, your business saves money on product manufacturing costs due to the larger volume of produce. This strategy isn’t going to work for all products and all types of businesses. So, some companies utilize different marketing strategies than the normal to be more effective.
Here are some advantages of practicing market penetration strategies
1. Swift Growth
If the aim of your business and marketing activities is to expand your customer base, then market penetration is the exact remedy you need. When you propose lower prices than your rivals, tempting their customers becomes possible and you receive what you expected. Thus, fast growth is heavily dependent upon lower prices. The more rational these are the better will be your chances.
Certainly, it’s reasonable to say that penetration leads to cost-efficiency. It can lead to cost advantages if your business processes go in the manner as you anticipated. By keeping low prices, you ensure that customers stay with you and it also means that you can order more quantity of products from your suppliers that eventually results in higher profit figures. This is why certain companies take the risky route and first buy products in bulk due to discounted prices and then they implement penetration strategy.
3. Contest Competitors
One of the more challenging segments of the market penetration strategy is to combat with your rivals. Just try to imagine, you have plentiful competitors who are desperately trying to evolve and slow you down and are stealing your customers which results in lowered profits for you. Now following the rule of survival, your only way out is to fight and defeat them to stay at the top. For example, low initial prices will force your competitors to move to alternative strategies with changed market penetration pricing regulations. By this way, you will appeal to the lost consumers and it will render competitors on the defensive or leaving the market altogether.
Now, let’s look at some of the disadvantages.
1. Unachieved Production Costs
Lowering the product price as you will is not always possible. Sometimes, products are costly to manufacture and tiny businesses find it difficult to survive while producing sufficiently to lower the production and price. This becomes more complicated when you have to deal with competing firms. Under such circumstances, it’s best to focus on the marketing campaign, product packaging and enhancing public image because these have the same potential having a low price structure has.
2. Missed Chances
Some firms who produce luxury products commit the silly mistake of marketing it as an inexpensive item. Hence, customers who adore luxury products would avoid it being marketed as an “inexpensive item.” Thus, if you’re concentrated on making luxury products, then do consider that low prices may make your sales thinner and the product might even fail in the market.
3. Bad Company Image
When your company has numerous product lines that also include a luxury line then, adopting a market penetration strategy would certainly be adverse. For example, if you apply a particular market penetration strategy on a single product, it might badly reflect on the remaining of the product lines. Therefore, if a big number of customers get familiar with your cheap product, it’s highly likely that they would forget that you also produce luxury items and your brand’s status as a luxury manufacturer will disappear.
4. Lack of Results
Market penetration strategy isn’t going to work at a place where prices are previously set low. For example, when prices are previously low, the consumers have by now built trust on an existing company, and thus entering that market and attempting to beat the competitor would be a highly ineffective manner of action. Rather, a new company should focus on gaining its worth in the business, by trying to create low prices of products.