The Penetration Strategy - the Concept of Taking Aggressive Action to Increase the Share of Total Sales in a Market

The penetration strategy is the concept of taking aggressive action to significantly increase your share of total sales in a market. The resulting increase in sales volume generally allows a company to produce goods or obtain goods at a lower cost, allowing it to generate a higher percentage of profit. In addition, as the organization gains new market share, its competitors' sales decline, which may force some of them to withdraw from the market. A company can engage in a penetration strategy in several ways. The most common alternatives are the following:

Price reduction. The most common penetration strategy is simply to reduce prices. If customers are price sensitive, they will react by buying more of the company's products and services. However, this approach only works if a company's offers are considered to have at least the median level of quality of competing offers. This approach is not good when competitors can easily match or exceed the company's reduced prices, triggering a price war. In addition, lower prices may reduce customers' perception of the value of a company's goods and services, so that a return to higher prices at a later date cannot be achieved.

Improvement of terms. A company may offer longer payment terms or a more generous product return policy. This approach will likely allow the company to increase its sales to the most financially unstable customers in a market, and can result in significant bad debt losses. More funds are also needed to pay receivables that are unpaid for longer periods of time.

Expanded marketing. A company can spend more marketing funds to improve the brand image of its products. If combined with the absence of any increase in product prices, this can lead to a perception that a company's offers are a godsend, resulting in additional market share.

Product differentiation. One of the best penetration strategies is product differentiation, where