Key Difference – Market Penetration vs Market Development
Market penetration and market development are two quadrants in the Ansoff’s growth matrix developed by H. Igor Ansoff in 1957, the other two being product development and diversification. Ansoff’s growth matrix demonstrates 4 ways in which a company can expand and grow. The key difference between market penetration and market developments is that market penetration is a strategy in which the company sells existing products in the existing market in order to obtain more market share whereas market development is a strategy in which the company sells existing products in a new market.
CONTENTS
1. Overview and Key Difference
2. What is Market Penetration
3. What is Market Development
4. Side by Side Comparison – Market Penetration vs Market Development
5. Summary
What is Market Penetration?
Market penetration is a strategy where the company sells existing products in the existing market in order to obtain more market share. This is a highly competitive strategy that can provoke competitors, thus is called a ‘red ocean strategy’.
E.g. McDonald’s introduced McCafe by offering roasted and good coffee for an affordable price and was adopting an aggressive marketing strategy against Starbucks.
Market Penetration Strategies
Below are some of the ways in which a market penetration strategy can be implemented.
- Price Adjustment
This is one of the most widely used market penetration approaches. By lowering the price, the company can increase the sales volume, resulting in a higher market share.
- Product Promotion
This refers to an increase in the sales volume through effective advertising. Promotional strategies can be used to differentiate the company products from the competitors. Some companies spend significant resources on advertising budgets every year.
- Distribution Channels
Finding new distribution channels help companies to increase the reach to customers. For example, if the company currently sells products in physical stores only, it can expand to create an online store.
What is Market Development?
Market development is a growth strategy that identifies and develops new market segments for current products. The effects from current competitors are low in this approach, thus is called a ‘blue ocean strategy’.
Market Development Strategies
A market development strategy can be implemented mainly through the following ways.
- By entering into a new geographical market
This is a strategy mainly adopted by multinational companies to expand their businesses. Expanding into a new geographical market requires significant investment and proper analysis of the potential market prior to making the initial investment since this is a risky way of business expansion. Sometimes entering into a new geographical market can be restricted in some countries. In that case, companies can consider a merger or a joint venture to enter such markets.
E.g. in 1961, Nestle entered Nigeria as a part of company strategy to lessen the focus on developed countries and to increase the focus on developing markets.
- By targeting new customers in new segments
If a new customer segment can be acquired for an existing product, this amounts to market development.
Figure 01: Johnson’s baby products are marketed for adults
E.g. After Johnson’s baby products became a popular choice for babies, the company started advertising the products for adults under the tagline “Best for the baby-Best for you.”
What is the difference between Market Penetration and Market Development?
Market Penetration vs Market Development |
|
| Market penetration is a strategy in which the company sells existing products in the existing market in order to obtain more market share | Market development is a strategy in which the company sells existing products in a new market. |
| Strategy | |
| Market penetration is referred to as a red ocean strategy. | Market development is referred to as a blue ocean strategy. |
| Risk | |
| Market penetration is relatively a low risk strategy since the products are sold in familiar markets | High risk is inherent in Market development strategy as the company is entering into unfamiliar markets. |
| Type | |
| Price adjustments, promotional strategies, and new distribution channels are types of market penetration | Entering a new geographical market or targeting new customers in new segments are ways in entering into new markets. |
Summary – Market Penetration vs Market Development
The difference between market penetration and market development depends on whether the existing products are offered in higher volumes in the existing market (market penetration) or in a new market (market development). Suitable strategy to adopt for expansion depends on the corporate strategy while both strategies have their own benefits and limitations. Market penetration strategy is a highly competitive strategy where the company may damage itself if competitors are provoked in an aggressive manner. Such effects are lower in market development strategy; however entering into new markets have its own risks that have to be minimized by proper evaluation of political, economic and social factors.
Reference:
1.”Market Penetration Strategy.” Ansoff Matrix – Market Penetration Strategy. N.p., n.d. Web. 01 May 2017.
2.Writer, Leaf Group. “Examples of Penetration Strategies.” Chron.com. Chron.com, 26 Oct. 2016. Web. 01 May 2017.
3.”How to Choose a Market Development Strategy.” OnStrategy. N.p., n.d. Web. 01 May 2017.
Image Courtesy:
1. “Johnson’s Baby Product Shelves at Kroger” By ParentingPatch – Own work, CC BY-SA 3.0) via Commons Wikimedia
Hi, thank you for the information sharing. I just want to clarify how or why McCafe was used as a market penetration strategy example when to my understanding, it should sit anywhere but in the Market Penetration box of the Ansoff matrix. Yes, McD sells coffee and other stuff on their restaurant menu but McCafe is more of a mix of product developement and market expansion strategy, maybe even a bit of diversification. Which is why the Ansoff can be quite difficult to master.