Market penetration is a measure that shows how much a product or service is used by customers in a specific market. For example, if a car rental service has 1 million users in the country of 10 million inhabitants, then the market penetration of this service is 10%. Theoretically, there are still 9 million potential customers on that market.
Companies measure their product’s or service’s market penetration also against their competitors. In the same car rental example, it relates to the number of customers who have used a certain company’s car rental service instead of a competitor’s service. In such a case, the current sales volume for the service is divided by the total sales volume of all similar services, and the result is multiplied by 100.
Market penetration helps businesses detect their potential to gain market share or to grow their revenue. Companies can use this input for market development – a strategy of specific steps to increase the number of potential customers. Such strategies include advertising, social media campaigns and direct sales targeting the market segments that have stayed out of reach.