Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Market Penetration

What it is:

Market penetration is the percentage of a target market that consumes a product or service. Market penetration can also be a measure of one company's sales as a percentage of all sales for a product.

How it works (Example):

Companies produce goods and services with a specific population or market in mind. In a broad sense, market penetration is a measure of individuals in a target market who consume something versus those who do not. For example, if a company determines that product ABC has a market of 50 million people and of those 10 million purchase it, then product ABC's market penetration would be 20% (10,000,000 / 50,000,000 = 0.20).

Market penetration can be used to describe the percentage of one company's sales versus total sales for a specific product. For example, if all companies that produce product ABC have total sales of $5 million, and company XYZ's sales equal $1.5 million, then company XYZ's market penetration would be 30% ($1.5 million / $5 million = 0.30).

Why it Matters:

Market penetration for a good or service indicates potential for increased sales. In other words, the smaller a product's market penetration, the more a company should invest in its strategy for marketing that item. For this reason, high market penetration indicates that a product has become established and the company is a market leader.

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