How to Evaluate Potential Market Penetration Rate

How to Evaluate Potential Market Penetration Rate

Building a sustainable market penetration strategy is one of the most challenging tasks for any business. The high market penetration rate ensures success in achieving business goals. That is why each new product launch needs to focus on defining the target audience, understanding their needs, pains and aspirations.

This article will delineate market penetration meaning, why it is essential for software development to have a market penetration strategy, and the fundamental steps for increasing the penetration rate. Also, we will share the Cprime Studios expertise on guiding market penetration strategy and choosing the best option for your business.

What Is Market Penetration?

First, you can define the market penetration definition as a measurement system or a set of activities.To understand what is market penetration and how it can help a tech company build an efficient product, let's look into a case study.

Imagine that you are going to build a telematics app to track and access driver behavior. From the tech company perspective, your app can be helpful for every drive, as it provides information that ensures safety, data for personal development, and efficient analytics. At the same time, even with the most optimistic forecasts, not every driver will be a future app user. There are many scenarios for your tracking app, such as drivers' regular route, type of vehicle, and goals they will achieve by using the app. In this stage, you need to decide which use case is the best for development, and the market penetration rate is the best tool for risk assessment.

As a measurement system, the market penetration is an evaluation of how much product is being sold according to the total estimated market for that product. It is also called a market penetration rate. It is one of the most critical parameters to forecast what the future outcome could gain market share. Market penetration rate percentage can be defined by dividing the number of customers on the target market size. This number can help evaluate your ideas' potential and understand what share of the market can be grabbed by your sales team.

There are few essential points from Cprime Studios experience on defining the market penetration rate:

  • Even if your startup idea is excellent, but the market penetration rate is low, you have a potentially high risk of failing.
  • If the penetration rate is higher than the number of needed customers for the profit, it means that your product has a demand. You can save on marketing and invest in tech product design features.
  • If the market penetration rate is similar to the number of customers you need, it means that you need to pay much attention to marketing, sales, and service. Every move, in this case, is critical for future app development.

From another point of view, market penetration can also be defined as a set of activities of sharing the market with other competing companies. Those activities are based on the Ansoff Matrix and are also known as market penetration strategies. Moreover, Cprime Studios has a complete guide on defining the best market penetration strategy for different markets and products that can be downloaded for an in-depth view.

Three Stages in Market Penetration Rate Evaluation

There are three primary stages in potential example of market penetration rate evaluation that can guide your business initially.

  1. To define a target market.
  2. To build a team and learn from your clients.
  3. To evaluate market penetration rate.

Next, we will discuss each step and share our experience in this evaluation process.

Stage #1. Define the Target Market

One of the most complicated stages in the whole process is finding your target market, who your customers are, what their needs are, and how to fit their expectations. The research on the target market ensures that you will find the most efficient marketing strategy in the future. It also helps build efficient apps and navigate DevOps teams, as they will understand the customers much better.

First of all, you need to choose the primary location for your app sales. In our case with a telematics app, sales geography can be selected because of the language you speak, time difference, the number of vehicles, or the number of people who can afford to buy a new car. Your goal in this stage is to choose the location with the most significant number of potential users.

For example, you are looking into the USA vehicle market to define your target audience. According to the numbers, the US is in the top-5 countries with the most significant vehicles. It's English speaking country with a high rate of technology adoption. You can also count that there are almost 300 million registered vehicles in the country, and 44% are passenger cars. Data shows that your team will have many challenges, and at the same time, many perspectives with the app.

After you understand the number of potential users of your product, you need to segment this audience. It can be, for example:

  • delivery (they can use your app to gather the data and improve the service);
  • driving schools (they can monitor student progress);
  • insurance company (to analyze driver's behavior and offer special terms for them);
  • taxi (to gather data for improving the service, ensure trip safety or monitor the driver behavior on a route).

Defining the target groups for your product also includes the constraints analysis, the type of market, and development. Also, it would help if you answered the questions, what solutions will solve the most critical issues for this target group, define which app will be easier to build and which one will ensure the most considerable profit.

Stage #2. Build a Team and Learn Your Users

The next step in market penetration evaluation is to build a team that will work for your product and learn as much as possible from your target audience.

First of all, for a startup, it can be challenging to hire developers and DevOps in-house team. Senior tech professionals usually cost a lot and are not ready to leave a stable job for a startup. Junior developers do not have enough experience to work with such complicated projects. Time and money became critical in startups, and solutions can be found in hiring outsource tech consulting for managing business processes, analysis, coding, and DevOps.

There you can find the most common benefits of hiring outsource consulting:

  1. You will have all the experts in one place. It means that you will ensure that the company operates in all the development and research stages. You will not look for specific specialists, as you will get all the experts you need for your business.
  2. You will get accumulated industry expertise. The company that already worked with similar apps will have a broad knowledge of all possible problems you can have. The expertise will also help implement the best-advanced software solutions for the app and fit the latest tech trends.
  3. Guaranteed delivery. You can be sure that you will get your working app, as the contractor provides full-circle support for your idea, not only ensuring the coding of the software.

After you clarify the team, you will work with them to build a working tech solution. You need to learn about your future customers. This task also can be challenging, but at the same time, it's essential to understand product users to build an efficient relationship.

You need to select your user and try to understand all his tasks and behavior at this stage. In some cases, it looks like you already know everything about your user. At the same time, you must be critical of your ideas and test your tech solution on real customers. Ensure that your product is useful and fits the users' needs, allowing them to achieve the results they seek.

Stage #3. Evaluate Potential Market Penetration Rate

The last step is to evaluate the risks, define market penetration rate, and manage the marketing and developing strategy based on this information. In the case of building a telematics app, at this stage, you can say exactly who your clients are, what vehicle they drive, and how much they are ready to spend on your product. When you understand the strength and weaknesses of the product, you can choose the strategy to win with your startup.

To evaluate the market penetration rate, you need to multiply the number of users in your target market and the expected rate to win the deal. After comparing this number with your business plan, you can assess if it is enough to start your business.

Conclusion

The market penetration rate is one of the most critical pieces of data in starting a new tech business. First, you need to understand how this rate influences the future product strategy, and then you need to find the best approach to create the market penetration rate you need for business profit. This article briefly describes the basic steps in market penetration rate evaluation to help you start this complicated process.

For those who want to go in-depth with the topic, Cprime Studios prepared the ebook on the best strategies for market penetration evaluation. You can download the book and learn more on what is market penetration strategy, or Ansoff Matrix for learning the business environment. Also, you can contact our specialist if you need a consultation on market penetration evaluation or building a team for product design.