Most markets are already shared among competitors. Customers have options, and each supplier holds a slice. Growth strategies such as entering new regions, acquiring companies, forming alliances, launching new products or diversifying can all work, but they are often expensive and risky. For many businesses, the most efficient growth comes from market penetration: winning a larger share of the market you are already in, including customers currently buying from competitors.
Higher market share brings advantages that compound: economies of scale, lower unit costs, bulk purchasing, stronger bargaining power and more budget for advertising and promotion, which in turn wins more share. Market leaders can also launch new products more easily, because they have the cash flow, distribution and brand recognition to support them. Dominant instant-noodle brands, for example, have used their leading positions to launch many product variations and adjacent categories.
This article sets out ten practical market-penetration strategies, explains why customers ask for discounts and how to eliminate the reasons, and describes twelve legitimate barriers that help protect a market position.
Ten market-penetration strategies
1. Create new customers within the market
Some potential customers do not buy because of price or affordability. Making purchases easier can bring them in. Interest-free instalment plans, offered through partnerships with finance providers, have helped many households buy appliances they could not afford upfront. In business-to-business markets, leasing, rental, subscription or pay-per-use models can open markets to customers who cannot commit capital.
Every new customer brought into the market is share gained without taking it from a competitor.
2. Use technology to win share from unorganised competitors
In markets dominated by small, informal operators, technology can be a powerful differentiator: online ordering, tracking, digital payments, customer records and service apps. Customer data also enables remarketing, loyalty programs and targeted offers. Technology helps manage multiple locations and branches, supporting expansion.
3. Use innovative pricing and positioning schemes
Promotions such as bundles, multi-buy offers and seasonal deals can attract competitors’ customers, who often buy additional items once they are in the door. Be clear about the difference between two kinds of discount:
- Helpless discounts: price cuts made because the product is not selling. They erode margin without building anything.
- Strategic discounts: discounts designed so that the business recovers the value later, through repeat purchases, add-ons or long-term relationships.
Strategic discounts work best with customers likely to return. Discounting to attract one-off bargain hunters often loses money. Recurring revenue models make strategic discounts much more effective.
4. Increase usage
Encouraging customers to use more of your product increases sales without new customers. Product design can influence usage, for example dispensing mechanisms or recommended quantities. Complementary-product models, sometimes called “razor and blades” or “gun and bullets”, sell a base product and earn ongoing revenue from consumables or accessories. Exchange schemes and upgrade offers encourage replacement.
Increase usage in ways that genuinely benefit customers. Tactics that simply waste product erode trust if customers notice.
5. Improve on the innovator’s imperfections
The first company to launch a new product rarely gets everything right. Later entrants can study the pioneer’s weaknesses, such as reliability, price, coverage, usability or service, and launch improved versions. In telecommunications, newer entrants with modern network technology and simpler pricing have taken share from established operators running older networks.
6. Compete on the intangible service dimension
Many companies focus on the product and neglect after-sales service. Exceptional service, including installation, training, maintenance, fast repairs and responsive support, can make customers buy from you specifically to get that service, even when products are similar.
7. Innovate in sales and delivery
If you cannot change the product, perhaps because you resell rather than manufacture it, innovate in how it is sold and delivered. Major online retailers are essentially logistics innovators, delivering to remote regions, offering overnight delivery and experimenting with new delivery methods.
8. Improve accessibility through distribution
Build strong relationships with distributors and retailers to reach markets competitors neglect. Smartphone brands that expanded into smaller cities and rural areas did so by building distributor relationships, giving retailers attractive margins and training in-store promoters. A snack brand entering a market dominated by a leading competitor gained distribution through small neighbourhood shops the leader had overlooked.
9. Turn mind share into market share
Low-cost, memorable marketing that earns a place in customers’ minds leads to market share. During floods in one Indian city, a mobile network operator deployed rescue boats, which appeared in news coverage. People remembered the company’s help, and its regional market share grew. Genuine, helpful actions often earn more lasting attention than advertising.
10. Build share of preference and brand voice
Consistent, visible advertising and sponsorship can embed a brand firmly in customers’ minds. Brands that sponsor popular programs and events achieve high recall, and recall drives preference at the point of purchase. This requires sustained investment and works best when the product genuinely delivers.
Why customers ask for discounts: options and objections
Customers typically ask for discounts in two situations:
- When they have options: other suppliers offer something similar.
- When they have objections: they see flaws, risks or gaps in your offer.
If you sell what everyone else sells, customers have options and will negotiate. If customers find faults, they have objections and will negotiate. Eliminate options and objections, and discount pressure falls while market share grows.
Reducing options means differentiating: offering something others do not, serving a segment better than anyone else, or bundling products and services into a solution competitors cannot easily match.
Reducing objections means identifying every objection customers raise, such as price, quality, delivery, risk, support or compatibility, and addressing each through product improvement, guarantees, evidence, financing, service or communication.
Know your perfect customer
Many businesses waste effort selling to customers outside their target audience. Identify your perfect customers using their needs, interests, concerns and expectations, along with demographics, psychographics, location, income and lifestyle. A pizza delivery chain, for example, might define its core customer as young urban adults who value convenience and variety. Then review your product portfolio to make sure it serves those customers’ needs completely.
Twelve legitimate entry barriers
Entry barriers protect a market position by making it difficult for competitors to match you. In a competitive economy, the right barriers are built by being better: owning valuable assets, delivering superior value and earning loyalty.
- Intellectual property: copyrights, trade marks, designs and other rights over creations, such as software companies’ protected code.
- Patents and licensing: patents prevent others from making, using or selling an invention in a territory for a period. Pharmaceutical companies rely heavily on patent protection.
- Distribution networks: established relationships with distributors, retailers and service partners take years to build.
- Exclusive rights: exclusive supply, licensing or selling arrangements, such as an online retailer’s exclusive rights to sell certain products.
- Economies of scale: large-scale production or purchasing lowers costs below what newcomers can achieve without heavy investment. Large discount retailers are examples.
- Proprietary technology: technology that is difficult to copy, whether software platforms, unique manufacturing processes or distinctive products.
- Brand equity: some brands become so strongly associated with a category that their name is used generically, as with certain adhesives, sealants and antiseptics.
- Emotional or national sentiment: brands associated with national pride or local identity can earn strong loyalty.
- Subscriptions and memberships: recurring relationships, memberships and reward programs increase loyalty and switching costs.
- Product differentiation: on price, durability, style or quality. One premium technology brand is known for quality, and one value brand for affordability.
- Operational efficiency: processes so efficient that competitors cannot match speed or cost, such as fast-food drive-through operations where food is ready by the time customers reach the window.
- Trade secrets: confidential formulas, processes, recipes or algorithms, such as the famously guarded formula of a leading cola brand.
Stay within competition law
Barriers must be built lawfully. In Australia, the Competition and Consumer Act 2010 prohibits misuse of market power, cartel conduct and certain exclusive dealing and other arrangements that substantially lessen competition. Agreements with competitors to fix prices, share markets or rig bids are illegal. Build barriers by being better, not by preventing others from competing unfairly. Seek legal advice on exclusive arrangements.
Defending your own customers
Penetration works both ways: while you win competitors’ customers, they will try to win yours. Defending your base is usually cheaper than replacing lost customers:
- Monitor satisfaction and early warning signs, such as falling order volumes, slower payments, fewer conversations or complaints.
- Stay in regular contact with key accounts, at more than one level of the customer’s organisation.
- Keep improving value, sharing new ideas, better methods and cost savings before customers ask.
- Make switching less attractive by integrating with customers’ processes, holding their documentation and specifications, and providing excellent service.
- Respond quickly when a competitor makes an approach, with a conversation about value rather than an automatic discount.
Measuring market share
Many small businesses do not know their market share, but even a rough estimate helps. Approaches include:
- Top-down: estimate the total market size from industry reports, government statistics or association data, then divide your revenue by it.
- Bottom-up: count the potential customers in your target segment and the number you serve.
- Share of wallet: for existing customers, estimate what proportion of their total spending in your category comes to you. Raising share of wallet with existing customers is often the easiest form of penetration.
- Win rates: track the proportion of quotes or tenders you win, and why you lose the rest.
Track these over time. Rising share and share of wallet show that penetration strategies are working.
Strengthen your negotiating position
In negotiation theory, Roger Fisher and William Ury’s BATNA, or best alternative to a negotiated agreement, describes what each party will do if a deal is not reached. When customers have many good alternatives, their BATNA is strong and your bargaining position is weak. Market-penetration strategies and entry barriers work partly by weakening customers’ alternatives through genuine differentiation, so that your offer is clearly the best choice.
A worked example
A regional supplier of commercial cleaning chemicals competes with national brands and local discounters. Customers frequently ask for discounts, citing cheaper alternatives.
The supplier analyses objections: inconsistent delivery, lack of training for cleaning staff and uncertainty about safety compliance. It introduces scheduled deliveries with automatic replenishment, free on-site training and safety data support, and dispensing equipment that controls dilution, reducing waste and cost per use. It builds relationships with facility managers through quarterly reviews.
Customers now see few comparable options, because competitors offer chemicals but not the full service, and their objections have been addressed. Discount requests fall, the supplier wins accounts from competitors, and its dispensing systems and service relationships create switching costs that protect its position.
Frequently asked questions
Is market penetration always cheaper than other growth strategies? Often, because it builds on existing products, capabilities and customers. But aggressive price competition can be expensive if it destroys margins, so focus on value-based penetration.
Which entry barriers suit small businesses? Specialist expertise, customer relationships, service excellence, operational efficiency, local reputation and, where relevant, registered intellectual property are realistic barriers for small firms.
Can a small business really take share from large competitors? Yes, especially in segments the large competitors neglect, such as smaller customers, regional areas, specialised applications or customers who value personal service and flexibility. Large companies often cannot respond quickly to niche needs.
How do we find our customers’ objections? Ask lost prospects why they chose others, review sales conversations, read reviews and support records, and ask customers directly what nearly stopped them from buying.
Summary
Market penetration grows share in existing markets through new customers, technology, strategic pricing, increased usage, improving on pioneers, service, delivery innovation, distribution, memorable actions and consistent brand presence. Customers ask for discounts when they have options and objections, so eliminate both through genuine differentiation and by addressing every objection. Protect your position with legitimate barriers such as intellectual property, distribution, scale, technology, brand equity, subscriptions, differentiation, efficiency and trade secrets, always within competition law. The strongest moat is being clearly the best choice for your customers.
Sources: small-business training notes on acquiring competitors’ customers through market penetration and on creating entry barriers, together with general strategy practice and Australian competition law principles. Examples are illustrations. This article is general information, not legal advice.
