Ansoff Matrix: Market Penetration Strategy is where you enter a market and compete with everyone else. You aim to capture as much of the market as possible. The main idea behind this strategy is that you have a better chance of achieving a sustainable competitive advantage if you spread your company’s products/services across a broad range of markets rather than focusing on one or two.
Types of Market Penetration strategies
Market skimming is when you introduce the product to the market at a high price, therefore only targeting specific customers who want to pay for that high price. The goal here is to capture profits from customers who are willing to pay more for the product. Once you’ve saturated these customers, you can then decrease your prices and attract more customers as well as increase sales volume.
A Market Penetration strategy is when you lower your price so that you can reach a larger number of customers in order to increase sales volume and profit margins. This strategy works best when your company has excellent resources and can take advantage of economies of scale.
The main idea behind this strategy is that it’s cheaper for your company to produce higher quantities of products, so you can sell the product at a lower price while still making a profit. This will attract more customers and increase sales volume, which then allows your company to increase its production capacity even further for even greater profit margins.
What is Market Skimming Strategy?
Market Skimming is a strategy of capturing profits from a market by selling high-priced products (skimming the market) to a small segment of customers. This strategy is appropriate when your company has good resources and can take advantage of economies of scale. The goal here is to capture profits from customers who are willing to pay for that high price. Once you’ve saturated these customers, you can then decrease your prices and attract more customers as well as increase sales volume.
Ansoff Matrix: Market Penetration Strategy
Below are examples of Market Skimming:
1) Apple iPod was introduced at a higher price than other mp3 players. The Apple iPod was able to capture the high-end market while other brands had to compete in the low-end of the market, with lower profit margins. Once it had established its dominance in the high-end market, Apple decreased the price to gain a larger market share.
2) Starbucks sells coffee at a premium price. It captures the higher end market. Once it has established its dominance in this segment, it will decrease its prices and compete in the low-end market as well.
3) Harley Davidson sells expensive motorcycles and attracts wealthy buyers; this appeals to many people as they aspire to be wealthy one day. As Harley Davidson establishes its dominance in this segment and saturates it, it will start selling cheaper motorcycles to attract more people and increase sales volume.
4) Southwest Airlines was the first low cost airline that targeted a specific customer: business travelers who wanted low fares but not necessarily frequent flyer miles or meals on flights (see Figure 5). These business travelers comprised about 20% of all airline passengers so Southwest Airlines decided to target them specifically with a low cost but reliable service, flying only point-to-point routes with only one connection (as opposed to many competing airlines which flew nonstop routes but with multiple connections).
This allowed Southwest Airlines to reduce their costs by not having to fly their planes empty, so they could provide lower fares while still making a profit. As they dominated this niche segment of the airline industry, they then started expanding into other segments of the airline industry by adding more flights and new routes throughout their system; this allowed them to increase their overall sales volume while still maintaining their low-cost advantage over other airlines in different segments of the industry.