Financial firms have many strategies available to them when it comes to their marketing. Here at CreativeAdviser we generally talk about four which are broadly viable in a wide range of cases. One of the most important ones is market penetration, which we’ll be covering in this post.
This is the first in a four-part series on financial marketing strategy. We hope you find this content helpful. If you’d like to discuss the marketing strategy of your own financial firm with us, then please get in touch to arrange a free, no-commitment consultation with a member of our team.
What is market penetration?
Every financial firm wants to grow – whether it’s your client base, business partners, revenue streams or another area of your business. How you do that, exactly, will hinge heavily upon the marketing strategy you choose to pursue. Market penetration is the approach which focuses on increasing your share of a particular market segment through more sales of your existing products and/or services.
Suppose, for instance, that you are a financial adviser based in a particular region of England and you have five other businesses which offer the same set of services as you to the same local target market. Imagine that you have done your research and found that Competitor A holds 10% of the market, B holds 5%, C holds 2%, D holds 1% and E also holds 1%. Your business represents 3% of the market.
Adding all of this up, you have 3% of the market whilst your competitors collectively hold 9%. That means, interestingly, that 88% of the market is yet to be engaged by any of the local financial adviser firms – including yours! By focusing on a strategy of increasing market penetration, therefore, you might hope to grow your share to 10% over a specific time period (e.g. 2 years).
In this case, your strategy does not rely on “stealing” market share from your competitors. After all, each of the five companies could, theoretically, increase their market share by 10% without necessarily encroaching on the others. Yet, in some cases, you and your competitors may have already “gobbled up” nearly all of the market. If this is so, then “market penetration” here would likely mean finding ways to draw competitors’ clients/customers away from their business to yours – perhaps by offering a cheaper, better service.
Why choose market penetration?
What are the advantages of choosing market penetration over the other possible strategies open to financial firms?
Here are just a few to consider:
- It plays to your company’s strengths. For most financial firms, you already know your existing clients and target customers very well. You also have a good grasp of what you do and how your products/services can help the target market. This allows you to be more confident in your sales pitch, and it’s easier to be smarter with your marketing tactics.
- Less cost and time compared to other options. If you were to develop a completely new set of products and services to sell to your existing market, then this takes considerable time to create and prove the concepts. There is also more risk involved since you do not have the same certainty that the new value proposition will be engaged with as readily as your existing one(s).
Disadvantages of market penetration
Whilst the market penetration approach might appear to be a fail-safe way of growing your business, it is not risk-free or suitable for all businesses. For some, it may not be appropriate for its stage in its business/product life-cycle. Others might be “flogging a dead horse” by continuing to pursue a market which became unprofitable a long time ago.
Here are some possible disadvantages to consider:
- Competition is too fierce. Some marketplaces are simply too crowded, making it very difficult for your financial firm to step in with a compelling alternative to existing value propositions offered by established players.
- The market is unviable. Some target segments are simply too small to focus on. For instance, trying to build a financial advice business specialising in pension transfers might be viable. Yet only offering this service to a certain town is likely to have too small a marketplace. Other markets might be too big or ill-defined to be realistic, and so you need to “focus in”.
- Better opportunities lie elsewhere. There are instances where pursing greater market penetration might offer the chance for some business growth, and is the “safe option”. Yet perhaps there are greater rewards to be found in another market – even if there might be greater risk involved.
How do I pursue market penetration?
The first key step is to conduct a thorough analysis of your target market. What are the key characteristics of your target market, and how big is this marketplace? Who are the current key players already taking up a share of the pie, and what might it take to dislodge them (if required)? How easy is it for new entrants to join in the fray, and how likely is this to happen?
It’s important to really do your research and ground your findings in solid evidence – don’t just rely on gut feeling, even if you think that you know the market well. Are there 30,000 prospects in your market, for instance, or 3m? How can you be certain, and how likely are these numbers to change?
From here, the next key step is to define the needs, wants and pain-points of the target market. What problems are they facing that you can realistically solve? What will differentiate your value proposition from others in the marketplace who are offering solutions to these problems? Will you differentiate mainly on price (i.e. being the “cheap” option), or on the basis of some other area of specialisation?