Market Penetration Strategy in A Mature Market

by Anuar Yaakub,Senior Consultant, Sageconsulting Sdn Bhd

Who would want to venture into a mature market which is characterized by stagnant growth, lack of innovation and filled with well-entrenched players? Furthermore, going into a mature market means “grabbing” the market share of existing market providers.

Well, if you are pretty confident in your products or services, there will always be room for another kid on the block. Better still if the products or services have the potential to knock out the incumbents. It’s like opening a “mamak” restaurant by targeting the existing customers in an area already served by multiple “mamak” restaurants.

First, let’s defined what is a mature market and its characteristics. According to Wikipedia, “a market is mature when it has reached a state of equilibrium. A market is considered to be in a state of equilibrium when there is an absence of significant growth, or a lack of innovation. When supply matches demand the price decided by the market forces of demand and supply is called equilibrium price”.

To a certain extend an industry life cycle differs from region to region. A mature market in the US might still be growing elsewhere. For instance, due to cheaper production costs in developing economies, garment manufacturing industry has almost stagnated in the US. Whereas, in countries like Vietnam or Bangladesh it’s striving. Another classic example is mineral water industry. The market has almost saturated and at least for the local Malaysian brands, there is almost no differentiations other than pricing and probably the attractiveness of the bottle or packaging.

An aspiring new entrant into a mature market needs to conduct a study i.e. market research before entering the fray. The traditional method of developing a marketing strategy is still applicable:

  1. Analyse the market forces surrounding the industry that might affect the future of the industry e.g. acute labour shortage due to more stringent requirement on the hiring of foreign workers.
  1. Define the target or potential market or customers. Understand the market profiles such as their purchasing power, location and decision-making behaviour. Study the changes in behavioural patterns such as change of taste or change of purchasing decision-makers. For example, a 24-hour “mamak” restaurant normally survives on nearby high density population such as office workers or college students.
  1. Understand the current market share of existing products or services, past trends and expected future trends. Analyse the dynamics behind the changes in market share e.g. introduction of a new model or new ways of doing business. For example, the branding of “nasi lemak dara” or “nasi lemak royal” certainly helps to elevate brand recognition.
  1. Analyse the strength and weaknesses of existing players: not to forget the ability of the incumbents to deliver a crushing blow to new entrants through aggressive marketing tactics such price cutting. For example, Astro and Maxis have been aggressive in thwarting the entrance of new players by offering promotional packages ahead of the launching of new competitive products or services.
  1. Identify and study the industry life cycle – say for the last ten years. Determine what has changed and what has remained stagnant. Learning from the past is critical since business may survive a few years but perhaps not more than ten or twenty years. During the current economic downturn, “optional” businesses are hardest hit. For example, car owner will still replace tires but not the sports rim.
  1. Identify issues, grouses or complaints by the customers that need to be addressed e.g. lack of service outlets and long repair cycle time. Existing grouses or complaints should be treated as opportunities to make a difference. Donald Trump won the US election by appealing to the frustration of the lower middle class population who were hard-hit by the economic predicament.
  1. Study the details of 4Ps of marketing mix i.e. price, promotion, place, and products/services of the existing players. There is no short cut to the study of the existing 4Ps as it helps to come out with better marketing strategies including pricing strategy, advertising strategy, packaging strategy and channel strategy.
  1. Leverage on strengths that are compelling enough to lure customers away from existing competitors e.g. new product design and packaging. The strengths must lend staying power at least during the initial year and enable it to withstand attack by competitors. For example, a “mamak” restaurant can come out with a better quality “roti canai” by truly following strict hygienic practices in the whole chain of production of the food and spending effort to publicise it in various media.

Having performed the above processes, market penetration strategies could be devised.

The strategies must address:

  1. Identification of its niche market based on its strengths, business model or the weaknesses of competitors. For example, a second-hand car dealer may get a reputable independent workshop or technician to certify all used cars. In addition, it may appoint various workshops to be its sales and marketing agents.
  1. Entry strategy – low profile vs big-bang. Big-bang strategy carries more impact but tends to attract the wrath of competitors. Low profile strategy is safer but is slow and time-consuming. Depending on the level of confidence, striking a balance of somewhere in between might also be a good choice. For example, a florist needs to adopt big-bang approach in its advertising and promotion: fresh flowers do not last very long and a high-turnout is required right from day-one to ensure good turnover.
  1. Defining specific customer market(s) to be targeted – either based on socio-economic status, gender, age segment, geographical location, etc. For example, when EAU Choice (mineral water produced by Sihhat Afiat Sdn Bhd) in Jeli, Kelantan was launched, the initial markets were the state government agencies and business outlets in Kelantan and Terengganu). Obviously, storage and transportation cost play a major role in determining the target market segments.
  1. Product positioning including pricing – low, medium, or premium product positioning. Traditionally, for commodity-based industry, new entrants need to adopt low pricing strategy. Once the brand is established, the pricing can slowly be elevated. For example, when TOP (detergent) brand was first introduced in Malaysia, it was looked down upon just like when Japanese-made cars were introduced in the US market in the 70’s. Today, TOP’s detergents are priced at par with that of Breeze and FAB. However, if the brand is already a leading brand internationally, the same product positioning should be maintained in Malaysia.
  1. Delivery channel and logistic to be deployed including supplies of raw material, advertising & promotion, online presence, and sales outlets. A large portion of cost normally go into these activities. Hence, cost savings in these areas can be turned into a competitive advantage.
  1. Product packaging, bundling and presentation. It is surprising that a great majority of consumers arrive at their purchasing decisions based on “look and feel” i.e. the attractiveness of product packaging. For example, initially, consumers were hesitant to purchase “Tongkat Ali” supplements since the packaging were not attractive and convincing as they were poorly-designed and carried images with sexual connotations. Today, most brands are packaged in professionally-designed boxes and are endorsed by celebrities or medical doctors.
  1. Advertising and promotion strategy – including channel selection, timing & frequency, and readiness to meet increasing demand or inquiries. Depending on the target market and messages to be communicated, the advertising and promotion channels will be decided. For example, it’s better to use local radio stations to promote new brand of “budu” in Kelantan (such as Budu Raja) rather than national radio stations.
  1. Specific checklist items to kick-off the products or services such as product launching events & kits, special advertisement, shelf fee at outlets, stockist or agent program, free sample, etc.

There is a silver lining in a mature market. Unless one is fully confident of what the products or services can offer, a mature market is not for the faint-hearted entrepreneurs to enter.

What’s important is to go back to basics and begin with detailed planning. Depending on the products or services, the entrance strategy can be big-bang approach or stealth approach.

Venturing into a mature market can be likened to the birth of a baby impala (gazelle) in the African Safari. There is no time to crawl – otherwise, lions and leopards will be having a feast.