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Market Penetration Strategy & the Scarcity Mentality

The most popular, and in my opinion, the least sustainable, growth strategy is market penetration. For companies that are confined to the local market – say, real estate brokers, divorce lawyers, fitness centers, and the local café - this may be the only short-term option. But even for most of these local businesses, there are more sustainable growth options.

In its essence, a market penetration strategy means selling existing products and services to existing markets. So if you sell real estate in Sausalito, you can grow by getting more listings and more buyers. It mostly means contacting potential sellers directly, cultivating personal relationships, and raising awareness through local marketing.

The limitations for a market penetration strategy for local businesses are two-fold. First, local markets in North America as a rule are slow-growing. The pie can only grow as fast as the economy. So any growth resulting from selling existing products to existing markets means taking business away from a competitor. If you happen to operate in a high-growth market, you can grow with that market, but only until new competitors start coming in to compete for your market share and drive down prices.Add paragraph text here.

Engaging in a market penetration strategy concedes that we are in a zero-sum game, a game that we think we can win. It accepts a scarcity mentality. The pie doesn’t grow, so our wins mean a competitor’s losses. The scarcity mentality is the zero-sum paradigm of life.

Great business thinkers including John C. Maxwell and Steven R. Covey, along with countless philosophers, believe that an abundance mentality is the key to success in business and happiness in life. They believe that the pie can grow. If we win, somebody else doesn’t necessarily lose. There is plenty to go around, if you have the right strategy.

The established strategic growth framework, the Ansoff Matrix, identifies four growth strategies:

The sustainable growth models are growth through Product, Market, and Geographic expansion. I modify the Ansoff model, which identifies diversification as the fourth growth strategy. Developing new products and then selling them into new markets is too risky, I believe. My fourth quadrant is geographic/online expansion. I will explain the reasoning behind this in the subsequent blogs in this series. To clarify the definition of each strategy:

  • Market Penetration: Selling existing products to existing markets
  • Product Development: Selling new products into existing markets
  • Market Development: Selling existing products into new markets. New markets can be defined as new industries or new buyer personas.
  • Diversification: Selling new products into new markets.

In conclusion, while I believe market penetration can be an effective short-term tactic in growing your business, it is limited by scarcity. Building or innovating your product or service, selling to different industries or types of buyers, and expanding geographically will achieve more meaningful and sustainable results.

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