Market Penetration calculates market penetration based on the number of customers within an area compared to a demographic variable such as total population.
Customer data is required to adequately determine the market penetration.
In the image below, customers and the values tied to each customer (such as dollars spent) are analyzed across an entire market and locally in each geographic boundary. This allows you to determine how well you are penetrating an area compared to other areas.
Here are some observations for you to note: Area A and Area B both have high penetration rates (above 10% of the market); however, the customer base located in each is different. Area A contains 145 customers (nearly 19%) while Area B contains only two which is less than 1%. Although the penetration is high, there aren't many customers for which to market. High concentrations of customers in a given area don't always equal high sales. Market penetration helps identify how well each area is performing based on a customer value.
The columns and numbers they contain in the image above are described below:
- BA_CUST - the number of customers in each trade area or boundary.
- BA_TCUST - the total number of customers in the analysis.
- BA_PCUST - the percentage of customers in each trade area boundary. Formula: (BA_CUST/BA_TCUST)*100
- BA_CUSTW, BA_TCUSTW and BA_PCUSTW - these fields are the same as the customer fields on the left except these are based on weights. This is often sales per customer or an expenditure value.
- BA_BASEVAL - the base market value for calculating penetration (total market count) and is often shown as total households or population.
- BA_MKT_P - the market penetration rate. In this example, it is weighted by sales. Formula: (BA_CUSTW/BA_BASEVAL)*100. When customer counts are used in place of weighted values the formula is (BA_CUST/BASEVAL)*100.
Learn more about Market Penetration.