Market penetration refers to a portion of products sold in a particular category or sector by one company, relative to all products sold by all companies in that business. This is often associated with brand recognition, but a company with a high level of market penetration may not necessarily have strong brand recognition. Any market can be analyzed using market penetration quantifiers. The market penetration index is calculated differently depending on the application and is based on market penetration.
Market penetration index, or market share, is calculated using simple relationship formulas. Market share is simply the total number of products sold to consumers by one company, divided by the total quantity sold by all companies. If a company sells one product out of 10 sold to the public, it has a market share of 10 percent. In the case of web browsers, if Google Chrome has a 67 percent market penetration, this means that approximately two-thirds of all browsers in use worldwide are Chrome.
Some companies use different calculations and interpretations for the market penetration index. Instead of analyzing the total consumer demand in their sector, they study their success compared to competitors. Instead of focusing on the market share of raw materials, they compare their performance with the average performance of competitors. This is common in hotels where the market penetration index studies the occupancy of an individual hotel compared to the average occupancy of all other hotels in a particular area. A high rate indicates that the hotel is doing better than most.
An emerging company can utilize the knowledge of the market penetration index of other companies to gather beneficial insights. Notably, by obtaining and comparing the indexes of companies, the marketing team may learn about the key players in the market and how they are competing with one another. The share penetration index is the measure of the current market share in contrast to the potential market. If the share penetration index is low, then the company has the potential to grow. This information can be used by emerging companies to evaluate what percentage of the market is available and how it can be targeted. After starting the operations, the new company can use its indexes as the key performance indicators and make decisions according to the market share.