Penetration: The proportion of people in the target market who bought (at least once in the period) a specific brand or a category of goods.
Two key measures of a product’s “popularity” are penetration rate and penetration share. The penetration rate (also called penetration, brand penetration, or market penetration as appropriate), is the percentage of the relevant population that has purchased a given brand or category at least once in the time period under study.
EXAMPLE: Over a period of a month, in a market of 10,000 households, 500 households purchased Kill Now brand of flea killer.
A brand’s penetration share, in contrast to penetration rate, is determined by comparing that brand’s customer population to the number of customers for its category in the relevant market as a whole. Here again, to be considered a customer, one must have purchased the brand or category at least once during the period.
EXAMPLE: Returning to the flea killer market, during the month in which 500 households purchased Kill Now, 2,000 households bought at least one product of any brand in this category. This enables us to calculate Kill Now’s penetration share.
Decomposing Market Share
Relationship of Penetration Share to Market Share: Market share can be calculated as the product of three components: penetration share, share of requirements, and heavy usage index.
Share of Requirements: The percentage of customers’ needs in a category that are served by a given brand or product.
Heavy Usage Index: A measure of how heavily the people who use a specific product use the entire category of such products.
In light of these relationships, managers can use this decomposition of market share to reveal penetration share, given the other inputs.
EXAMPLE: Eat Wheats brand cereal has a market share in Durban of 6%. The heavy usage index for Eat Wheat cereal is 0.75 in Durban. Its share of requirements is 40%. From these data, we can calculate the penetration share for Eat Wheats brand cereal in Durban:
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