Essay Sample on Market Penetration Strategy

The market penetration strategy comprises activities that a company takes to increase sales by enhancing its marketing efforts considerably or improving its production volume and efficacy (Barringer & Ireland, 2015). Companies usually resort to this strategy without necessarily departing from their existing product-market approach (Ansoff, 1957). As a result, it acts as a potent expansion tactic, where the business focuses on selling current products into an existing market (O'Regan, 2002).

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The market penetration strategy takes different forms that play numerous roles. Firstly, it may be in the way of price reduction, marketing expenses increments, the introduction of sale promotional campaigns and sales' forces sizes, or enhanced social media efforts, which are meant to preserve or increase a company's market share for existing products or services (Barringer & Ireland, 2015). Secondly, the market penetration strategy may consist of extremely aggressive promotion drives, which are backed by pricing strategies, intended to make the market unappealing to other firms primarily aims at fortifying domination over a growing market opportunity or reorganization of an established market by eliminating rivals (Wainaina & Aloko, 2016). Finally, a firm may introduce loyalty campaigns to spur its current customers to increase their usage of an existing product or service (Wainaina & Aloko, 2016).

The market penetration strategy usually focusses on markets and products that a company possesses adequate information about, including details regarding the relevant competitions. As a result, it can be termed a "business as usual" tactic, which implies that it does not need a lot of investment novel market research (Wainaina & Aloko, 2016, p. 3).

Proactiv, a company that sells skin-care products, aptly exemplifies how a company may enhance its marketing efforts to promote its products, driving it day in day-out sales. Proactiv has depended on celebrity endorsements since it commenced business in 1994 to promote the products that it offers (Barringer & Ireland, 2015). It started with Judith Light and Vanessa Williams who an actress and an actress/ musician respectively. In recent years, the company has contracted the like of Jane Seymour, Katy Perry, Jenna Fischer, Justin Bieber, and Caroline Wozniacki to successfully attract a large, diverse market (Barringer & Ireland, 2015).

Business Plan: Where to Start

Purporting to start writing a start-up's business plan by preparing the financial statements section first is illogical because financial accounts for new businesses are mere projections (or proforma statements) (Scarborough, & Cornwall, 2016). As a result, entrepreneurs must begin to prepare a start-up's financial reports - and schedules of strategic capital outlay - by researching past operating data and available statistics of identical firms (size wise) in the same industry (Scarborough, & Cornwall, 2016).

Furthermore, an entrepreneur cannot attempt to prepare proforma financial reports in seclusion. Instead, they should link them to wholeness of the planned activities and figures generated (or at least described) in preceding parts of the plan (Barringer & Ireland, 2015). For example, an entrepreneur who wishes to, say, set-up a start-up comic bookstore must first come up with the targeted net revenue before preparing income statements (Scarborough, & Cornwall, 2016). The entrepreneur should then translate this net income into net sales (Scarborough, & Cornwall, 2016). To do this, they must refer to the industry's statistics. For instance, sources like the BizMiner indicate that the average profit margin for comic retailers is 12.7% (Barringer, 2009; Scarborough, & Cornwall, 2016). Diving the desired net income by this figure will give the net sales target (Scarborough, & Cornwall, 2016). Alternatively, the entrepreneur may research sales patterns of identical firms in their first year of operations to come up with sales projections (Scarborough, & Cornwall, 2016).

Finally, successfully start-up's plans rely on there being an existing gap in the intended market. To reveal this market opportunity, which ultimately leads provides means to make estimations, one need facts (Blackwell, 2011). To expose these facts, one must conduct market research and analysis. Conducting market research and analysis before preparing financial projections is vital as it gives the figures the plan presents an evidential that the plan's audience (especially investors) can refer and verify them. In such a case, the business plan is more likely to inspire confidence among prospective stakeholders (Blackwell, 2011).

In summary, projected financial statements cannot be the first section to prepare when one is writing a business plan. This rationale descends from the fact that proforma financial statements must have statistical and research basis, are derived from the entirety of the business plan and should be verifiable. If not, the financial statements will be inaccurate or unrealistic because, without market research and analysis, they hinge on a nothing (Blackwell, 2011; Barringer & Ireland, 2015; Scarborough, & Cornwall, 2016) - which implies there is no control for overestimations or underestimations.

Franchising

A franchise is an agreement where a firm that has an exclusive right to a produce a product, provide a service, or have proprietary rights to a commercial method (franchisor) licenses another party (franchisee) to produce, sell, or distribute the said product, service, or business method for a fee or royalty (Barringer & Ireland, 2015).

Franchising is a growth strategy that a franchisor adopts. However, it is also valuable to the franchisees as it offers different advantages as follows:

• Franchisees enter an existing market and a well-established brand name.
• Franchisees do not incur development costs.
• Franchisees get managerial guidance from the franchisor.

As a result of these advantages, franchising let franchisees cut costs as it provides them with a business opportunity to enter an established market without necessarily incurring a lot of entry costs. Therefore, entrepreneurs can use the freed to implement strategies that focus on increasing sales and expansion, such as enhanced marketing campaigns.

Franchising restricts franchisees from undertaking all available growth strategies. However, entrepreneurs can still pursue diversification as an opportunity to grow and become franchisees. In this case, the entrepreneur may open outlets of an existing franchise or obtain exclusive rights to run abroad franchises schemes in the local market (Cori, 2017). The best growth prospect, however, is for the entrepreneur to become a master franchisee and then sub-contract the agreement to other parties (sub-franchisees). That way, master franchisees end up owning many units and can seize economies of scale and decrease managerial overhead per unit of sale (Barringer & Ireland, 2015).

Franchising is closely related to regular employment because the agreement prescribes the methods by which franchisees sell the franchisor's product or service, franchisors - in their bid to succeed - closely monitor franchisees' performance to guarantee they adhere to the franchise's stipulations, which leave many franchisees "feeling as if they are reporting to a boss" (Scarborough, & Cornwall, 2016, p. 281). As a result, franchisees do not have the independence to make decisions for the franchisors dictate everything, including - in some cases - when the opening and closing time (Scarborough, & Cornwall, 2016). According to Lowe and Mariotte, franchising is a "halfway house" between running a business and working for some other party (Lowe and Marriott, 2006, p. 50). They argue that though franchisees are still responsible for operating their businesses, they get "frustrated in the long run by the strings" by the franchising contract (Lowe and Marriott, 2006).

Sweat Equity

Sweat equity is the "value of the time and effort" entrepreneurs give to a new business. Sweat equity covers capital deficiencies, where founders do not have a considerable amount of money to invest in a start-up venture (Barringer & Ireland, 2015) and the entrepreneur has to work for lower rates or for nothing to get the enterprise going in its early days (Lowe and Marriott, 2006). Valuation of sweat equity is vital because, through it, venture capitalists are forced to offer entrepreneurs more investment compared to their financial capital input to motivate them to work hard (Shishido, 2009). The venture capitalists deem this as an effective strategy for them to gain more from the venture investment (Shishido, 2009). Thus, sweat equity is a reasonable bargaining incentive between human capital (entrepreneur) and the financial capital provider (venture capitalist) (Shishido, 2009). Additionally, this concept gives course for the creation of value (Shishido, 2009) that would otherwise be overlooked, leading to the undervaluation of a venture (Lowe and Marriott, 2006).

References

Scarborough, N. M., & Cornwall, J. R. (2016). Essentials of entrepreneurship and small business management (Eighth Edition). Boston: Pearson.

Blackwell, E. (2011). How to prepare a business plan (5th ed). London; Philadelphia: Kogan Page.

Lowe, R., & Marriott, S. (2006). Enterprise: entrepreneurship and innovation: concepts, contexts and commercialization (1st ed). Oxford; Burlington, MA: Elsevier Butterworth-Heinemann.

Barringer, B.R. (2009). Preparing effective business plans: an entrepreneurial approach. Upper Saddle River, NJ: Pearson Prentice Hall.

Shishido, Z. (2009). Sweat equity as a gift: venture capital investments and tax law in Japan. Available at SSRN 1370534.

Barringer, B. R. & Ireland, R. D. (2015). Entrepreneurship: Successfully launching new ventures (5th ed.). Don Mills, Canada: Pearson Education Inc.

Waninaina, N. G. & Oloko, M. (2016). Market Penetration Strategies and Organizational Growth: A Case of Soft Drink. International Journal of Management and Commerce Innovations, 3(2), 219-227.

Ansoff, I. (1957). Strategies for Diversification. Harvard Business Review, 35(5)113-124.

O'Regan, N. (2002) Market share: The conduit to future success. European Business Review, 14(4) 287-293.