Hi, welcome to the business of marketing. In the previous edition we spoke about market share. Today we will be talking about market and brand penetration. It is a term which is very similar to market share, but it has very different use and it is used extremely commonly in marketing. In today's episode we will look at what exactly is market penetration, brand penetration, market potential. These are all terms which are similar to each other and can often be a little confusing. We will look at how do you go about calculating the market penetration rate, the brand penetration rate or the market potential rate. And we will look at some examples to try and understand this term so well so that we never forget it again. My name is Rahul and I run the business of marketing. Business of marketing is a channel where I explain different aspects of marketing and related industries. I simplify them for you. It is a channel which is equally good for someone who is a student or who is a professional who is working in the marketing industry and occasionally needs a little bit of help. If you like the contents of this video and if you learn something from it, please hit the like button and please subscribe to my channel. I will be posting a lot of similar content and clarifying a lot of other aspects of marketing. In my next video, I will be talking about market and brand penetration in a real world perspective. So please do wait for that and do check it out when it comes out as well. Let me begin by talking about what I am going to cover in today's video. I will be talking about market and brand penetration and not penetration strategy. This is the first thing which is often very confusing. Percentage strategy is something which is not just used in marketing but it is also used in overall business for strategizing for growth plans and things like that. Market and brand penetration on the contrary is something which is like a measurement and it is a diagnostic tool which is used primarily by the marketers for planning their activities. So I am not going to talk about penetration strategy. I will probably do a different video on that but in this video, I will be talking about market and brand penetration only. So what exactly is market penetration? I will read it out for you. It is the percentage of total market that is currently a consumer for a certain category of product or service within a given period of time. When we are talking about market penetration, we are relating to people who are currently a consumer or even when we are talking about brand penetration, we are relating to a specific period of time in a specific place where we have a certain number of customers who are currently buying into that product or service. That is a very important thing to keep in mind which is currently a consumer. Why is market and brand penetration so important and what is it commonly used for? There are a couple of different things that it is pretty useful for. Some of them are to determine the current size in terms of how many number of consumers that a particular product or a brand or a company has. It is also an indicator of the relative size that what is the size of the comparators and therefore you can try and understand what is the relative size. It can help you understand how much opportunity exists in the market when you know this kind of data and therefore using all of this you can arrive at a penetration strategy or a growth strategy as to how do you go about tapping into that opportunity that you see in the market. As I was saying, there are a couple of similar terms so please don't get confused by it. The first one is market penetration that we have just spoken about. The number of customers of a particular brand or a category currently. The next one that I am going to talk about is market potential. When we talk about market potential we are referring not just to current customers or consumers but also potential customers or consumers that you can have in a particular market. The other related term is brand penetration. So market penetration is something which we refer to as for the entire category but when we are talking about brand penetration what we mean is the penetration for that particular brand which is a part of the category penetration. When market penetration is expressed as a percentage it is called the market penetration rate and the same is true for brand penetration and market potential when it is expressed as a percentage it is called the brand penetration rate or the market potential rate. Let us look at an example to try and understand these different terms a little better. For example imagine that we are talking about a market which is Singapore that the population of which is around 5 million. In Singapore there are a total of 400,000 mothers with toddlers in the age to drink infant milk formula. However not all of these mothers buy infant milk for their babies for several reasons including say for example choosing breast milk to feed their babies. As a result there are over three there are probably a total of 300,000 mothers who are current buyers of infant milk. In this category there are four different brands and the market leader has around 200,000 mothers who are currently a consumer of its products. The remaining 100,000 are kind of shared between the remaining three brands. With the help of this example let us try and understand these terms a little better. So let us first talk about market size. Market size is the total number of people in a market. In our example we are referring to Singapore as the market and therefore the size of the population that we are referring to is 5 million. So therefore the market size in this example is 5 million. A part of that market size which is the total number of customers currently as well as potential customers for a particular product or service is what is referred to as market potential. So market potential is actually not just people who are already consuming a product or a service but even those who could potentially consume a product or service. In our example the number of potential customers for infant milk is 400,000. So now that we know the market size as well as the market potential where we can very easily calculate the market potential rate. The market potential rate is merely a percentage of the market size. So therefore in our example market potential divided by market size into 100 will give you the market potential rate which is 8%. So in a way we can say that 8% of Singapore market are potential customers for infant milk in a given period of time. Now let us come to market penetration. We know the size of the market a part of which is market potential and a part of that is actually market penetration. So in our example the number of current infant milk customers which is 300,000 is the market penetration. So what we have done is we basically removed all the potential customers and what we are left with is the actual customers who are currently consuming the infant milk and that is 300,000. If we were to calculate the market penetration rate it would be a percentage of market potential and in our example if we divide market penetration by market potential and multiply that by 100 we will get the market penetration rate which is 75% so therefore 300,000 by 400,000 into 100 which is 75% and a part of the market penetration is the brand penetration which is the current customers of the brand and currently we know that say the brand which is the market leader has 200,000 customers out of the total category customers of 300,000 and to calculate the brand penetration rate which is merely just a percentage of market penetration we calculated by taking brand penetration dividing that by market penetration and multiplying that by 100. So therefore when you divide 200,000 by 300,000 and multiply that by 100 you get 66.67% which is the brand penetration rate for the market leader in Singapore. So therefore we spoke about a couple of things let me quickly clarify each one of those once again. This video is about market and brand penetration and not about the penetration strategy. I will do a separate video on that we looked at similar terms like market potential. Market potential is basically market penetration which is current customers and when you add the potential customers that you that could possibly become your customers in the future you get the market potential and we looked at different ways of calculating the market potential rate, the market penetration rate and the brand penetration rate. That brings me to the end of this video. I do look forward to you joining me in my next video in which I will be talking about how market and brand penetration data is utilized by marketers in the real world. There are a couple of other terms which are a part of the panel data which they subscribe to and they pay a lot of money for and we will look into those terms as well. If there is anything in this video that you want to know more about please leave your comments in the section below and once again please do hit like and subscribe the channel. I will be doing a lot of other videos on marketing and related terms and if you are a business who is looking for any help with respect to marketing please do feel free to reach out to me. My details are in the description below. Thank you so much for watching and thanks for joining Business of Marketing.