Finding growth from your core: when to pursue market penetration

In 1989, Coca-Cola faced an existential challenge: its core U.S. market was nearing saturation. But rather than looking outward, Coca-Cola doubled down on its core operation, reshaping its distribution network and expanding into untapped geographic areas within existing markets.

This strategic focus on market penetration cemented Coca-Cola as one of the most globally recognized brands today.

Coca-Cola is not unique in pursuing market penetration and the innovation of its core business. In fact, this approach remains the cornerstone of growth for most companies. It’s necessary, but can only get you so far.

During the 10 years prior to the Covid pandemic, a typical company grew at just 2.8% per year. Only one in eight recorded growth rates in excess of 10%.

Penetrating the market effectively requires great skill and persistence to successfully navigate pervasive challenges such as market saturation, competitive pressures, macroeconomic circumstances, and the risk of diminishing returns.

Is investing in the core business alone enough?

Alongside the broader challenges and macro trends, core market penetration isn’t a one-size-fits-all solution. It works best when specific conditions signal growth potential:

1. Market potential

   In less mature markets, there’s ample room for businesses to expand before competition stiffens. For instance, fast-food chains entering developing regions often succeed by capturing market share before competitors arrive. Companies like McDonald’s and KFC have excelled in such scenarios by building strong local presences early.
   
   

2. Strong brand loyalty and high NPS

   When customers already have positive associations with a brand, businesses can capitalize on this loyalty. Brands like Apple thrive because customers love and trust the brand making it easier to cross-sell products and services within their ecosystem.
   
   

3. Extraordinary alignment between products and market needs

   Businesses with products or services tailored to meet existing market demand find penetration strategies particularly effective. For instance, subscription services in media and entertainment like Netflix succeed by continuously enhancing offerings that resonate with core users.

And while one or a couple of these signals may exist for your brand, seizing the opportunity requires precise timing and an ability to act quickly. Organizational gravity and entrenched operations can slow progress and stifle even the most well-thought-through plans.

Strategies for core market penetration

So, how do successful brands capitalize? How can they create additional value when so many others fail to deliver anything more than incremental improvements?

Let’s look at a few options. The first is sustaining innovation focused on building new and updated products but, at most, only marginally tweaking the business model.

The second centers around acquiring additional businesses within the same market. These will then be fully absorbed in a post-merger integration (PMI) to the benefit of the overall business and its shareholders.

Sustaining innovation: the journey to more and better products

A sustained innovation strategy is underpinned by the belief people will pay for improved performance or will simply want to keep up with the incremental changes in the market. We see this in yearly iPhone launches, endless new flavors of breakfast cereals, and the zig-zag of the fashion industry.

This kind of innovation draws on established processes and cost structures, using in-house teams, and builds on customer feedback and market demand. It’s careful, systematic, and rooted firmly in the core. Typical tactics include:

1. Improving customer retention

Retaining existing customers is often more cost-effective than acquiring new ones. Proven tactics include:

• • Loyalty programs: Offering rewards for repeat purchases creates stickiness. Starbucks, for example, incentivizes customer loyalty with a points system that is redeemable for free drinks. However, research by the Ehrenberg-Bass Institute suggests loyalty programs are expensive to set up and maintain, only produce minor loyalty effects, and do almost nothing to drive growth.
  • Subscription models: Subscriptions create recurring revenue streams and foster long-term relationships. Companies like Adobe have shifted from one-time software purchases to subscription models, achieving sustained revenue growth.
  • Customer experience improvements: Enhancing user experiences—from seamless online transactions to personalized customer service—can lead to higher retention and word-of-mouth referrals.
    
    

2. Expanding distribution

Distribution expansion allows businesses to increase accessibility and convenience:

• • E-commerce growth: Investing in digital platforms enables businesses to reach broader audiences. Nike’s direct-to-consumer (DTC) strategy, which emphasizes online sales, has become a major growth driver.
  • Retail partnerships: Collaborating with established retailers or third-party platforms increases visibility and availability. Consumer goods brands like Procter & Gamble use such partnerships effectively.
  • Geographical expansion: Penetrating new territories within the same country or region helps businesses maximize market share. For example, regional restaurant chains expanding to national markets often find substantial growth opportunities.
    
    

3. Pricing levers

Pricing adjustments can unlock latent demand and shift brand perception over time to grow market share:

• Dynamic pricing: Adjusting prices based on demand patterns maximizes revenue. Airlines and hotel chains are masters of this technique. This approach is not without risk, however, as over-inflated prices can generate bad publicity and damage customer loyalty.
• Bundling: Offering complementary products together at a discounted price can increase the average transaction value. Telecom companies often bundle internet, phone, and television services with promotional rates to attract new customers.
• Premium product offerings: Introducing higher-end versions of existing products caters to customers willing to pay more, as seen with the success of iPhone Pro models.

M&A Post-Merger Integration (PMI): growth through integrated acquisitions

Mergers and acquisitions are still a popular growth strategy worldwide—nearly 40,000 M&A deals were completed globally in 2023 with the global M&A market rising 16% in value in the first 9 nine months of 2024.

In fact, over 80% of publicly listed companies have participated in M&A over the past decade. It’s important to note that not all acquired companies are integrated into the acquirer’s business.

M&A PMI is focused on enhancing the existing business by absorbing the acquired entity into its core. Because this leaves the organization’s current capabilities, knowledge, and resources intact, it is perceived as a relatively low-risk option.

Yet, as with any acquisition, costs can be significant and there are plenty of examples of mergers failing to live up to their objectives. And while exact numbers vary, HBR suggests 70-90% of M&A deals fail completely.

The devil is in the details

Integrated M&A is a viable growth strategy despite the reported failure rates. But it demands multiple pieces fall into place successfully:

• • The availability of good-fit targets
  • The timing needs to work for everyone involved
  • The target must be willing to sell for an acceptable price

If even a single one of these elements is missing, progress will be impossible.

Then, there must be effective integration post-acquisition. Cultural mismatches need addressing. A dedicated integration team must be in place. Incentives and accountability need alignment with clear metrics and milestones.

While complex, it is not impossible and can deliver good results in a reasonable timeframe.

(Unpleasant) results of over-investing in core growth strategies

While core market penetration can drive growth, it comes with challenges that businesses must navigate carefully:

1. Diminishing returns in mature markets

In markets nearing saturation, the fight for the same customer base becomes increasingly expensive and less effective. As competitors lower prices or introduce incremental innovations, profit margins shrink. For example, traditional retail brands have faced stiff competition from e-commerce giants, leading to diminishing returns despite efforts to enhance in-store experiences.

2. Missing out on radical growth opportunities

Over-reliance on core strategies can result in tunnel vision, causing businesses to miss out on opportunities in adjacent markets. Blockbuster’s failure to explore digital streaming while doubling down on its brick-and-mortar rental model is a cautionary tale.

3. Making the wrong acquisition

Even the most thorough due diligence can fail to spot significant issues that may prevent the acquired businesses from folding neatly into the core. Significant time and resources are then wasted that would have been better spent pursuing adjacent markets.

4. Volatile and uncertain markets

Global instability, fractured supply chains, regional conflicts and myriad other reasons make forecasting complex and unpredictable. Uncertainty equals risk, and risk aversion is the traditional position of most boards and shareholder groups for large organizations. Therefore doubling down on a singular market and singular focus (putting all your eggs in one basket) may actually expose you to more risk than diversifying. 

Is market penetration the right strategy for your business?

Ask yourself the following questions:

• • Customer insights: Do you have a deep understanding of customer needs and preferences in your core market?
  • Growth headroom: Is there significant potential to increase market share without facing diminishing returns?
  • Operational capability: Can your infrastructure support scaling efforts, such as distribution or enhanced customer experience?
  • Acquisition targets: Are there innovative businesses available for acquisition to help you expand your offering to the market?

Complementing market penetration with the exploration of adjacent growth opportunities is a winning combination we swear by.

Getting your growth strategy right

Market penetration remains one of the most reliable growth strategies for businesses looking to deepen their foothold in existing markets. However, its success hinges on the ability to identify untapped opportunities, execute targeted strategies, and remain vigilant against the risks of overreliance.

By balancing core growth initiatives with exploratory ventures, businesses can sustain long-term success. Leaders should invest in customer insights and market research to uncover latent opportunities and craft strategies tailored to their unique market dynamics.

Are you maximizing the potential of your core market?

Or are you leaving growth on the table?