The success of a new product is determined by how fast it is launched and delivered for consumption. Successful products penetrate their markets at an early stage without loss of time. In other words, market penetration ratios can be used as an early indicator of the success or failure of product deployment. Figure 3.2 shows the relationship between product launch
Fig. 3.2 Product launch and market penetration Source: Schwarze and Thomas Wein (2005)
and market penetration ratios for the automobile industry. Market penetration is the percentage of the market that bought the product at least once. In other words, penetration indicates how many consumers have been reached but does not consider how many and how often those consumers have bought from you. Penetration rates are important as they provide an indication of initial consumer interest and who wants to try the product in the first instance.
If a company achieves high penetration numbers, it means that the number of consumers who have bought from the company is relatively higher than from competitors. If the product is tried by all consumers in the market, the company reaches 100% penetration and can be considered to have very successfully launched the new product (indicated by the straight “successful” line in Fig. 3.2). But this is not the case all the time. Sometimes it takes time, perhaps a decade in the automoile industry, to reach a high level of penetration. Delays in reaching high penetration rates can directly affect product life. Most unsuccessful products might reach average penetration numbers of perhaps 30% or 40%, then decrease sharply (as indicated by the dotted “unsuccessful” line in Fig. 3.2). This means that the product reached a limited number of consumers, and most of the remaining consumers did not even give it a try. In some situations, market penetration remains very low (5% to 10%) over a long period. This is an indicator that the product is only accepted by a limited number of consumers. It can indicate a niche market, since it has not totally disappeared from the market. The idea is to reach the market in a short time once the new product development process is completed or before anybody else can corner the market. Sometimes product development and market penetration overlap if most of the marketing activities start before the product launch (Roberston 1993). Although the time to market can vary depending on many other external factors, companies do not want to waste time, especially in highly competitive and technologically challenging product markets.
Companies therefore need to develop diagnostic systems that can show penetration levels at an early stage of the product launch. “Trial and repeat” purchases are needed to secure penetration and long-term sales volumes, especially for convenience goods.
Two important factors impact product trials and hence product penetration levels: consumer awareness and attitudes. If consumers are not aware the product is available they cannot buy it. However, even if consumer awareness levels are high, there is no guarantee that consumers will buy the product. The company needs to create positive consumer attitudes towards the product, transforming product awareness into a trial or purchase decision. In the early stages of product launch, consumer awareness and positive attitudes can be established with strong advertising campaigns that stimulate consumer trials. If a company (especially in frequently purchased product markets) is unable to convert the high level of product awareness and attitudes into a product trial, its results will be unexpected.
Even if the company successfully convinces consumers to try its products, the next problem is how to convert early trials into repeat purchases to secure long-lasting sales. Even if the company reaches relatively significant awareness and trial levels but consumers are not coming back to purchase the product again, there will be fewer or no future sales, meaning the product is likely to die shortly after the launch. Thus, consumers’ repeat purchases (also called “behavioral brand loyalty”) will determine the company’s future especially in frequently purchased product markets, once the awareness and trial successes are accomplished. However, it takes some time to develop consumer habits and hence repeat purchase behaviors. As Fig. 3.3 shows, trial and repeat purchases shape the future of a new product and its sales success.
Fig. 3.3 Sales patterns for trial, repeat, and total sales Source: Urban and Hauser (1993)
In this context, trial (or penetration) and repeat purchases are major early indicators of how the future will unfold for the new product. These two diagnostic measures also indicate if the success of the product comes from good promotion and marketing efforts (trial) or from a good product or consumer satisfaction (repeat) (Urban and Hauser 1993). The bottom line is that if the company is unable to convert these early trials into repeat purchases, the future of the product will be in jeopardy. The company should find ways of increasing trial or penetration numbers and then converting high trial and product awareness numbers into long- lasting consumer repeat purchases by providing satisfactory shopping experiences.