How Big – Share & Penetration

Share and penetration are two distinct aspects of how innovation impacts the world, although the term “penetration” can be confusing. To provide clarity, let’s carefully define these terms. Depending on your circumstances, you may or may not need to use the concept of penetration.

Penetration refers to the process by which a new technology enters and gains acceptance in the world. On the other hand, market share measures how effectively you compete against similar products or services.

Allow me to provide a quick example to illustrate this point. In the past, I used to carry a Nokia cell phone when digital phones dominated the market. However, the world has now shifted to smartphones, which have become the dominant technology. This transition took time and involved converting phone users from using digital phones to adopting smartphones. This conversion process represents penetration, which is currently taking place. Additionally, the competitors in the market have also shifted.

In the era of digital phones, Nokia and Motorola were the main competitors. In contrast, in the smartphone market, Samsung and its ecosystem, as well as Apple and its ecosystem, have emerged as the key players. This distinction between share and penetration is crucial. You should use the concept of penetration whenever there is a significant change in user behavior that necessitates a shift in the ecosystem.

Here’s an interesting point to consider: competitors can help accelerate penetration but often lead to a reduction in market share. This raises strategic questions about whether you want other companies to validate this new way of doing things. In summary, penetration is necessary in some cases but not in others. If penetration is not applicable, you can assume a 100% penetration rate and adjust your market definition accordingly to focus on the market in which you compete.

To recap, the difference between share and penetration lies in their respective definitions and applications.