Market penetration

Market penetration is the proportion of a potential market who actually buy a product or service.

Market penetration is a key issue in assessing the growth prospects for an industry. It is usually fairly straightforward to assess the potential market for a product: the number of sales it could make if everyone who could reasonably buy it, did. What proportion of those people actually become paying customers of an industry is another matter.

Over optimistic estimates of eventual market penetration is a common trap for growth investors. Some products do achieve very high penetration in a fairly short time (as mobile phones have done, for example), but others never do - as seems to be the case for PDAs (handheld computers/personal organisers).

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