Final answer:
A market penetration strategy focuses on increasing sales to current customers using the existing marketing mix. Firms can optimize their store locations to attract more local customers and employ product differentiation to make their products seem more distinct from competitors, thereby enhancing market share.
Step-by-step explanation:
A market penetration strategy involves focusing the firm's efforts on increasing sales to current customers, using the existing marketing mix. This approach does not primarily involve developing a new market, diversifying, or reaching new market segments directly. Instead, it emphasizes deepening the firm's market share within its current audience.
From a strategic standpoint, firms employ various tactics to improve their market penetration, such as optimizing the location of their stores, akin to the example of two competing firms on Main Street. If Firm A moves next to Firm B, it becomes an intervening opportunity for the customers traveling along Main Street, potentially increasing its customers by being more convenient than its competitor.
Furthermore, apart from aggressive location tactics, firms might use product differentiation as a means to increase demand for their products. This involves making their products appear distinct from those of competitors, not just through advertising but also through improvements in quality, innovations, and customer service.