Technologies that are readily available nowadays help speed up the process of starting a business. However, a lot of people choose to launch businesses using repurposed concepts in an already crowded industry, which results in a saturated market. Due to market saturation, business owners need to respond to customers’ ever-changing wants and needs if they want to maintain a steady stream of revenue. In this article, we explain market saturation and how to determine it, its strategy, example, and describe typical forms of market saturation:
Market Saturation
Saturation of the market occurs when companies produce enough of a product or service to match consumer demand. Businesses compete for clients when there is more supply of a good than demand for it. This means there may be less money available to expand established companies. Competition from comparable enterprises can cause a market to become oversaturated.
Types of Market Saturation
Understanding the size of your market is a crucial first step in preventing market saturation. Knowing what kind of market saturation you are dealing with will help you determine the causes and solutions for diminishing demand. The following are the two most prevalent types of market saturation:
#1. Microeconomic Market Saturation
This problem appears when clients stop using a certain firm. If, for instance, customers stopped going to a bakery as a result of a new one opening up across the street, a small business would be operating in a saturated market. Microeconomic market saturation can also occur if a business unintentionally reduces consumer demand for its own products or services without attracting enough new clients to make up the gap.
#2. Macroeconomic Market Saturation
Market saturation occurs on a larger scale when demand for an entire industry drops uniformly. This could occur if new technology makes a specific product or sector of the economy obsolete. For instance, the market for pagers has decreased as a result of the increasing usage of cell phones. When there are no missing requirements for consumers and every available product or service meets those needs, we arrive at market saturation in the macroeconomy.
Market Saturation Example
Many different industries have oversaturated marketplaces. Take a look at these three scenarios:
#1. Houses
When potential tenants or buyers cease looking for properties in a particular region, the real estate market is saturated. To get tenants and house purchasers to move into a specific housing market, home sellers and landlords must try to reduce prices, make renovations, or find other creative ways to increase overall sales and rentals.
#2. Smartphones
To overcome market saturation, every company, particularly those in the mobile phone sector, must develop distinctive strategies. Because so many people own smartphones, these businesses mostly generate fresh demand by frequently updating their products. New smartphone users may not have a particularly large market, but existing users frequently upgrade to the newest version of their current device.
#3. Streaming Services
Many streaming subscription service companies’ inherent limitations on their ability to expand outside of their first markets have already been met. While new firms may provide distinctive qualities to lure clients away from more established businesses, such as lower prices or added perks, incumbent streaming businesses can fight this by entering new industries.
How to Determine Market Saturation
Examining market growth is one way to determine saturation. Rapidly growing markets can present opportunities for new suppliers. Additionally, it is illogical to assert that the market is saturated if there is capacity for new vendors. Think about where innovations come from in that market as another illustration. It’s very obvious that the other suppliers have decided they’re content with being number 4, 5, or 6 in that market if they consistently start with the well-established and entrenched big providers. The activity of mergers and acquisitions is another indicator. Market saturation reduces profit margins to the point that serving that market is no longer desirable. In an effort to reduce the number of competitors and minimize the cost of the competition, suppliers will start to acquire one another or join forces. Profit margins rise as a result of the reduced cost of competition.
Slow-to-moderate growth, creative activity that primarily comes from the top providers, poor profit margins that preclude new suppliers, and dominance centered around just three or four major firms, and these factors are all signs of market saturation. Of course, this is not a complete list. But you may discover for yourself what these traits are by carrying out some straightforward research.
Demand, the overall state of the economy, and the competition a company confronts from its sister companies are all taken into consideration. When, for example, a product’s or service’s demand is so low that it hardly ever draws in new buyers, the market has reached saturation.
Determine and Calculate Market Saturation
One of the most obvious signs of market saturation is when there are many suppliers in a sector with low-profit margins. The fact that aspiring business owners would have to compete with well-established firms for a limited pool of consumer demand frequently serves to deter them from entering the market. Market saturation can be calculated using an organization’s market share, which displays how much of the sector’s revenue goes to the company. Businesses with small or shrinking market shares are better able to capitalize on sluggish customer demand. To calculate a determine company’s market share in market saturation, use the formula below:
Market share = (an organization’s revenue / total industry revenue) x 100
Market Saturation Strategy
A strategy that can be used by businesses to shorten or postpone the market saturation phase of a product’s life cycle. Here are a few circumstances that a company can encounter in a saturated marketplace and strategies to help the business survive::
#1. Price Reduction
Customers worry about prices, thus businesses vying for market share in a crowded sector may reduce the price of their goods. As a result, businesses compete with one another on prices and frequently undersell to win customers.
Amazon has a reputation for utilizing price-lowering tactics to force out rivals from the market. It is not a sustainable approach because it has an effect on profitability and cyclical demand. The failure of many unicorn businesses, including Grub Hub and Uber Eats, may be due to their persistently low costs.
#2. Cost-Cutting
When profits are flat, businesses frequently implement cost-cutting measures. Cutting costs that are pointless or avoidable may be beneficial, but this approach does not deal with the root of the issue. A drop in sales is the primary reason for lower profitability.
Cost-cutting also has a limit. After crossing the threshold, the business will have to rely on sales to keep itself profitable. Therefore, supply-side fixes cannot address demand-side issues.
#3. Line Expansion
Businesses may utilize geographic line expansion for the same product to combat diminishing sales. The marketing tactic of line expansion has been effective in generating demand. However, due to the rate of globalization, the bulk of businesses have already used all their capacity for line expansion.
For instance, both domestically and globally, fast food franchises like McDonald’s have experienced remarkable growth. Additionally, the line-expansion strategy often results in cannibalization because the size of the market as a whole has not altered.
#4. Diversification and Innovation
Diversification is the best strategy for avoiding market saturation. It allows businesses to expand their potential customer base by utilizing surrounding markets. As a result, the businesses generate new customer value, fresh demand, and fresh sources of income.
Innovations that increase demand are crucial to the success of a diversification strategy. The main goal must be to offer value to customers rather than just produce more goods and services. Businesses in industrialized countries may use their production capacity and economies of scale to expand into emerging and developing markets.
#5. Product Development
Some items are created by businesses with the goal of having a brief existence. It helps increase sales by luring clients to make larger purchases. Companies might advertise phone chargers or earbuds with less robust materials, forcing buyers to buy more of the same thing.
#6. Creating a Niche
The following is an example of a strategy for creating a niche market to avoid market saturation:
A food delivery service unexpectedly finds itself in client competition with dozens of other businesses as meal delivery subscription boxes grow in popularity. One company in this sector rebrands itself as a health-conscious and welcoming meal delivery service by providing vegan, vegetarian, and gluten-free meal options. As a result, the business gains a select group of loyal customers.
#7. Customer Service
An example of how emphasizing customer service could help with market saturation is shown below:
Due to a large warehouse, customers are avoiding stores that sell household goods. Customers receive free consultations and deliveries because the company is unable to lower prices. If the business provides good customer service to its current customers, it will have a stronger chance of succeeding.
#8. Competitor Research
The following is an example of a strategy that uses competition analysis to address market saturation:
The management of a company decides that online customer engagement is unproductive. In order to find a solution, the corporation does market research on its rivals and discovers that none are currently running ads on a new social media platform. After that, the business starts a marketing campaign to publish engaging blog posts on that website in an effort to attract new customers.
Why Is Market Saturation a Threat?
The following are reasons why market saturation is seen as a threat.
- Businesses must distinguish themselves due to market saturation, which forces new entrants to compete for workers through higher pay, better amenities, career promotion, a pleasant working culture, or flexible hours
- Pressures are caused by fierce competition. A crowded market typically indicates you have several options.
- Managing rival companies
- No new clients are being acquired.
- The necessity for expansion.
- The reduction in worth of a product
- Customers are price-sensitive, thus companies competing in a saturated marketplace may offer their products for less in order to gain market share. In order to compete on price with one another and attract customers, firms frequently undersell their products.
How Is Market Saturation Measured?
It is measured by demand and the concurrent economic environment in which a business operates, including rivalry.
What Is the Opposite of Market Saturation?
These terms below are the opposite of market saturation.
- Growing market
- Expanding market
- Non-saturated market
- Unsaturated market
Is Saturated Market Good or Bad
Saturation of the market has a bad effect on profitability and growth potential. It also makes it difficult for brands to compete for the attention, loyalty, and business of consumers as they vie for market dominance. On the other hand, a saturated market indicates that there are numerous market opportunities.
How Do You Know if a Market Is Too Saturated?
Which symptoms indicate a saturated market? When a market is saturated, just a few major firms are often left selling the same products, potentially at low-profit margins, which deters new players from joining the market.
What Is Market Saturation Also Called?
The term “market saturation” also refers to the stage of a product’s life cycle when consumers have access to products or services to such an extent that any fresh product concepts are not accepted.
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