What Is Market Saturation?
Market saturation arises when the volume of a product or service in a marketplace has been maximized. At the point of saturation, a company can only achieve further growth through new product improvements by taking existing market share from competitors or increasing overall consumer demand.
Key Takeaways
- Market saturation happens when the volume for a product or service is maxed out in a given market.
- To help combat market saturation, firms create products that wear down over time and need replacing, such as light bulbs.
- Companies can deal with market saturation with creativity, effective pricing, or unique marketing strategies.
- Smaller companies with niche products may find opportunities within saturated markets.
- An example of a micro-market saturation would be three ice cream parlors within a two-block radius in a town.
Understanding Market Saturation
Market saturation can be both microeconomic or macroeconomic. From a micro perspective, market saturation is when a specific market is no longer providing new demand for an individual firm. This is often the case when a company faces fierce competition or reduces the market's need for its product or service.
From a macro perspective, market saturation occurs when an entire customer base has been serviced, and there are no new customer acquisition opportunities for any firm operating in the industry.
Many companies have intentionally designed their products to "wear down" or otherwise need replacement at some point to stop this phenomenon. For example, selling light bulbs that never burned out would limit consumer demand for some of General Electric's products.
Market saturation has also caused many companies to change their revenue models, especially when product sales begin to slow. IBM, for example, changed its business model toward providing recurring services once it saw saturation in the large computer server market.
Market saturation happens when a specific market no longer demands a product or service (microeconomic) or when the entire market has no new demand (macroeconomic).
Special Considerations
Even in light of market saturation, many companies choose to remain in operation. When a company operates in a saturated market, there are a few concepts and strategies that they can use to stand out, stay solvent, and possibly even increase sales. The first is creativity. A company's product or service offering has to be more innovative in a saturated market than its competitors to entice customers to buy.
The second way to stand out is through effective pricing. Companies can approach this in one of two ways. A company can choose to become the low-cost provider of a product or service or decide to operate as a premium option for the product or service. Either strategy requires competitive pricing against other companies that choose the same pricing structure; however, companies that operate in a saturated market usually end up waging price wars with each other, continuously undercutting prices to attract customers.
Using unique marketing strategies is a third way a company can stand out in a saturated market. When a market is saturated with product and service options, especially when those options are somewhat hom*ogeneous, effective marketing is often the difference-maker for a company.
Examples of Market Saturation
Real Estate Agents
When you are a realtor and make your living selling homes, operating in a saturated real estate market can be challenging. Residential real estate markets ebb and flow depending on many factors. Still, when the market is saturated, it often rings a drop on houses, and in turn, a hit for realtors' salaries. Real estate agents in a small town or city may have to jockey for business when housing stock is limited, as well.
Market Saturation FAQs
What Does Market Saturation Mean?
Market saturation happens when products or services in a particular market are no longer in demand due to multiple offerings by competition or simply less in demand. There are two kinds of market saturation: Micro market saturation means a specific market is no longer needed due to competition or a reduction in consumer interest or desire, such as a trend or fad that winds down. Macro market saturation is when an entire customer base is covered.
How Do You Tell If a Market is Saturated?
A saturated market often includes a handful of major suppliers who all sell a specific product or products with potentially low-profit margins that make entering the market not as enticing to new companies. For example, if you want to sell ice cream in your town but your town already has three other ice cream stores, the market would be saturated.
What Product Has Saturated the Market?
Meal delivery services, e-grocers, and other commerce and cellphones are all products that have saturated their niche markets. When a specific product
How Do You Calculate Market Saturation?
A saturated market or oversaturated market can make it challenging to get consumers' attention. To calculate market share, which is a way to get to market saturation, you can look at the industry's total sales. For example, if you are in the pre-packaged meals e-grocery market, you would look at the entire industry's sales for those items and divide it by your company's total sales. This should show you the percentage there is available for your product to fill. Also, researching the supply versus the need for a product or service could help you calculate market saturation.
How Do You Overcome Market Saturation?
Creative marketing, reviewing pricing and lowering if necessary, and offering new customer service options or trying out a niche market product within the saturated market are all ways to overcome market saturation.
