Market growth is defined as the rise in the demand for a product or a service in the market. Usually, market growth happens when a company is in its expansion phase. Companies try to increase the value of the product and promote features and sometimes offer attractive pricing to get more sales.
A good example of market growth is the ever-growing demand for Apple products. With its innovative features, attractive design, and premium pricing, Apple has seen steady growth in terms of demand over the years.
If the product is accepted in the market at a particular price point, then there is rapid growth in the market. If the customers take this price point or if they accept the product, then the market demand increases and if they do not accept the product, then the market demand decreases and so does the market growth. It is directly proportional to market demand.
The customer base decreases as the price of the product increases. High-value products have a niche customer base as the price of the product reduces the number of customers increases. Thus it can be said that the number of customers is inversely proportional to the cost of the product or service. The lower the price, the more the customers, and vice versa.
Several factors affect Market Growth like demand and supply of the product, nature of the market, and competitors present in the market. These factors affect it directly. They may positively affect or affect adversely.
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What Is Market Growth?
Market growth is the increase in size, value, or volume of a market over time, which is a reflection of how well an economy, industry or business is progessing and growing. A market that is expanding is a positive sign for an economy as it suggests that the economic landscape is improving and there is more money flowing into businesses, which leads to increased income and employment for those involved.
It’s also an indication of the success of a company or sector in terms of investment and innovation, which can lead to greater long-term economic growth if managed correctly. It is an important factor for investors and business owners when it comes to planning for their future success. It is essential to understand its trends to make informed decisions about investments.
The predicted percentage growth for your industry over a specific period of time is referred to as the market growth rate. Market expansion can be driven by various factors such as population growth, technological advancements, rising consumer spending, innovation, and new product launches.
- Market growth is the expansion of a market in terms of its size, value, or volume over some time.
- It can be measured in terms of market share, revenue, and customer base.
- Its study is important to understand the progress of an economy or company.
Why is Market Growth Rate Important?
It is important because it helps to identify the current and potential status of the product or service in terms of demand. For example, if a product has been around for some time and the market growth rate is low, then it could mean that the product or service is currently at a saturation point or is on the decline. Similarly, if the growth rate is high, then it could mean that the product or service has the potential for growth in the future.
It also helps to identify the performance of the company, its competitors, and its place in the market. Companies can use this information to develop strategies that will help them stay ahead of the competition.
Therefore, the market growth rate is an important indicator for assessing economic growth and understanding consumer behavior. It helps companies plan their future marketing efforts and make decisions about pricing policies, product development, and distribution channels. It can also be used to measure the performance of the company in comparison with its competitors. It helps companies understand their place in the industry and make necessary changes to stay competitive.
Ultimately, understanding this Growth Rate is important for businesses to evaluate their product or service’s success and plan accordingly for future growth. To determine the potential market for a new product or service, it’s important to calculate the market growth rate. This involves analyzing the sales data of the industry for the past 5-10 years, and understanding if the market is growing or declining. For example, you may be able to determine when to launch a new product or service, and how much money and effort should be invested in it. With this information, you can make more accurate predictions and set achievable goals for your business.
Formula to Calculate Market Growth Rate
There are two methods for calculating it –
- Using the compound annual growth rate formula
- Using the absolute growth rate formula
Calculating the compound annual growth rate (CAGR) is a common method, but there are other options available. CAGR is the percentage rate of return on an investment over a specific period based on its initial and final values and duration.
CAGR = (FV / PV) ^ (1 / n) – 1
where FV = future value of the investment, PV = present value of the investment, and n = number of years of investment
Another way to calculate market expansion is by using the absolute growth rate formula. This formula involves dividing the difference between the final and initial values of the market by the initial value, and then multiplying the result by 100.
Absolute growth rate = (Final value – Initial value) / Initial value * 100
By using these formulae, you can calculate the market growth rate accurately and easily. This will help to make decisions about how to increase your business in a particular period. It is also essential to track it regularly as it helps to assess the performance of the company and make necessary changes if needed.
Types of Market Growth
It can take many forms, depending on the industry and product. Generally, it will involve increasing consumer demand for a particular product or service, and the expansion of a product or service into new markets.
This can involve increasing market share in an existing market or expanding to a new global economy. In either case, it indicates an increase in the average growth rate for a particular product or service. Let’s have a look at different types of market growth –
- Demand: Demand is the need for the product or service by the customer in the market. The demand for the product depends on various factors, including the price of the product, market conditions, competitor products, and trends in the market. Hence, a rise in demand increases market growth. Thus demand is directly proportional to the growth. However, when compared to the competition, if the need for competitor products increases, it will affect the demand for your product, and even if the market may grow, you will not.
- Supply: As the supply increases, the price of the product goes down, on the other hand, as the supply reduces the cost of the same product climbs significantly higher. As the price of the product increases the growth rate increases because the customers have to pay higher prices for the same product. As the supply increases, it affects the growth rate differently. There could be negative market growth if the price of the product keeps falling down or if the customers find alternative products.
- Premium pricing: The regular pricing of products will change if it is priced at a premium. There could be differences in the product, or it could be this higher-priced variant of the same product. Premium pricing has a backup reason to differentiate it from other options. For example, in the aviation industry, the price of seats in a flight varies depending on the position. The same flight may have a seat priced at $400 and $800. The difference will be in additional features such as leg space, priority baggage, etc. As the demand for premium-priced products or services increases, this will increase market growth.
- Performance: The product which has a higher performance will have a higher selling price. The selling price would boost the market growth. There could be different reasons for high performance, but the matter of fact is it positively affects the growth rate. For example, in the case of mobile phones, different brands have different variations of the phone and the pricing of all the changes depends on the performance. In the case of the Apple iPhone, the latest model will always be the most expensive one, and the earlier models will be cheaper. The latest models will bring higher revenue to the organization and in turn, increase the market growth.
- Commoditization: When customer purchases based on the pricing of the product, then it is called commoditization. This happens because the customer sees a few differences in the products. This usually occurs when a new technology or a new product is launched in the market, which makes the current products obsolete. For example, when DVD players were launched, the prices of VCRs and CD players fell significantly. Similarly, when an iPod was launched, the cost of cassette players dropped significantly.
- Inflation: Inflation is one of the significant influencers of market growth. A market that is growing at a certain percentage says 5% was not necessarily grown in terms of sales of the product. This will affect market growth directly. Inflation itself is an outcome of unfavorable factors, and it always affects market growth for most products or services negatively. Inflation is a common factor that every product has to tackle at least once, to defend market growth.
- Demographics: The target market changes size for different products or services. Diverse populations of age will have different demands for products. For example, a young population with a massive demand for the latest products like mobile phones, accessories, and the latest fashion trends. On the other hand, the geriatric population will need medical supplies. Thus market growth varies according to population growth and demand.
How to Increase Your Market Presence
Different tactics can be used to channel the market growth for a business or industry such as –
1) Expanding into new markets
This strategy involves entering into a new market with a novel product or service. It’s an effective way to increase the market presence of your business and tap into new consumer bases.
2) Launching a new product or service
This is a great way to capitalize on current trends or create something completely unique. Introducing something new can breathe life into your business by helping you reach a wider audience.
3) Enhancing customer experience
Improving the customer experience is essential for any business looking to increase its market presence. Making sure that customers receive the best possible service and product quality should be a top priority.
4) Leveraging digital channels
In today’s digital world, leveraging the power of social media and other online channels can be an effective way to increase your business’s market presence. Utilizing these channels for purposes such as marketing, customer service, and product promotion can help you reach a larger audience.
5) Expanding market share
This involves strategies such as positioning yourself in a favorable market, adjusting pricing and product offering to meet customer needs, and engaging in strategic partnerships. Optimizing the market share of your business can help you reach more potential customers.
Market Share Vs Market Growth
- Market share is the percentage of a market that a company possesses, while market growth represents the increase in the overall market size.
- To measure a company’s market share, you need to compare its sales or market share with the total sales or market share of the industry. On the other hand, to evaluate market growth, you should compare the current market size with the previous size or the predicted future size.
- To increase market share, companies can focus on aggressive marketing and advertising strategies, such as discounts and promotions. On the other hand, to increase market growth, they need to come up with innovative products and services, appropriate pricing strategies, and effective market development tactics.
- By increasing their market share, companies can become dominant within the industry. However, market growth is essential for sustained success in the long run.
1) Theoretical Example
Let’s assume that the new product is a mobile app and its market share at launch was 12%. In the first three months, the app sees a rapid increase in its market share, reaching 24% by the end of the period. This is an example of market growth.
However, in the following months, the growth rate begins to slow and reaches a plateau at 30% after nine months. As competition intensifies in the mobile app space, it becomes harder for the company to acquire new customers and increase its market share.
To maintain its growth, the company must focus on developing and innovating its product, as well as expanding into new territories to reach new customers. Ultimately, the company needs to ensure that it is providing value to its existing customers and staying ahead of the competition to achieve market growth.
By doing so, the company can increase its market share and remain competitive in the industry. This helps them sustain growth over time, allowing them to continue generating revenue and expanding their business.
2) Calculation Example
The sales of company ABC in 2010 were $100,000 and the sales increased to $200,000 by 2020.
CAGR = ((200000/100000)1/10 – 1) * 100= 9.54%
The above example indicates that the company ABC had a CAGR of 9.54% from 2010 to 2020, which means that the company has experienced an average annual increase in sales of 9.54%. This growth can be attributed to the company’s market positioning, promotional efforts, product mix, and other factors.
Frequently Asked Questions (FAQs):
1) What is new market growth?
New market growth refers to a situation when a company expands into an entirely new, untapped market. This means that there are no current competitors in this specific market and the company has a chance to gain market share quickly. It also allows them to establish their brand, create new products, and capitalize on emerging technologies.
2) How do you measure market growth?
Market growth is typically measured using a metric called the Compound Annual Growth Rate (CAGR). You can also use absolute growth rate to measure market growth.
3) What are the signs of a mature market?
Some signs of a mature market include slower growth in sales, increased competition, new entrants slowing down, and consumers becoming more selective. Additionally, customers may be less loyal to the brands they currently use and may be willing to switch to alternative products.
4) What is a growth phase?
It is the period of time when a market or industry is experiencing rapid expansion and economic activity. During this period, the market’s size increases significantly and companies can capitalize on emerging trends and technologies to gain a competitive advantage.
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