Market saturation is a scenario where the business meets all the demands of a product or service in the market which means the market growth trajectory of the product or service stagnates. In other words, the supply of these products and services exceeds the demand in the market.
To achieve growth, the company has to make improvements in its existing commodities or introduce new innovative products in the market. Hence, market saturation occurs when a specific market where the company operates no longer generates new demand for certain products and services.
What is Market Saturation?
Definition – Market saturation is defined as a situation when a product or service has achieved the maximum sales volume in a specific market under current marketing conditions and is no longer generating any demand for that product or service.
Market saturation is the indication that the companies have to take necessary action to generate sales. And so the companies have to implement strategies like cost-cutting, diversification, price reduction so on to overcome the market saturation.
Is a Saturated Market Good or Bad?
Market saturation results in surplus inventory on the part of the company. This is an unfavorable situation for the company.
It is because the products and services that are produced are being passed over to the new inventory of the following month. One of the reasons the companies experience market saturation is when it stops gaining new customers.
It is a signal to producers that they have to take some action now for generating further sales, and therefore, a saturated market is bad for businesses. Let us now have a look at the reasons why saturation occurs in a market-
Reasons for Market Saturation
Market saturation is one of the reasons that lead a company to struggle financially. Below are some of the reasons why it occurs-
1. Introducing new technology
The advent of technology and innovation has subsequently decreased the demand for the old conventional products. For example, the invention of the automobile has eliminated the need for the traditional horse-driven carriage as a means of transportation.
2. Increased competition in the market
A new business will always be a threat to the existing business in the market. When a new business enters a market, it could hold the possibility for market saturation. For example, even streaming service providers like Netflix, Amazon Prime Video, and so on would feel threatened in case of the entry of new competitors.
3. Changing trend
Trends are not only an opportunity for a company but also a threat. Trends are dynamic, and it changes according to the various factors in the market. A company needs to keep up with the current trend to optimize its sales performance. For example, retro-themed décor was trending until two days back, and now people are into the modern theme. This will decrease the sales of the retro-themed product.
Types of Market Saturation
One has to first understand the type of market where the company is operating to overcome the market saturation. Determining the kind of saturated market helps in identifying the causes and the solution for the decrease in the demand for the product. Following are two types of market saturation-
1. Microeconomic market saturation
If a particular business experiences a drop in its sales, it comes under microeconomic market saturation. For example, if a customer stops coming to one’s restaurant due to the new one opened across the street. This will result in a drop in one’s business performance, leading to a situation of a saturated market on the micro-scale.
2. Macroeconomic market saturation
This happens when an entire specific industry experiences a drop in demand. One of the reasons is when a new technology is introduced to manufacture a product, making the existing product of a business obsolete. For example increase in the demand for smartphones has almost diminished the need for pagers.
How can Market Saturation be Avoided?
To overcome the occurrence of marketing saturation, there are some specific ways that should be tried and they are-
1. In-depth research on the competitor
Regardless of being new or existing, competitors in the market are always a threat to one’s company. To avoid or overcome market saturation, it is important to research products or services that are provided the competitors can pay attention to the strategies used in capturing the attention in the market. Try to learn from this to improve one’s product quality and marketing strategies.
2. Creating a niche
One of the ways to overcome market saturation is by creating a niche in the market. Make one’s product unique, and it should fit the demand of the consumers. Emphasis the unique aspects of one’s product which makes it different from the competitors’ product. Consumers will automatically start purchasing the products due to their unique characteristics, therefore, creating market demand.
3. Effective pricing
In saturated markets, a company will face difficulty in selling its products. To overcome this situation, the company often reduces the price of its product to make it tempting for the consumers. However, one should also keep in mind that because of this measure, a company can also lose money. One should think of raising the price and make the products sell as a premium edition to small targeted consumers who are willing to buy it.
4. Product development
Some of the companies intentionally design their products that will become obsolete after a certain period. This is done to boost sales of the product from the repeat purchases from the consumers. One of the common examples is earphones. The companies deliberately make its structureless durable so that the customer is forced to buy it again.
5. Adding value to the service
One can overcome saturated markets by adding value to their products and services. Increase the value of one’s product by providing additional services, benefits, and offers. Offering incentives and up-gradation allows the consumers to attract towards one’s brand. Providing customized customer service can also be helpful in overcoming the issues of a saturated market.
Example of a Saturated Market
Because of the Covid-19 pandemic, e-commerce stores like Amazon and Walmart offering grocery items rose to demand in 2019 but the pandemic is still existing in mid-2021 that has led many shop owners to offer online delivery of food items and groceries.
The market is now flooded with so many online grocery and food delivery options. Such explosion of e-commerce stores will sooner or later saturate the e-commerce food and grocery market and then, any new business trying to enter online food or grocery delivery might enter into a saturated market.
More Examples of markets which have undergone saturation
- Mobile phones
- Air conditioners
- Several consumer goods
Advantages of Market Saturation
This is one of the most important advantage that you get from market saturations. You see, your products will sell only when people recognise you. The instant they recognise you, they are able to related your name to high quality and good service.
No one will be willing to invest in or buy your products if they are not sure how reliable you and your work area. Thus, when your product reaches innumerable racks, stores and the market as a whole, they get familiar with your name and are then able to recognize you quickly without losing much time.
Profit is the pivot of all business. Though client satisfaction is on the mind of every business owner, it is also important that he or she is able to make constant profit. This earning is then further invested in the production to keep the firm running and smooth functioning. But, how do you make profit? You earn only when you are able to successfully sell your products in the market.
This means that a client base is very important. That’s the reason why you need market saturation in case you wish to maximize your profits. The more frequently people come across you, the more likely they are to try your products and that is when you make a profit.
3. Loyal client base
As you must have just read above, a client base is very important in order to increase sales to the maximum and earn. But, what’s more, important is that this customer base should also be loyal. This is because so many products are launched in the market every day.
These products have new features and all claim to be better than the rest. In such a situation, if your product goes out of sight, it actually also goes out of the mind. Thus, you must be able to remain before the eyes of your customers so that they are compelled to buy only your products and flock to no one else.
Creativity is the key to success in each and everything that you do now. This is because novelty attracts the attention. In fact, it attracts not only attention but also the customers to buy your products. As stated earlier, a vital influencer in determining market saturations is demand for the product. You must know that the means of advertisement and promotion that you pick needs to be efficient and your ad copy needs to be creative.
The moment you are able to hit the right string and chords with the target client base, your sale will increase and there will be an increased need for your product. With the course of time, people lose this quality. However, market saturations keeps you on your toes always to be creative and you are able to retain the Midas touch. You are also able to creatively update the product packaging.
5. Production balance
This simply refers to the balance that is established between production and the final sale. There is a certain number of units that is produced. Following this, the distribution channels are used to transport the product.
Once these are sold, profit is earned and more is produced to meet the needs of the masses. Thus, market saturations helps you to ensure that your product reaches every corner of the market where it is needed. This implies that units will constantly be sold. Once you are sure of your selling, you can create more and more without the worry of waste goods. Thus, a balance in the production is maintained due to market saturations.
6. Distribution channels
Another important advantage of market saturation is that you are able to use your distribution channels well. Since there is an assumption of demand for your product, bulk distribution is bound to cost you less than the usual.
Also, more and more stores, as well as distribution channels, will be of the desire to work with you and associate their name with you. What this does is that it improves your brand image too. That, in turn, leads more people to buy your items. It can easily be said that a chain reaction is formed or this is the domino effect.
Market saturation is an inevitable situation that will adversely affect the performance of the company. There are various ways to avoid or overcome such situations if the company takes the necessary steps.
To improve the chance of success, one has to also rely on the business plan. One has to formulate and implement various strategies to stay on track with the business goals.