Market Saturation

What Is Market Saturation?

Market saturation occurs when a product or service has reached its maximum volume in a marketplace. To continue growing, a company must either take market share from competitors or increase consumer demand.

Key Takeaways

• Market saturation happens when a product or service reaches its maximum volume in a market.
• To combat market saturation, firms create products that wear down over time, like light bulbs.
• Companies can deal with saturation through creativity, effective pricing, or unique marketing strategies.
• Smaller companies with niche products may find opportunities in saturated markets.
• For example, having three ice cream parlors within a two-block radius is a micro-market saturation.

Understanding Market Saturation

Market saturation can be microeconomic or macroeconomic. From a micro perspective, it happens when a specific market no longer demands a product or service due to competition or reduced need. From a macro perspective, it occurs when an entire customer base has been serviced, and no new customers are available.

Many companies design products that need replacement to combat saturation. For example, selling light bulbs that burn out creates consumer demand.

Saturation has led companies to change revenue models. IBM, for instance, shifted to recurring services when the computer server market reached saturation.

Market saturation happens when a market no longer demands a product or when the entire market has no new demand.

Special Considerations

Despite market saturation, many companies continue operating. To stand out and increase sales, they can focus on creativity, effective pricing, or unique marketing strategies.

Creative marketing helps companies in a saturated market entice customers. Effective pricing can involve becoming the low-cost provider or offering a premium option. Unique marketing strategies also help companies differentiate themselves.

Examples of Market Saturation

Real Estate Agents

Operating as a realtor in a saturated market presents challenges. Residential real estate markets fluctuate, and in a saturated market, it can be difficult to sell homes. In a small town or city, real estate agents may struggle to find business when housing stock is limited.

Market Saturation FAQs

What Does Market Saturation Mean?

Market saturation happens when products or services in a market are no longer in demand due to competition or reduced interest. There are two types of market saturation: micro and macro. Micro saturation occurs when a specific market no longer needs a product or service, while macro saturation occurs when an entire customer base is covered.

How Do You Tell If a Market is Saturated?

A saturated market usually has a few major suppliers with potential low-profit margins, making it less enticing for new companies to enter. For example, if a town already has three ice cream stores, the ice cream market is saturated.

What Product Has Saturated the Market?

Meal delivery services, e-grocers, and cellphones are examples of products that have saturated their niche markets.

How Do You Calculate Market Saturation?

Market share is used to calculate market saturation. By comparing a company’s sales to the total industry sales, you can determine the percentage of the market that is available for your product. Additionally, researching the supply versus the need for a product or service can help calculate saturation.

How Do You Overcome Market Saturation?

To overcome market saturation, companies can use creative marketing, review and adjust pricing, offer new customer service options, or explore niche market products.