What Is Market Saturation? (Plus Tips for Overcoming It)
Updated February 3, 2023
If you work in an industry with multiple competitors and stagnant consumer demand, you might experience market saturation. This event occurs when a marketplace maximizes the volume of a product or service. Learning more about market saturation can allow you to help an organization differentiate itself from competitors and increase its revenue.
In this article, we explain market saturation, discuss how you can identify and calculate it, offer tips for overcoming these challenging conditions and list the different types.
Market saturation occurs when a marketplace maximizes the volume of a product or service.
You can identify market saturation by determining whether an aspiring entrepreneur would want to enter an industry or calculating an organization's market share.
Tips for overcoming market saturation include running creative advertising campaigns and implementing competitive pricing.
What is market saturation?
Market saturation is a situation that occurs when a marketplace maximizes the volume of a product or service. Saturated markets tend to experience decreased consumer demand and multiple competitors trying to generate sales. Companies may find it challenging to generate revenue because of stagnant sales and consumers' options. Businesses can overcome these unfavorable market conditions by improving their products or discovering new markets where consumer needs exceed supply.
Identifying and calculating market saturation
One of the most obvious signs of market saturation is if an industry features several major suppliers who sell products with low-profit margins. The industry is typically not enticing for aspiring entrepreneurs to enter, as they would be competing with established companies for limited consumer demand. You can also identify market saturation by calculating an organization's market share, as this metric determines how much of the industry's revenue belongs to the organization. Low or decreasing market shares help companies determine how to capitalize on limited consumer demand. You can calculate an organization's market share with this formula:
Market share = (an organization's revenue / total industry revenue) x 100
Here's an example of the formula in use:
Bluefin Fishing sold 42,000 units of its fishing line in 2021 and wants to determine its market share in a saturated industry that sold 400,000 total units overall. Bluefin Fishing representatives divide 42,000 by 400,000 and multiply that figure by 100 to get a percentage. They discover that Bluefin Fishing has 10.5% of the market share and strive to increase this through innovation and competitive pricing.
7 tips for overcoming market saturation
Here are seven tips for overcoming market saturation:
1. Differentiate the brand
In a saturated market where the same products and services compete for customers' attention, one way to increase the company's market share and grow revenue is to differentiate the organization for which you work. Find the qualities that set the brand apart from competitors and use them to attract customers. This effort may include remodeling company offers or changing its messaging, but it's important to define the company's unique value proposition and explain it to customers.
2. Exceed customer expectations
Another way to succeed in a saturated market is to exceed customer expectations through value-added service. Since customers have several companies vying for their attention, you can make the company memorable by adding a unique and unforgettable experience to the customer interaction. This can be in the form of free deliveries, free installation, limited offers and other strategies that make the brand memorable. It can also be helpful to have customer service teams available to answer questions, offer product suggestions or troubleshoot issues the customer may have.
3. Improve retention
If you can't grow the company's market share in a saturated market, consider investing resources in retention. With this strategy, the company connects with its current customer base and persuades them to spend more on new and existing offers. A higher retention rate also usually means it spends less on acquiring new customers, which allows it to channel funds into innovation and more creative marketing and sales tactics that can help increase revenue and profits.
4. Enhance customer service
When consumers have access to the same type of products and services, a great way to distinguish the company and earn their loyalty is through exceptional customer service. Delivering superior customer service not only increases loyalty but also helps with marketing as satisfied patrons may recommend the brand to other people. Excellent customer service can be as simple as being empathetic, solving clients' issues quickly and being honest and transparent when products or services perform below expectations. Explore ways you can demonstrate to customers the company's genuine concern to help them solve their problems with its solutions.
5. Reposition the organization
If sales have plateaued because of market saturation, reinventing or repositioning the organization so the company's work can help spur growth. For example, you can suggest adding a new product line that complements the stagnant product. Research the market and come up with creative ideas and strategies to meet the varied needs of customers.
6. Find new markets
Competition is a major contributor to market saturation. If too many businesses are competing in the current industry, consider expanding to new markets that may have fewer competitors. Ensure you review the company's current sales tactics to improve its chances of gaining market share in the new area.
7. Adjust prices
Price adjustments can also help businesses advance in a saturated market. Strategies such as discounts, sales and loyalty rewards can help motivate customers to buy more of the company's offers. It can also sell products or services with the same or more features as competitors at lower prices. While this can lead to competitors also lowering their prices, careful implementation of a price adjustment strategy can help the company win more customers, boost revenue and increase market share in a highly competitive industry.
Causes of market saturation
Potential causes of market saturation include:
One way a market can become saturated is through overcapacity. For example, if a coach company acquires more buses than the number of passengers that use its services, its supply is likely to exceed customer demand. Such a company can increase demand by expanding to new markets with more growth opportunities or sell its surplus capacity to cut costs and increase its marketing efforts.
A market can also become saturated when it has met the needs of almost all its consumers. This type of saturation is also called macroeconomic saturation and is noticeable in markets where producers sell similar products or services at low margins. For example, the market is already saturated with household items such as salt, light bulbs and flour. Almost all the producers in these markets offer the same products and customers buy mainly based on price, convenience or familiarity rather than any distinct quality of each product.
In many industries, manufacturers drive sales and customer loyalty with innovative designs, features and ideas. However, there is often a limit to what you can achieve with innovation. Sometimes, the offers on the market may meet every customer's need and further innovation may not make any tangible difference in their decision to buy.
A good example of this is the smartphone market. Almost all smartphones on the market, including budget devices, ship with large displays, powerful processors, oversized read-only memory (RAM) and high-quality camera hardware. Customers have too many options and may not remain loyal to one manufacturer, which can lead to saturation.
A niche is a small segment of a market that caters to the needs of a specific group of buyers. If you target a niche market, saturation can come earlier than when the company has a broader customer base. The reason for this is that niche markets have fewer buyers, so the market quickly becomes saturated when it has satisfied most of its target customers.
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