What Is a Saturated Market? (How To Overcome and 4 Examples)
With advanced and accessible technology, starting a business can be a streamlined process. However, many people opt for employing repeated ideas and start companies in an already populated sector, creating a saturated market. Market saturation requires business owners to adapt to the changing needs of their customers in order to generate consistent profits.
In this article, we define market saturation and its causes, discuss how you can differentiate your product or service in a saturated market and provide examples of market saturation with potential solutions.
Market saturation occurs when the market growth for a product or service stalls or halts completely as businesses compete for customers.
Market saturation can occur on a small scale or a large, industry-wide scale.
When business experts understand the causes of market saturation, they can employ specific tactics, like renewed marketing or product innovation, to address it effectively.
What is a saturated market?
A saturated market is a scenario in which businesses aim to meet economic demand for a service or product. When there's more of a product than there are people to buy it, businesses must compete for customers. As a result, availability for the growth of existing businesses can become limited. Market saturation often occurs when multiple businesses in the same industry or niche serve a similar purpose.
Related: What Is a Competitive Market? (Definition and How It Works)
Types of market saturation
Understanding the scope of your market is an important step to overcoming market saturation. Determining what kind of market saturation you're experiencing can help uncover the causes and solutions to decreased demand. These are the two most common types of market saturation:
Microeconomic market saturation
This situation occurs when demand for a particular business disappears. For example, if customers stop coming to a bakery because a new one opened up across the street, that business would be in a saturated market on a small scale. Microeconomic market saturation can also occur if a business inadvertently reduces the need for its own products or services among its client base without having enough new clients to replace them.
Related: Microeconomics vs. Macroeconomics: 6 Key Differences
Macroeconomic market saturation
Market saturation on a larger scale occurs when an entire industry experiences a decrease in demand. This can occur due to new technology making a product or business obsolete. For example, the proliferation of cellphones decreased the demand for pagers. Macroeconomic market saturation can also occur when other market options already meet the needs of all possible customers.
Related: Macroeconomic Factors: Definition and 11 Types of Indicators
4 examples of solutions to market saturation
Because market saturation can occur on a large scale or a small scale in almost any industry, each business's response to a saturated market is different. You can study the market to decide which methods work best for your product. Below are several example scenarios that a business might face within a saturated market and possible ways the business could remain viable:
Example 1: Creating a niche
Here's an example of how to solve market saturation by creating a niche:
Due to the rising popularity of meal delivery subscription boxes, a meal delivery business suddenly has dozens of similar businesses competing for customers. By creating vegan, vegetarian and gluten-free meal delivery options, a company in this market rebrands as a health-conscious and inclusive meal service. This provides the business with a niche group of loyal customers.
Related: Niche Audience: Definition, Benefits and How To Attract One
Example 2: Customer service
Here's an example of how to solve market saturation by focusing on customer service:
A home goods store is losing customers to a large warehouse. Because it can't afford to lower prices, it provides free consultations and deliveries to its customers. By building relationships with current customers through good customer service, the business has a better chance of thriving.
Example 3: Competitor research
Here's an example of how to solve market saturation by conducting competitor research:
An organization determines that it isn't engaging with customers online in an effective way. To fix this issue, the company researches other companies in its market, which shows that none of its competitors are advertising on a new social media website. It then begins a marketing campaign that creates engaging posts on that site to attract a new set of customers.
Example 4: Diversification and innovation
Here's an example of how to solve market saturation by focusing on diversification and innovation:
E-books have caused a decrease in profits for a publishing company. This business begins posting insightful industry content on a website that can earn it money through advertisers. It then releases its publications as e-books and offers special edition print copies at an increased price, and these innovative tactics expand its audience within the industry.
Causes of a saturated market
Market saturation can cause companies to struggle financially, so it's important to understand its possible causes. Below are some common reasons a market can become saturated:
Technological innovation can decrease the demand for older products. For example, the invention of the car eliminated the market for horse-drawn carriages as transportation. Although some people might still rent a carriage for fun, only a small number of carriage businesses could survive the decreased demand.
On both a macro and micro scale, new businesses opening up in the same industry can result in a saturated market. For example, many companies compete to be the main streaming service for watching movies and television shows online. Once everyone has access to a streaming service, it becomes difficult for other businesses in the market to attain new customers.
Changing customer base
Changes in a population can also cause market saturation. If people lose interest in a trend, companies have to adapt to lower demand for their products. Businesses within the fashion industry and other markets that rely on trends often prepare to leave a saturated market for a new one.
Related: General Environment: 6 Factors That Influence Business
How to overcome market saturation
Although market saturation can be challenging for a business, there are many techniques it can employ to ensure success. Entrepreneurs and companies can adapt to the needs of the customer and continue earning a profit. Here are seven ways you can promote a business within a saturated market:
1. Research competitors
Understanding the methods competitors are using to promote their business can give you an advantage when your customer base is limited. By remaining attentive to the strategies others use in your sector, you can determine what would work best for a particular company. Research may also offer insight into a completely new business plan that differentiates your products or services from others.
Read more: How To Conduct Competitor Research
2. Create a niche
One of the most important steps to growing a business in a saturated market is emphasizing the unique aspects of a product or service. Creating a niche for a business automatically gives customers a reason to choose a certain product over similar ones. People choose products that fit their specific needs and look for elements that make a particular company different from others.
To impress potential customers, it's essential to determine the elements that make a particular business special. For example, if you operate a lawn service but yours is one of the few in your area that also offers pest control, including this in your marketing and branding can help you establish your niche as a full-service home-and-lawn care business.
Read more: What Is a Business Niche? (With Different Types of Niches)
3. Price items effectively
When business owners realize that their market has become saturated, they often begin lowering their prices to attract customers. This method can be effective but can also cause companies to lose money by trying to possess the lowest prices. Another option is to raise prices and aim your services at people who are willing to pay more for a premium product. Customer research can help you carefully decide on a price point that works optimally for your business model.
Read more: A Complete Guide to Pricing Strategies
4. Market your product
Creative marketing can help a company appear more attractive compared to its competitors. Effective advertising can ensure your product is more familiar to your existing and potential customers. The goal of your marketing plan should be to make your product memorable for people who have many options. By associating a particular business with an engaging marketing campaign, you can spread interest in your product and reach new markets.
5. Innovate and diversify
Diversification refers to expanding your products and services, and innovation is what allows you to diversify. When you innovate, you brainstorm, research and develop new and diverse products or services to offer customers. This allows you to generate revenue from new sources, which can offset decreased revenue from a product impacted by saturation.
Read more: Product Diversification: Definition, Stages, Benefits and Examples
6. Provide customer service
The quality of a company's customer service can be the reason a customer chooses one product over another. A customer who has a pleasant experience with employees, a company website or a physical store may continue to support that business. Effective customer service can earn positive reviews and bring in additional revenue. Customer service fosters effective relationships with clients and business contacts, which could also benefit a company in the long term.
7. Add value
Another tactic for overcoming a saturated market is creating additional products or services to offer. By increasing the value of a product through effective business development skills, you give customers another reason to choose one business over another. Offering incentives like free upgrades or access to special services can make your product more appealing to a buyer.
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