Market Saturation

What is Market Saturation?

Market saturation refers to a scenario in which corporations have produced a maximum output level of goods and services, assuming the demand remains constant. Therefore, once the corporations achieve such saturation, there will be no more demand for its product and service.

To survive, the companies will introduce new products and services. There are options at the companies’ disclosure to face the market saturation, like taking over the peer competitor or updating the existing goods and services to increase the subsequent consumption and demand.

Explanation

• The definition above is the situation that arises due to maximum sales of goods and services arriving after which there is no demand for the same goods and services. Once the demand reaches the maximum consumption of the goods and services, it is saturated. That can be cropped up in the macro-environmentMacro-environmentMacro environment refers to the condition that impacts the whole economy instead of a single industry or sector. It comprises inflation, monetary or fiscal policy reforms, employment rates, gross domestic product (GDP) trends, and shift in consumer spending.read more as well as the microenvironment.
• When there is no market for new goods and services which fails to create the demands for the same, in the microeconomic environment, this can be experienced when there is a lot of competition in the market for the concerned goods and services. The demand for its product has reduced substantially compared to its peer companies.
• The macroeconomic environment is said to be cropped up when all the consumers in the market have met their respective demands. Therefore, it works as an indicator for companies to create new products and services to remain in the market.

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How is it Calculated?

As we already know, market saturation is a situation where there is a declining trend in the companies’ volume of goods and services. In this situation, the volume of goods and services is leveled off, exhibiting declining in subsequent sales.

It is being examined by the demand and economic environment in which a business operates simultaneously, including competition it faces from its peer competitors. For instance, the product or service is at a market saturation level when the demand for the same has been reduced to the extent that it hardly attracts potential customers.

Examples of Market Saturation

It arises when the volume of goods and services reaches a level where consumers are already satisfied with a given output level. Then, the demand for the same goods and services declines due to their outdated nature.

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1. Brand in the Market: The existence of any particular brand with more than 70% of the market share in a given product or service will not be expected to grow further. It could reduce the growth of such products or services due to a small number of brands that would create new products and services to meet customers’ unique demands.
2. Supply or Capacity: Let us assume if any airline like British Airways buys additional aircraft, which would increase the supply or capacity of passengers. If there is no increase in demand due to the rise in supply, then market saturation is said to arrive at the airline.
3. New Products and Services: It is common that when new products and services come into the market, they will replace the old products, subsequently reducing the demand for the same to a level where the consumers no more demand them.

Causes

1. Innovation: Innovation is considered a major cause of market saturation. When a new innovative product is launched, versions of previous products start declining, such as technology, automobiles, mobile phones, etc.
2. Macroeconomic Factors:  As discussed in the above section, macroeconomic factorsMacroeconomic FactorsMacroeconomic factors are those that have a broad impact on the national economy, such as population, income, unemployment, investments, savings, and the rate of inflation, and are monitored by highly professional teams governed by the government or other economists.read more are also responsible for market saturation. For instance, for a given product, the entire demand of the customers may be met, and after that, there are no new demands once the market saturation level is reached.
3. Microeconomic Factors: Macroeconomic factors, and microeconomicMicroeconomicMicroeconomics is a ‘bottom-up’ approach where patterns from everyday life are pieced together to correlate demand and supply.read more factors are also responsible for market saturation, like macroeconomic factors. For instance, the demand is completely absent in a specific market.

Advantages

• New Product: Once this level is reached, there will be a new product.
• Pricing: It also helps correct the price level of the companies’ existing goods and services. The companies can either be low-cost products or service providers or provide premium-based strategies with effective pricing planning.
• Innovation: This assists businesses in generating new ideas and innovative ideas to create new products and services in the market.
• Marketing: The companies can implement many marketing strategies to keep their product different from their peers.

Disadvantages

• Shifting the Market: It creates a situation in which companies must change the market base to remain in the business.
• Changing the Existing Product: To avoid market saturation, companies must change the existing product and create a new one, which is possible only after several efforts.
• Additional Capital Expenditure: To develop and innovate new products and services, companies must invest in a line of business that requires a huge capital expenditureCapital ExpenditureCapex or Capital Expenditure is the expense of the company's total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year.read more.

Conclusion

• It arises when the demands of all the consumer base are fulfilled in a given market. Once this is reached, sales volume declines, and the existing consumers begin shifting towards new products and services because of the utility and benefits.
• To ward off, these companies invest huge capital in new research and developmentsResearch And DevelopmentsResearch and Development is an actual pre-planned investigation to gain new scientific or technical knowledge that can be converted into a scheme or formulation for manufacturing/supply/trading, resulting in a business advantage.read more, new technology, motivating innovation, etc. In addition to the above investment, the companies are also implementing effective pricing strategies and marketing their products and services to remain in the market and give positive results to their customers.

Frequently Asked Questions (FAQs)

Recommended Articles

This article has been a guide to Market Saturation and its meaning. Here, we discussed market saturation examples, how to calculate, advantages, and disadvantages. You can learn more about it from the following articles: –

• What is the Market Price?
• Labor Market
• Market Indicators
• Inefficient Market