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Market Saturation

Updated on January 30, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

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.

Key Takeaways

  • Market saturation means when corporations produce maximum output goods and services, assuming the demand remains constant. Once the corporations obtain such saturation, the demand for its product and service increases.
  • It is determined by the demand and economic environment, where a business functions simultaneously, including competition from its competitors. 
  • New products and services, brands in the market, and supply or capacity are examples of market saturation.
  • Companies invest massive capital in new research and developments, motivate innovation, new technology, etc., to avoid market saturation.

Explanation

Market-Saturation

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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 Then, the demand for the same goods and services declines due to their outdated nature.

Examples of Market Saturation

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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

Conclusion

Frequently Asked Questions (FAQs)

Why is market saturation bad?

Market saturation is bad because it limits profitability and potential growth. It also makes it difficult for the brands to dominate while competing to draw customers’ attention, loyalty, and business.

What are the effects of domestic market saturation?

When domestic market saturation, a company may function and sell its goods at lower prices to gain market share. In addition, it may allow companies to allow price wars with other companies that are underselling their products to attract customers.

How to overcome market saturation?

One can overcome market saturation through the following ways: analyzing competitors, making a niche, charging effective prices, product marketing, innovation, and diversification, offering customer services, and creating additional goods and services to offer customers.

What does job market saturation mean?

Job market saturation refers to the market position where businesses satisfy a product or service demand. It results in limited growth for the present businesses.

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: –

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