What is Market Saturation?
Market Saturation refers to a scenario in which corporations have produced a maximum level of output of goods and services assuming the demand remains constant and therefore, once the corporations achieve such saturation there will be no more demand for its product and service.
To survive in the market the companies will introduce new products and services. There are options at the disclosure of the companies to face the market saturation like to take over the peer competitor or update the existing goods and services in a way that will increase the subsequent consumption and demand of the same.
Explanation
- It defined above is the situation which arises due to maximum sales of goods and services has been arrived at after which there is no demand for the same goods and services. Once the demand reached the maximum consumption of the goods and services, the demand is said to be at its saturation point. This 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 failed 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 and the demand for the company’s product has reduced substantially as 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. It works like an indicator for companies to create new products and services to remain in the market.
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For eg:
Source: Market Saturation (wallstreetmojo.com)
How It is Calculate?
As we already know the market saturation that is a situation where there is a declining trend in the volume of goods and services being produced by the companies. In this situation, the volume of goods and services is said to be levelled off exhibiting declining in subsequent sales.
This is being examined by the demand and economic environment in which business is operating at the same time including competition it faces from its peer’s competitors. For instance, the product or service is said to be at a market saturation level when the demand for the same has been reduced to the extent that it is hardly attracted to potential customers.
Examples of Market Saturation
It arise when the volume of goods and services reached a level where consumers are already satisfied with a given level of output. The demand for the same goods and services start declining due to their outdated nature and for other reasons.
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For eg:
Source: Market Saturation (wallstreetmojo.com)
- Brand in the Market: The existence of any particular brand with more than 70% of market share in a given product or service will not be expected to grow further. The reason being the growth of such products or services could be reduced due to a small number of brands which would create new products and services to meet the new demands of customers.
- Supply or Capacity: Let’s assume if any airline like British Airways buys additional aircraft which would increase the supply or capacity of passengers. Now if there is no increase in demand due to an increase in supply then market saturation is said to arrive at the airline.
- New Products and Services: It is common fact that when new products and services arrive in the market they will replace the old products which would subsequently reduce the demand for the same to a level where they are no more demanded by the consumers.
Causes
- Innovation: Innovation is considered a major cause of market saturation. When a new innovative product is being launched in the market the previous versions of the product start declining. For instance technology, automobiles, mobile phones, etc.
- Macroeconomic Factors: As already discussed in the above section that macroeconomic factors are also responsible for market saturation. For instance, for a given product it is possible that the entire demand of the customers is met and after that, there are no new demands once the market saturation level is reached.
- Microeconomic Factors: Like macroeconomic factors, microeconomicMicroeconomicMicroeconomics is a study in economics that involves everyday life, including what we see and experience. It studies individual behavioural patterns, households and corporates and their policies. It deals with supply and demand behaviours in different markets, consumer behaviour, spending patterns, wage-price behaviour, corporate policies.read more factors are also responsible for market saturation. 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 in the market.
- Pricing: It also helps in correcting the price level of existing goods and services being produced by the companies. With effective pricing planning, the companies can either be a low-cost provider of the product or service or provide premium based options strategies.
- 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 a number of marketing strategies to keep their product different from their peers.
Disadvantages
- Shifting the Market: It creates a situation in which companies are required to change complete the market base if it wants to remain in the business.
- Changing the Existing Product: To ward off the market saturation the companies are required to change the existing product and create a new one which is possible only after a number of efforts.
- Additional Capital Expenditure: To create and innovate new product and service companies are required to invest in a line of business which required 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
- This arises when in a given market the demands of all the consumer base are fulfilled. Once this is reached the volume of sale starts declining and the existing consumers begin shifting towards new products and services because of their utility and benefits they are providing.
- To ward off the impact of these companies are investing in huge capital expenditures 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.
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