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In economics, "market saturation" is a term used to describe a situation in which a product has become diffused (distributed) within a market[1];

the actual level of saturation can depend on consumer purchasing power; as well as competition, prices, and technology. For example, in advanced economies an extremely high percentage of households own refrigerators (more than 97% of households). Hence, the diffusion rate is more than 97%, and the market is said to be saturated; i.e. further growth of sales of refrigerators will occur basically only as a result of population growth and in cases where one manufacturer is able to gain market share at the expense of others. To give another example, in advanced western households, and depending on the economy, the number of automobiles per family is greater than 1. To the extent that further market growth (i.e. growth of the demand for automobiles) is constrained (the main buyers already own the product), the market is said to be basically saturated. Future sales depend on several factors including the rate of obsolescence (at what age cars are replaced), population growth, and societal changes such as the spread of multi-car familie When a product is introduced to consumers, the producers hope that consumers will respond positively by buying that product. Market saturation can be considered evidence of a successful sales record. When a market is saturated with a product, that product is prevalent among consumers. Market saturation can be viewed as a positive because consumers purchased an offered product. Those purchases have occurred on such a large scale that the likelihood of future purchases may be drastically diminished. At a monthly farmers market, this is an ideal situation. Almost everyone who comes to the market buys Mrs. Smiths jam and she dismantles her booth and goes home with her profits. In general, however, business does not work this way. Companies do not establish themselves to simply sell a product and then dismantle the business. Most businesses are long-term ventures. Therefore, once the market becomes saturated with their products, they are presented with a challenge of how to continue generating revenue. Market saturation can be overcome by a number of things. Some of them can be influenced by producers but others cannot. One of the factors that producers have no control over, but which can help to alleviate low sales figures due to market saturation, is population growth. More people in a society tend to add to the numbers of unsupplied consumers. It is important to note that market saturation does not mean that every consumer has a product. Instead, the term generally means that a substantial portion of those who are likely to purchase a product have already done so. Families often consist of several individuals. Therefore, if the residential housing market is saturated, that means that not every individual but most families have already purchased homes. This leads to a market saturation factor that producers may be able to manipulate. If producers can influence attitudes about the ownership of multiple purchases, they may create demand in a

market that was saturated. An industry that can be observed for an excellent example of this is the cosmetics industry, which leads women to believe that a single shade of lipstick and eye shadow are not enough. The constant desire and the disregard for existing personal stock fuels constant demand and drastically reduces market saturation issues. Market saturation is not always due to the success of a single producer. In some instances, markets get exhausted because there are too many suppliers of a product. This highlights the role that competition can play in such instances. If Producer 1 is able to obtain access to Producer 2s consumers, Producer 1s market share becomes larger and offers the opportunity to sell more products.

Maximizing Growth In a Saturated Market


by Deborah A. House The most devastating (and common) profit killer in a saturated market is price discounting. Winners of price wars are usually losers of growth and profit wars. Most franchisees recognize that training customers to expect below-cost prices will eventually lead to extinction. The good news is that other options are available to not just survive but to profitably grow in a saturated market and a slower-growing economy. More than ever before, businesses must quickly recognize the indicators of impending market saturation and act fast to develop and implement thoughtful responses before their competition. Though not an easy task, it is a critical step and one that requires strategies different from those successfully used in high-growth markets. "Build it and they will come" no longer applies. Adding more outlets to increase sales and profits is now backfiring for most franchisees in today's economy. It's difficult to find an industry today that isn't saturated, especially consumer markets such as quick service restaurants, oil change outlets, picture framing stores or dry cleaners. Now there's not only a gas station on every "main and main" corner but an entire retail center with convenient, one-stop shopping for a customer's daily needs. The usual responses to market saturation--cost cutting, price discounting or adding more outlets-are true profit killers. Panic responses not only cost money but seriously depress future profit potential. Instead, business owners need to quickly identify why competitors are getting the business that should be coming their way. Most likely, a competitor is solving your customer's critical problem more conveniently or quickly or offers a greater perceived value. Even though a franchisee might disagree with their customer's decisions, it's a reality that must be acted upon. The first step to resolving this issue is to refocus your front-line employees' and managers' attention away from saving money and towards solving a customer's critical problem.

Obviously the shift from an "irrationally exuberant" economy to single-digit growth has caused overcapacity. This phenomenon has given customers dramatically increased power resulting in rampant price shopping, waiting to buy until items go on sale and the demand for outstanding service as part of a heavily discounted price. Under-utilized capacity in a saturated market will cause severe financial hardship in businesses that aren't solving a customer's critical problem. Accepting this and realizing that the foreseeable economic reality will not revert back to the past is critical to grow a business profitably in a saturated market. It's not fair, but it is today's reality
BIG CHALLENGE

Growing profitably in these circumstances is an extremely daunting task. Sometimes business owners resign themselves and accept that the situation is out of their control and there's nothing to do but to ride the storm out. Unfortunately these tactics are extremely counter-productive and prevent the implementation of strategies that lead to profitable growth in a saturated market and mediocre economy times. The five steps outlined below are critical to implementing a multi-pronged business strategy: 1. Have a plan. Creating a business strategy is a continuous process, not a one-time event. A flexible strategy is re-evaluated when leading indicators point to external environmental changes or nontraditional competitors start to gain market share. A strategy is not intended to be a strait jacket. Sometimes companies pass over great but unforeseen opportunities because they aren't in the "plan." A strategy is a guide based upon information available at the time. To ensure a strategy remains relevant, assumptions need to be constantly challenged as customer needs change. 2. Innovate. Innovation is one of the few ways to enlarge market size and grow revenues and profits. Few CEOs say, "I'm going to make record profits by matching my competitor's products and prices." Companies also don't make record profits by just tweaking an existing product by adding extra condiments to a sandwich or pizza or introducing a new and improved lawn fertilizer.

It's difficult to find an industry today that isn't saturated, especially in consumer goods.

Innovators constantly search for the next critical customer problem to solve. According to Harold Reynolds, vice president at McDonald's Corp." This may require stepping outside of the traditional business model to fully utilize the excess capacity, while staying within the boundaries of protecting and enhancing the brand."

An example is that profits and market share dramatically increased each time McDonald's introduced new products or entered into a different dining segment, such as expanding into the breakfast market and introducing chicken nuggets and Happy Meals. If your company doesn't exploit these new opportunities, competitors will. 3. Make it easy for customers to do business with you. There's nothing more frustrating to customers than waiting for a manager to resolve an issue or staring at five closed registers when the check-out line is 10 people deep. This situation is so out-of-control that customers now come to expect long lines, poor service, uninformed sales people and even rudeness. When a customer receives what is normally considered average service, they are overwhelmed by a "terrific" experience. Usually all this signals is that the product or service was delivered on time, it performed as promised, or someone smiled. These are not very expensive actions, but they produce not only customer loyalty but increased market share and profits, regardless of market saturation levels or economic conditions.

WORK SMARTER

4. Focus on productivity. Most business owners equate productivity with cost cutting--doing more with less by just getting rid of people, not upgrading antiquated computer systems or working longer hours. It's been proved too many times to mention that these actions never increase productivity and actually decrease current and future profits and growth. This has been proven in saturated markets and even in industries that are experiencing growth. Unfortunately, cost cutting is equated with waste reduction, which does increase productivity, profits and market share growth. The difference between cost cutting and waste reduction is in the intent and execution. Waste reduction focuses on customers and the business processes needed to deliver the products and services. Whatever can't be directly linked to solving a customer's critical problem is a candidate for elimination. Of course, this strategy leads to many controversies when it comes to staff departments. It can be difficult to link how accounting, tax and legal expenses solve a customer's critical problem. First, without following legal and tax regulations, the company would be out of business. Second, it does mean that unless accounting, tax or legal services are your business, most companies don't need best-in-class processes. However, many businesses actually have more accountants or technology people and expenses than sales and front-line service people. This is the best way to begin a waste reduction project. But beware--randomly slashing costs will be more expensive in the long run. To reduce waste, first determine the business needs and then an adequate way to satisfy them. Don't buy a "Cadillac" when a "Focus" will do just fine.

Randomly slashing costs rather than carefully targeting cuts can be a big mistake.

5. Make decisions based on real-time information. Making decisions with outdated information is another profit killer. In a saturated market, assuming anything about customers, competitors and market trends is dangerous. Collecting this information is often avoided because it's perceived to be difficult, but it doesn't need to be. The best way to gather phenomenal data is to visit competitors or potential competitors. Go shopping yourself rather than pay a customer research company. Also, examine your buying habits and then talk to people completely different from yourself.