What Market Saturation Means for Your Business

Two business people looking at graphs on a computer screen, representing the concept of market share.
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When starting a business, there are a number of things you need to do to test the viability of your business idea and ensure it has the potential to survive. One of the most important steps in conducting a market analysis that takes a thorough look at the industry, your target market, and your competition. You should do this as part of your business plan when you first start your business, as well as during growth phases in your company.

What's Your Market Share?

In its simplest form, you can calculate your market share by dividing your company's total sales by the industry's total sales. Ideally, your research will uncover that there is a thriving need for your products or services and that the existing competition does not have complete ownership of the market. This data would signify that there is room for your business to get in the game. 

But what if your market analysis shows that there is not a huge demand in the market for your product or services, or that the market is already highly competitive? Does that mean you should stop forging ahead with your business? Not necessarily. 

Market Saturation Explained

The situation described above is defined as market saturation. Market saturation happens when a specific market is no longer generating new demand for certain products or services. This can happen for a number of reasons, including increased competition, decreased customer need for the product or service, or because the product or service has become obsolete in the market (i.e., because of technological innovation). The most common challenge of market saturation is that it often means there is very little opportunity for growth, but this isn't always the case.

How to Succeed in a Saturated Market

While market saturation can often mean an inability for your business to compete because of a lack of potential profitability in the existing market, it can also signify strong demand and future growth potential. Succeeding in a saturated market takes creativity, innovation, and consistency, but it is possible. The goal is to find ways to differentiate your business from the competition. Here are a few ways you can position your business to compete in a saturated market:

  • New Products and Product Improvement: One of the most effective ways to break into a saturated or oversaturated market is by offering a product that is new to the industry or improving upon one that already exists. The goal is to offer something that will raise demand in the market and allow your business to take market share away from competitors. Be ready to look beyond what your business currently offers; you may be able to break into the industry by creating a product that improves upon one that the competition offers.
  • Pricing Model Adjustment: When it comes to price, you can break into a saturated market in one of two ways. You can undercut the competition in an attempt to swoop up budget-minded customers (this can be risky because it can create a reputation for being cheap and lower quality). Or, you can raise your prices and present your products as the premium or high-end option. 
  • Value-Added Services: In addition to offering new products or changing your pricing strategy, you can also increase the value for your customers as a way to steal market share. You can do this by providing a premier customer experience that your customers just can't get from the competition. You can also offer customer incentives like free upgrades or 24/7 customer support to increase the perceived value of buying from your company.
  • Focus on Customer Loyalty: Consider taking the concept of value one step further by creating loyalty programs that offer incentives like discounts, free trials, rebates, and personalization. This can become a great differentiator for your business, allowing you to break into a saturated market by leveraging the customers you already have and rewarding their repeat business. 

Ultimately, to compete in a saturated market you need to be able to go head-to-head with the competition and do something different than every other business in that space. You may need to try a few different tactics in order to identify the competitive advantage that will help your business rise above others in the industry. To improve your chances of success, make sure your business plan is solid and refer to it often to make sure you are staying on track with your business objectives. 

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