What is 'Market Saturation'

Market saturation is a situation that arises when the volume of a product or service in a marketplace has been maximized. At the point of saturation, a company can only achieve further growth through new product improvements, by taking existing market share from competitors or through a rise in overall consumer demand.

BREAKING DOWN 'Market Saturation'

Market saturation can be both microeconomic or macroeconomic. From a micro perspective, market saturation is the point when a specific market is no longer providing new demand for an individual firm. This is most often the case when a company faces fierce competition or has a reduction in the market's need for its product or service. From a macro perspective, market saturation occurs when an entire customer base has been serviced, and there are no new customer acquisition opportunities for any firm operating in the industry.

To stop this phenomenon, many companies have intentionally designed their products to "wear down" or otherwise need replacement at some point. For example, selling light bulbs that never burned out would limit consumer demand for some of General Electric's products. The problem of market saturation has also caused many companies to change their revenue models, especially when product sales begin to slow. IBM, for example, smartly changed its business model toward providing recurring services once it saw saturation in the large computer server market.

Ways to Stand Out in a Saturated Market

Even in light of market saturation, many companies choose to remain in operation. When a company operates in a saturated market, there are a few concepts and strategies that they can use to stand out, remain solvent and possibly even increase sales. The first is creativity. In a saturated market, a company's product or service offering has to be more innovative than that of its competitors to entice customers to buy.

The second way to stand out is through effective pricing. Companies can approach this one of two ways. A company can either choose to become the low-cost provider of a product or service, or it can decide to operate as a premium option for the product or service. Either strategy requires competitive pricing against other companies that choose the same pricing structure; however, companies that operate in a saturated market usually end up waging "price wars" with each other, continuously undercutting prices to attract customers. Using unique marketing strategies is a final way a company can stand out in a saturated market. When a market is saturated with product and service options, especially when those options are somewhat homogeneous, effective marketing is often the difference maker for a company.

  1. Productize

    "Productize" refers to the process of developing or altering ...
  2. Average Selling Price (ASP)

    Average selling price is the price at which a certain class of ...
  3. Ratchet Effect

    The ratchet effect refers to escalations in production or prices ...
  4. Price Skimming

    Price skimming is a product pricing strategy by which a firm ...
  5. Marketing Mix

    The marketing mix, which focuses on product, price, placement, ...
  6. Services Sector ETF

    The services sector ETF is an exchange-traded fund (ETF) that ...
Related Articles
  1. Investing

    Comparing Coca-Cola and Pepsi's Business Models

    Understand more about the Coca-Cola company and the PepsiCo company. Learn about the key similarities and differences that make both companies successful.
  2. Investing

    Google and Facebook's Growing Ad Dominance Calls for Caution: Pivotal

    The brokerage estimated that the tech giants control 83 percent of digital advertising growth, warned that they risk saturating “constrained” budgets.
  3. Investing

    Apple Sinks to Another 52-Week Low (AAPL)

    Apple Share Price Hits 52-Week low
  4. Insights

    4 Factors That Shape Market Trends

    Discover the four major factors that shape market trends: Government, international transactions, speculation/expectation, and supply and demand. These areas are all linked as expected future ...
  5. Insights


    This tutorial teaches the basics of one of the most important economic topics. A must for all investors.
  6. Investing

    An Uber IPO May Happen Sooner than Later

    With Uber's recent sale of its Chinese business to Didi Chuxing, the #1 Unicorn may be positioning itself for an IPO in the near future.
  7. Trading

    GoPro Stock Breaks Down, but Sale Talks Pad the Fall

    GoPro shares moved sharply lower after the company cut its revenue forecasts, but traders are watching these key levels.
  1. What are some examples of horizontal integration?

    Learn about some recent, real-life examples of horizontal integration. Read Answer >>
  2. What factors influence competition in microeconomics?

    Find out what influences competition in microeconomics and how perfect competition, monopoly and oligopoly vary in their ... Read Answer >>
  3. How does a merger affect the customer?

    Learn how a merger may affect customers of the industry. The effects of mergers may be positive or negative, but there's ... Read Answer >>
  4. What financial ratios are best to evaluate for consumer packaged goods?

    Understand various activity and solvency ratios, and learn why these ratios are important when evaluating the consumer packaged ... Read Answer >>
  5. What are the advantages and disadvantages of a command economy?

    Learn about the basic tenets of a command economy and what its inherent advantages and disadvantages are versus a free market ... Read Answer >>
Trading Center