What is market saturation?
Market saturation defines a point at which a market is no longer generating new demand for a firm’s products, due to competition, decreased need, obsolescence, or some other factor.
It is a measure of the extent of a product’s sales volume relative to the number of total potential customers, expressed as a percentage.
Formula: Sales volume of a product x 100 ÷ Number of total potential customers.
Signs that your market might be maturing
Every growth market must mature eventually, and entrepreneurs must be able to navigate the transition to maturity. Often the very basis for competition and value creation will change radically when a market matures.
- Customer needs do not appear to be evolving rapidly.
- Consolidation by leading competitors is reducing competitive intensity.
- New entrants are barely gaining market share.
- Products from all the competitors have similar features and offerings.
- Lack of new innovative products as old ones are constantly recycled.
- Market shares of leading competitors have solidified with minimal fluctuations
- Price, brand and channel strategy has supplanted product innovation as key value drivers.
- Cash flows are increasingly turning positive and being returned to investors rather than invested into the market.
Here are symptoms of a mature market
- High cost of operation.
- Price war leading to value erosion and low quality services
- Lean profit – very low profit margins.
- Non-investment/maintenance of infrastructure
- Poor Quality of services.
- Bad customer experience.
THE 3Es STRATEGY OF MANAGING SATURATED MARKETS
- Optimize all operational activities to cut costs.
- Optimize product features, customer journey maps to ensure optimum performance and plug all revenue leakages.
- Optimization of all the customer touch points from activation on the network to product discovery, purchase, usage and support when issues arise.
- Embrace machine learning for customer management (self-service), product notifications and upsell as well as product recommendations. This cuts down the marketing campaign spend and effort.
- Personalization and automation is very key here to ensure good results.
- Customer experience has to be re-invented to compete in a saturated market.
- Positive Net Promoter Score (NPS) is required to turn customers to brand ambassadors.
- This involves optimized communications, product & services experience as well as network experience.
- Watch and follow trends.
Let’s take the case of Telco market. Voice and SMS services have long been commoditized and out of vogue, now data is the new innovation fueling the emergence of so many innovative digital services and solutions.
Take the case of video and gaming services. Video and gaming have emerged as the hottest contents in this era.
To illustrate with the Telco S-curve below…
And take a look at Video service potential
And possible business models..
- Market penetration and New product development
There is need to create new products and networks on these services in order to capture the right customers.
A good tool to guide in this scenario is the Ansoff Matrix tool. With this too you can evaluate different options such as developing new products or opening up new markets.
The Ansoff Matrix
For an existing saturated market, Market Penetration is the safest option. Here, you focus on expanding sales of your existing product in your existing market. There is this assurance that the product works, you only need to find better ways to sell.
New Product development is also a very good option if you have innovative product ideas. It is however slightly more risky, because you’re introducing a new product into your existing market.
Capture a profitable niche.
Notwithstanding the dominance of brands like Coke and Pepsi, there are several very successful regional brands. Dr. Pepper and Big Red are both popular in the South and Southwest and have successfully made the transition to the national stage. In your market, there are likely profitable niches you can successfully capture and defend.
Innovate within emerging sub-markets or adjacencies.
Mature markets often have niches that are evolving and/or underserved (e.g., the energy drink and bottled coffee beverage markets mentioned above). Your best target for “better mousetrap” innovation will often be those sub-markets or niches that are evolving rapidly within your mature market.
- Solve problems
Find solutions to key problems in your space. Businesses that solve problems by creative value-adding products that enrich customers’ lives are always immensely successful.
Don’t focus only on transactional services, look for solutions to daily issues and needs of customers.