Market Saturation

1070 Words 4 Pages
Market saturation exists in a given industry when the available supply of goods equals or falls short of customer demand. A variety of factors, including more competition, lower market need and obsolescence, contribute to saturated conditions. The big drawback of operating in a saturated market is that it limits your profitability and growth potential. Market saturation happens when most of the prospective customers in a current market already use a product or service. It can be considered evidence of a successful sales campaign and indicates that the demand in the current market is satisfied or nearly satisfied. Once the market gets saturated with your products, the challenge becomes finding ways to continue generating income. Market saturation …show more content…
A company will often reduce prices to clear out remaining revenue. This is a very common practice in electrical and technology industries. As new product innovations occur and new applications are created companies must lower prices on existing inventory in order to become relevant and up to date on the newest products and technology in order to compete in the market. When the market demand runs out, a company has to mark down goods to create new sales. This means losing a lot if any profit that they were hoping for with these products. In some cases companies lose the profit they had generated before because of the amount of inventory they are stuck with at the point the market becomes saturated. (Kokemuller, 2016)
Unmanageable productions cost can also occur with a saturated market. Initial efforts may result increased sales, but when saturation occurs to the extent that most people in the target segment no longer need or want the product, the company is spending money and resources to no avail. Without either changing or offering something new the cost may far outweigh the gains. (Reynolds,
…show more content…
A company must be able to price products and services competitively. Although discount programs can be a good way to attract customers, it also might result in price wars with competitors. As a consequence, a company might generate less profit. Companies need to get data on its competition’s product and service prices regularly so that they can compare and compete. Temporary sales and discounts with no clear end date are a good way to generate some quick revenue. Companies can compete on lower prices with their competitors but can still revert back to the “real” pricing whenever they wish, keeping the company firmly in control of its prices. The discounts usually mean more volume, so cash flow stays relatively the same, although the company may have to work harder for it. (Davoren,

Related Documents