Market saturation

When the amount of product provided in a market has been maximized in the current state of the marketplace. At the point of saturation, further growth can only be achieved through product improvements, market share gains or a rise in overall consumer demand.

Investopedia Says:
Many companies are already aware of the problems of market saturation and have intentionally designed their products to "wear down" or otherwise need replacement at some point. For example, selling a light bulb that never burned out would limit consumer demand for more of this product.

Services revenue also becomes an important consideration when product revenue begins to slow; IBM smartly changed its business model toward providing services once it saw saturation in the large computer server market.

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Logistic growth is an example for a bounded growth which is limited by saturation: The graph shows an imaginary market with logistic growth. In that example, the blue curve depicts the development of the size of that market. The red curve describes the growth of such a market as the first derivative of the market volume. The yellow curve illustrates the growth weighted by the size of the market. As for logistic growth, the yellow curve shows, that even a large market size cannot strengthen growth when approaching saturation. Logistic growth never is negative, but in the saturation area, the growth is as small as before the market took off. (In the example all curves are scaled to cover the range between 0 and 1.)

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) i.e. 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 families.

References

1. ^ (Equipment Energy Efficiency - Computers and Monitors)

Related Material

• Market share
• Economic growth

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