You sit at the café with your friends. Think about the future project as usual. One of you eyes flashes, saying: What about "Fried Chicken"? Another replies - assuming the role of the driver in the movie 1000 Congratulations in response to Ahmed Helmy -: A new and innovative idea.
The situation sounds ironic, but often this is really the reality around us, as we constantly hear about the opening of a new restaurant. Does this number of restaurants mean that there is a saturation in the market? If the answer is yes: How can a new project succeed in penetrating this saturated market?
What is market saturation?
A product usually goes through four basic stages in its life cycle, known as the Product Type Life Cycle. Market saturation occurs when a product reaches its maximum sales, according to its current demand level. It is most likely that market saturation occurs after the product reaches maturity and then begins to decline.
When market saturation occurs in a particular industry, this means that it h been provided to consumers, to the point where there is no possibility of introducing new ideas, as a result of the users not needing more, as supply equals demand, or the percentage of demand is essentially less than supply.
Although, as a result, it is difficult for other companies to gain good market shares, the reality is very different. We are constantly witnessing the entry of new companies to operate in the same field. So, if one of these firms wants to gain market share for the same product in the same market, then this requires eroding the market shares of the rest of the firms. This is the basic problem for companies operating in a saturated market, that it limits their potential for profit or growth.
Types of market saturation
It is always important to understand the saturation situation of the market, and the exact extent of its occurrence, whether to defend your position or even to enter this market. Each case gives a different indication of the best way to deal with it, and the same strategies cannot be followed in all cases. Market saturation can be divided into two main types :
1- Market saturation with the products of a single industry
In this case, the saturation of the market is on a small scale, as a result of the lack of demand for a specific project, and the reason for this is that users find another option to satisfy their needs in the same field. The same applies to the example of fried chicken restaurants, where the customer can go to another restaurant, thus reducing the market share of the first restaurant.
2- The market saturation of the industry itself
In this case the market saturation is widespread, as the whole industry faces a decrease in demand. Most likely the reason for this is new technology. For example, the spread of cell phones led to a decrease in the use of automatic pagers and pagers, as well as the spread of digital cameras, which led to a decline in the sales of traditional cameras.
Reasons for market saturation
It is not easy to judge the existence of a saturation of the market, as this requires the coupling of the causes, with the signs that confirm this matter. For example, competition has existed since antiquity, so is each competition evidence of the market's saturation? of course not. However, competition is a powerful reason to saturate the market!
It takes a good study of the reality, with numbers confirming this, for example sales reports showing a decline in numbers, despite the required marketing efforts. In short, to come to a clear conclusion according to the evidence, which cannot mean anything else, except that there is a saturation in the market. Among the causes of market saturation:
1- New technological innovations
The development in technology and innovation is leading to a decrease in the demand for some old products, which is also known as the obsolescence of these products. For example, in electronics, when a new version of software and applications is released, it means that the old version has become obsolete.
Thus, the obsolescence of the product is its arrival to the end of its operational life cycle, as there is no longer a desire to use it again, as a result of the existence of another alternative to it, which means the saturation of the market for this product. This can be likened to the example of the mobile phone, also when digital newspapers appeared, there was no longer a great demand for paper newspapers, and thus the demand for them decreased greatly.
2- The increasing competition
Competition is there all the time, but one day the companies that do exist will be able to offer their services to all potential users. Consequently, the industry will reach a state of saturation, companies will not be able to obtain new customers easily, and obtaining them requires competition from competitors, to obtain their customers.
For example, let's take a look at the mobile market in Egypt, and the fierce competition between existing companies, as shown in the following chart:
We will notice that when Apple succeeded in obtaining a larger market share, in January of this year. As a result, the market shares of other companies declined. Thus, any progress in the market share of a company during the year calculated in the graph is offset by a decline in the rest of the companies.
3- Change in user behavior
The reason for the saturation of the market may be the changing behavior of the users. The change is not only related to the technology used, or the features suggested by competitors, but it may be related to the change in the trends of the users themselves, as sometimes users lose interest in some products, due to a difference in their ideas, and as a result the desire to buy will decline.
For example, a change in the users' culture and their desire to buy healthy food, rather than other harmful foods. Also, the lack of demand for products that they believe will have a negative impact on the environment, as a result of their belief in the importance of environmental sustainability. Consequently, this leads to a saturation of the market for these harmful products, and less demand for them.
How does market saturation negatively affect your company?
The main negative effect of market saturation is the inability of the company to expand its profits. But this is not the only effect, as there are some other important negative effects that impede the company's march towards achieving more successes. Among these effects:
1- Lack of customer growth
As a result of saturation, the market does not generate new demand for the products. Indeed, the potential customer base has been served by the existing companies, meaning that it is often limited to generating revenue from the existing customer base, while the ability to attract new customers is limited.
The inability of the company to achieve growth in customers leads to stability in revenue, as a result of failure to reach new sources of income. As a result, there is no availability of more liquidity, which enables the company to expand its operations or market for products, and thus it is difficult to achieve growth in the company.
2- Difficulty attracting investors
You now stand in front of the investors to present your idea , you come to the market size segment, and then you review the competitors as well. Of course, the investor wants to feel that your idea has a real opportunity and can achieve success, and one of the factors of this success is its ability to actually harvest market share.
What if the market is in a state of saturation? It won't be impossible to convince investors of your idea, but it will become more difficult. No one wants to spend their money on an idea for which they do not see a real opportunity, or feel that they are not in much demand now. Thus, whether you are at the beginning or after a while, it will be difficult to secure a new investment round , and you should think of other ways to secure financing.
Before entering a saturated market: is there a real opportunity?
In fact, all the information about market saturation is not intended to complicate your entry into these markets. Also, it is not related to the issue of self-affirmation or the challenge to achieve success, even if there are no numbers that support the position of saturation, but there are noticeable signs that confirm the difficulty of the matter.
So, before any actual steps toward entry, think carefully about trying to answer the most important question: Is there a real chance for you? You can start by studying the market you want to enter, this will help you to get acquainted with the market situation closely.
If you do not have the appropriate experience in conducting market research, you can seek the help of professionals in marketing services on an independent website , in order to help you carry out the search in the way you want, so that you get out of it with sufficient information, that enables you to make the right decision. In the research you need to focus on answering the following two questions:
1- What are the market shares? What do you say about the market?
In order for you to know the market share of any company in a specific product, you need to determine the calculation period, and then know the company's total sales during this period for this product, this data is available in the companies' reports on their position in the market.
After that, you can know the total market sales for this product. You will be able to find the data in the industry reports produced by organizations specializing in this field. Then you can divide the company's sales number by the total market sales, and multiply the result by 100, you will have the percentage of the company's market share.
Sometimes you can calculate the market share by the number of units sold. Instead of calculating sales, you can calculate the number of units sold to the company, then the number of units sold in the market, and multiply the result by 100, this will give you the value of the company's market share as well.
| The company | Number of units sold | Market share by number of units | Revenues | Market share by revenue | price |
| a | 10,000 | 50% | 10,000 | 50% | 1 |
| B | 5000 | 25% | 6000 | 30% | 1.2 |
| C | 3000 | 15th% | 2400 | 12% | 0.8 |
| Dr | 2000 | 10% | 1600 | 8% | 0.8 |
| Total | 10,000 | 100% | 10,000 | 100% | 1 |
A graphical table showing an example of calculating market shares, considering the average unit price is $ 1, meaning the total revenue from market sales is $ 20,000 and the number of units is 20,000 units. The table shows that the two methods give different meaning about the companies' market shares. So, if you can access the account in both ways, this will give you a clearer picture of the market situation.
Can this data help you? Through it, you will be able to learn about the consumption situation in the market, and the companies that get the most value. Also, is this consumption consistent with the number of users, or is there still potential for more demand? This data will help you explore the state of the market, to what extent there is saturation, and what is your opportunity in this market.
2- Is there any indication that you can have a serviceable market?
While researching the market, it is not always easy to come up with numbers on the sales of the rest of the companies. But in any case, you care about determining the size of your market, and the larger the number of people, the better opportunity you get. In this section, there are three main concepts that you need to know:
1- TAM (Total available Market): It indicates the total market demand for a product or service.
2- SAM (Serviceable Available Market): It refers to the available market for the service, which you can target from your products and services.
3- SOM (Serviceable Obtainable Market): It is the part of the serviceable market, which you can actually access.
Let's take a simple example that illustrates these three concepts in real life. If you want to create a mobile app idea, offering a time management tool, in this case TAM is the audience that already owns a phone around the world. If you want to launch your version on Android only, then this is SAM. SOM is the people you can actually reach based on your potential.
Ultimately, it is important to apply these three concepts to your project, and to be able to define your own SAM and SOM. Do you think that the result of the application enables you to have a real serviceable market, and is it profitable for you?
After answering: Do you have something innovative to offer?
According to Forbes, the positive side of being in a saturated market is that it forces the organization to continually innovate, never to be complacent. As this market indicates the existence of a great demand for products, and the indication is the strong competition between the existing companies.
This view makes sense for the entrepreneur who is always looking for risk, and with the presence of a market that can be served, then it is possible to enter this market. But because risk is not an end in itself, but rather an indication of a potential opportunity, do you have something innovative to offer in this market? Do you have a suggested feature that differs from the already existing one, to get customers to accept what you intend to offer?
Not only is technology embedded in the application of ideas, but other potential innovation aspects that enable companies to enter the market and grab market share of their own.
4 strategies to help you enter a saturated market
Now you realize there is an opportunity you can take advantage of, and you have a really innovative idea to implement, not just Fried Chicken. But the road is still fraught with difficulties and challenges. Therefore, you need to employ the right entry strategies. First of all, you need to study the competitors well, know the competitive advantage of each of them, and any market share data you have gathered as well. Among the most important strategies for entering the saturated market:
1- Finding your niche «Niche Market»
One of the most important strategies to help you enter a saturated market is to focus on a specific niche to compete for, instead of targeting all customers. This occurs by focusing your business model on the Niche Market. In this model, you focus on presenting your added value to a specific group of customers, by customizing it to suit their needs.
Even if your business model is not designed like this, try to focus on achieving excellence in your specific space, so this makes you a preferred choice among clients. This example can be seen in the Clubhouse voice-chat app , whose owners have chosen to operate in the audio content space, rather than the usual platforms of other social media sites.
2- Market penetration
Market penetration is a popular strategy for entering new markets, and it can also be relied upon to enter saturated markets. The most popular form of hacking is through price burning, offering products at lower prices than the rest.
Although this strategy contributes to achieving sales, it is not always appropriate, especially if the competitors are more powerful, have a great history in the market, as well as great liquidity. Therefore, they can keep up with the change in prices as well, the difference is that they have the ability to do so, while in the starting state you do not have all the capabilities that qualify you to continue for long, so it must be done with good planning.
3- Acquisition, merger, or cooperation with other companies
One of the most important strategies to enter a saturated market is to acquire other companies present in the market, in order to benefit from market share. This requires capital to do so, for example, the deal to acquire Careem by Uber cost $ 3.1 billion. Of course, not all deals go this way, nor are they the same high cost.
Ultimately, however, acquisition is an expensive option for you. Other methods can be relied upon in this case, such as merging with existing companies under a new name. One of the most famous global deals on merger, what happened between Exxon and Mobil in 1999, and take advantage of that to achieve growth.
Another reliable option is to collaborate with other companies, whether by producing joint ventures, to jointly provide services to clients. Or even simply making an alliance with an existing company, in order to improve operations and performance, to contribute to entering the saturated market, reaching customers, and obtaining a good market share.
4- Investing in clients
A saturation of the market often means that there are no new customers. In fact, it is not necessary to rely on attracting new customers, but you can focus your effort in retaining existing customers, and as the statistics above indicate, it is possible to double revenue through these, and that retaining existing customers may be more profitable than attracting others.
You can do this by using more methods that help you generate additional profits from these clients. For example, including additional services with the basic services offered. Or by improving customer service that you provide to them, or by using loyalty programs that motivate customers to repeat purchases.
Finally, the role of these strategies is not limited to entering saturated markets, but they also enable current companies to withstand when they are in a market approaching saturation. Not impossible, but it does require a lot of effort with a good study of the market. In the end, the result will be as you wish, an innovative idea that is competitive and profitable in any market, when people listen to it; They really acknowledge its quality, without sarcasm this time.
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