# What Is Market Saturation?

> **Definition**
>
> Market saturation occurs when the supply of a product or service in a market reaches its maximum capacity.

## What Is Market Saturation?

Market saturation arises when the demand for a product or service in a marketplace has been maximized.

When market saturation occurs, a company can achieve further growth with product changes that reignite consumer demand or by taking existing [market share](https://www.investopedia.com/terms/m/marketshare.asp) from competitors.

### Key Takeaways

*   Market saturation occurs when a product or service is no longer demanded in the marketplace.
*   To combat market saturation, firms create products that wear down over time and need replacing, such as light bulbs.
*   Companies also can deal with market saturation with innovation, effective pricing, or unique marketing strategies.

## Causes

Market saturation can be [microeconomic or macroeconomic](https://www.investopedia.com/ask/answers/difference-between-microeconomics-and-macroeconomics/). From a micro perspective, market saturation can take place when a specific market no longer exhibits consumer demand for a company's product.

This occurs when a company's competition is able to attract more buyers to its similar products by, for instance, underscoring differences through advertising or lowering prices. It can also happen when a competitor's product innovation reduces consumer desire and need for the company's product or service.

From a macro perspective, market saturation occurs when an entire customer base has been serviced and the company cannot acquire new customers.

## Company Strategies

To inhibit or prevent market saturation, many companies design their products to wear down and require replacement at some point. For example, Apple encourages consumers to replace older iPhone models with new models.

Market saturation can force companies to change their [revenue](https://www.investopedia.com/terms/r/revenue.asp) models, especially when product sales slow. For example, IBM started providing recurring services once it experienced saturation in the large computer server market.

### Repositioning Products

When a company faces a saturated [market](https://www.investopedia.com/articles/trading/09/what-factors-create-trends.asp), its product or service has to be more innovative than those of its competitors to entice customers to buy it.

A company might pivot to become the low-cost provider of a product or service. Or, it may decide to position its offering as a premium option.

A company also may choose to diversify its product line, so that when sales for one product drop, stable or increasing sales of another can offset losses.

### Competitive Pricing

Companies must be competitive in pricing products to compete against other companies that choose the same pricing structure. However, companies that operate in a saturated market might end up waging [price wars](https://www.investopedia.com/terms/p/price-war.asp) with each other, continuously undercutting prices to attract customers. This can lead to a race to the bottom.

### Savvy Marketing

When a market is saturated with product and service options, especially when those options are somewhat homogeneous, effective marketing strategies can make a difference for a company.

A company can test different messages and then use the one that had the greatest positive response.

Consistent, ongoing marketing and advertising, especially with the help of various social media platforms and influencers, can revitalize interest in products and drive fresh sales for prolonged periods.

## Examples of Market Saturation

**Fads or Trends:** [Fads or trends](https://www.investopedia.com/articles/trading/09/what-factors-create-trends.asp) can supercharge demand for particular products or services that may have experienced slow sales. This is particularly true in the age of social media when consumer excitement can be spread instantly to thousands of people, if not more.

However, over time (or potentially quickly due to adverse reactions shared online), market saturation can take effect as consumer interest wanes and purchases die out.

**Real Estate:** It can be challenging for a [realtor](https://www.investopedia.com/terms/r/realtor.asp#citation-11) to operate in a saturated market. Residential real estate markets ebb and flow depending on many factors. These can include prices, economic conditions, and inventory.

When the market is saturated, it often causes a drop in house prices, and in turn, a hit for realtors' incomes which rely on a commission. However, that can be a boon for consumers trying to buy a home.

> **Important**
>
> New rules for the National Association of Realtors that took effect in 2024 lowered commissions for home buyers and sellers. The standard 6% commission no longer applies and sellers don't have to offer compensation to the agents of buyers. NAR also requires brokers to enter into written agreements with their buyers. They should help consumers understand what services will be provided, and at what cost.

## What Signals Market Saturation?

A saturated market often includes a handful of major suppliers who all sell a specific product or products and have potentially low-profit margins. You'll also know that a market may be saturated if few new companies participate in it.

## How Is Market Saturation Measured?

One way it's measured is by [calculating market share](https://www.investopedia.com/ask/answers/033015/how-do-i-determine-particular-companys-market-share.asp). Consider an industry's total sales. Then divide an individual company's total sales by that figure. Subtract that percentage from 100 to see the market share available to be captured. If the individual company has a large percentage, and it has a number of competitors (who presumably also have some market share), then the market may be saturated. In addition, researching supply versus demand for a product or service can help you get some idea of market saturation.

## How Do Companies Overcome Market Saturation?

Creative, consistent messaging and marketing, lower pricing, and exemplary customer service can help companies overcome saturation. They also might enter a niche market within the saturated market to boost sales.

## The Bottom Line

When the demand for a product or service peaks, market saturation occurs. Sales stagnate and companies can run into financial trouble.

Companies can combat market saturation and its negative effect on their operations by lowering prices, cutting their expenses, developing similar, more innovative products, and diversifying into additional products.

> **Article Sources**
>
> 1.  Datamation. "[How IBM Has Changed To Become What It Once Was](https://www.datamation.com/cloud/ibm-as-a-service-model/)."
>     
> 2.  First Citizens Wealth. "[Impacts of the 2024 Real Estate Commission Changes](https://www.firstcitizens.com/wealth/insights/intel/impacts-2024-real-estate-commission-changes)."
>     
> 3.  CNN. "[The 6% Commission on Buying or Selling a Home Is Gone After Realtors Association Agrees to Seismic Settlement](https://www.cnn.com/2024/03/15/economy/nar-realtor-commissions-settlement/index.html)."
>     
> 4.  National Association of Realtors. "[National Association of REALTORS® Reaches Agreement To Resolve Nationwide Claims Brought by Home Sellers](https://www.nar.realtor/newsroom/nar-reaches-agreement-to-resolve-nationwide-claims-brought-by-home-sellers)."
>     
> 5.  Nebraska Business Development Center. "[Saturation Points—Know Your Market Before You Make It To Your Market](https://www.unomaha.edu/nebraska-business-development-center/_files/publications/saturation-points.pdf)."