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In economics, market saturation is a situation in which a product has become diffused (distributed) within a market; the actual level of saturation can depend on consumer purchasing power; as well as competition, prices, and technology.
Contents
Theory of natural limits
The theory of natural limits states: "Every product or service has a natural consumption level. We just don't know what it is until we launch it, distribute it, and promote it for a generation's time (20 years or more) after which further investment to expand the universe beyond normal limits can be a futile exercise." -Thomas G. Osenton, economist
The theory was introduced by Osenton is his 2004 book, The Death of Demand: Finding Growth in a Saturated Global Economy; and states that every product or service has a natural consumption level that is determined after a number of years of sales and marketing investment (usually around 20–25 years). In effect, a relative universe of regular users is naturally established over time after which any significant expansion of that universe becomes extraordinarily difficult. The point at which these natural limits are reached is known as "innovation saturation".
Example
For example, the American weekly consumer magazine Sports Illustrated was launched in 1954 with 400,000 subscribers and grew through the 1960s, 1970s, and 1980s until reaching 3.5 million subscribers in the late 1980s where it has remained ever since. With some estimates of up to 100 million sports fans in the United States, many at Time Inc. believed that Sports Illustrated's subscription base could have been much higher. However, after many years of investment, the sports weekly's natural and most profitable consumption level was reached – where it has remained for more than 20 years.
"Flooding the Market"
When suppliers abruptly offer large quantities for sale and saturate the market, this is known as flooding the market.
Example
For example, in advanced economies an extremely high percentage of households own refrigerators (more than 97% of households). Hence, 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.