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Market saturation

From Academic Kids

In economics, "market saturation" is a term used to describe 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.

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.

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