Competition is expected in the business world, but a saturated market can lead to extreme competition and loss of market share.
You've heard the phrase, "keep your friends close and your enemies closer." This is even more true in business. If you don’t pay attention to the market, then you might go out of business.
Competition is good
Even though severe competition can drive companies out of business, it is overall a good thing. Competition drives innovation, which leads to new business models, products, or ideas. It also usually results in lower prices for customers and a higher quality product.
So competition benefits everyone as long as there is enough "pie" to go around. When markets are growing, nobody cares about what the other guy is doing.
Saturation is the real problem
When a new product class enters the world, you can sell it to everyone. Usually the first company with the new product tries to capture a large market share before competitors copy the product. Once everyone who wants that type of product has one, then the market is saturated.
At this point, companies either try expanding to new markets, such as overseas, or try to steal existing customers from competitors. The later can lead to bankruptcy for some companies.
How to deal with market saturation
Market saturation will effect any industry eventually. So it is impossible to avoid. The question needs to be how will you deal with it? Assuming expanding to new markets isn't an option. You have a few choices.
You can take the popular solution of stealing customers. This usually only works if you are already have one of the largest market shares. With saturation, the big get bigger and the small go out of business.
Another choice is to enter a different product category and leave the saturated market. Think beverage companies expanding into snack food. It is not radically different from your previous product, but it does allow you to avoid the other saturated market, at least until your competitors follow your lead.
The last option is to gracefully go out of business. If you see the end coming, then you might as well make the most of it. Don't fight it. Sell your company today to the highest bidder while the market is hot instead of in a few years when everything has collapsed. Use the money you receive to start a new business with a new product.
Dealing with a saturated market can be difficult. No solution is better than any other. Which option would you pick? Let me know in the comments.
Ethan Hausmann is currently the Vice President of Marketing and Community Outreach for Successtar Enterprises LLC. He is an author, professional speaker, and seminar/workshop instructor. Ethan has extensive knowledge and experience in marketing, customer service, leadership, and other small business related concerns.