TLDR:
- You’ll usually find a few major businesses competing for the same customer base
- There’ll be declining profit margins due to lack of differentiation across all established products or services
- Customers are primarily only willing to trust businesses that are reputable and well established; limited market growth
- High customer acquisition costs
- No real incentive to innovate as everyone is competing for the same target audience
Understanding that it may not be worth your time
So you’re interested in building a business in a certain industry, but how can you clearly tell if it’s even worth investing time and energy there? More specifically, how can we tell whether or not that industry is saturated
1. High Volume of Competition
Typically, you’ll find that there are a handful of giants in the industry competing for the same customer base. Under such dynamics, it’d be challenging to differentiate your product or service unless you niche down as much as possible.
2. Declining Profit Margins
Usually, you’ll find that the profit margins in that industry are declining. Due to all the established businesses offering products that are not very different from their competitors, they’ll resort to tactics such as undercutting to try and keep that piece of the pie, leading to diminished profitability.
3. Limited Market Growth
Since the vast majority of the customer base will only interact with businesses that are reputable and with whom they have a sense of familiarity, there is very little room for growth. It is essentially a high barriers to entry market with how much of a challenge it becomes to gain a foothold.
4. High Customer Acquisition Costs
With all businesses merely competing for that same target audience, there can be further financial strain on new entrants, skyrocketing the price of marketing and customer acquisition costs.
5. Diminished Innovation
Owing to the limited room for market growth, there is no real incentive to innovate within the industry, as all the major businesses prioritize retaining their market share.
6. Related Links
What to take away from conducting such analysis is that if it's obvious the market is saturated, it’s not worth your time. Focus on industries where there’s a tell-tale sign that major businesses will not just eat you up, for that is a sign to set up shop there.