The phenomenon of market maturity reflects changing patterns in demand and supply, and occurs when there are multiple suppliers and multiple buyers in a market. It is normally represented by an S-curve (see Figure below showing a representation of market maturity trends) and, as a result, is frequently confused with the “product life cycle” of individual offers. This is also closely related to (and often muddled up with) a sociological phenomenon called “the diffusion of innovation”. (The latter is directly relevant to marketers because the products and services their companies offer are themselves part of innovative groups of offers that are diffusing across different societies in the world at different speeds.) Market maturity, though, is something distinct and different, the implications of which marketers need to understand. This concept draws an analogy between biological life cycles and the sales growth of successful product groups, by suggesting that they are born, introduced to a market of human beings, grow in sales, mature (sales growth stops but profit growth continues), and then decline (sales fall).
Before a market reaches maturity, it goes through the growth stage. During the growth stage, new companies are coming into the market, demand by consumers is increasing, and profits are growing. Supply and demand is in the producer's favor. But, eventually, the market begins to saturate, and supply and demand soften. Perhaps new products have been innovated or maybe most of the new customers to find have been found. As growth slows, the market reaches maturity. A mature market is a stage where the rate of growth slows, perhaps to zero. Because there is little growth, companies in the industry end up with excess inventory and/or capacity. This can often lead to pressure on profits, as companies discount prices to get rid of their excess capacity. Whether those price drops lead to a price war or companies shutting their doors, competition increases and becomes very intense. Competition in mature markets is typically based on price, not on product differentiation. While growth is slowing in a mature market, the market is still growing, just at a decreasing rate. For example, maybe last year the market for laptop computers grew at 6%, and this year the market grows at 4%. The market is still growing, at 4%, but it isn't growing as fast as it was. When the market actually starts to shrink, it is transitioning from the mature phase to the decline phase. As a market transitions from the growth stage to the mature stage, there are a number of strategic mistakes that companies make. The most common is simply not anticipating the change from operating in a growth market to a mature market. Pricing strategies, optimal production levels, and marketing are very different in a mature market than they are in a growth market, and pursuing a growth strategy in a mature market can be very costly.
Stages of Market Maturity
According to Martinez and Haddock, the 4 stages of market maturity are:
- Stage 1. Survival: In developing countries, most of the population is preoccupied with basic survival – obtaining adequate food, shelter, and clothing. (Much of sub-Saharan Africa is in the stage right now.)
- Stage 2. Quality: As a middle class emerges, people seek greater quality in their food, housing, and clothing (This is currently happening, for example, in much of China and India.)
- Stage 3. Convenience: Once a transitioning market’s population can afford relatively high quality, they begin to seek convenience; they buy time-saving appliances and processed foods, and they may move closer to work. (This stage is emerging today in Eastern Europe and Latin America.)
- Stage 4. Customization: Finally, as the market graduates into the realm of developed nations, the population wants customization; with needs for survival, quality, and convenience now met, people, will spend a premium (as many do in North America, Japan, and western Europe) to satisfy individual tastes and desires.
Signs of Market Maturity
Avondale co-founders Karl Stark and Bill Stewart warn in Inc. that entrepreneurs, even those working in high-growth evolving markets, must prepare for market maturity. Since “the very basis for competition and value creation will change radically when a market matures,” founders need to have a plan in place early. To help determine if market maturity is approaching for your business, Stark and Stewart provide six signs that involve customer behavior, competitive intensity, product innovation, and cash flows.
Here are six signs that your market might be maturing:
- Customer needs/desires do not appear to be evolving rapidly.
- Consolidation by leading competitors is reducing competitive intensity.
- Disruptive innovations and new entrants are gaining share only gradually and top out at relatively low levels.
- Market shares of leading competitors have solidified and are changing gradually, if at all.
- Price, brand and/or channel strategy has supplanted product innovation as key value drivers.
- Cash flows are increasingly turning positive and being returned to investors rather than invested into the market.
Strategies for Mature Markets
If your market is maturing, there are still likely to be plenty of value-creation opportunities in front of you. Here are some strategies you might pursue:
- Capture a profitable niche: Notwithstanding the dominance of brands like Coke and Pepsi, there are several very successful regional brands. Dr. Pepper and Big Red are both popular in the South and Southwest and have successfully made the transition to the national stage. In your market, there are likely profitable niches you can successfully capture and defend.
- Innovate within emerging sub-markets or adjacencies: Mature markets often have niches that are evolving and/or underserved (e.g., the energy drink and bottled coffee beverage markets mentioned above). Your best target for "better mousetrap" innovation will often be those sub-markets or niches that are evolving rapidly within your mature market.
- Establish and fanatically adhere to a clear source of differentiation from key competitors: The Red Bull or Monster energy drink value proposition is certainly distinctive. All the elements of their business model (target audience, branding, flavor, package size, etc.) are designed to clearly differentiate energy drinks from the rest of the beverage universe. You can similarly create a clearly differentiated offering and business model, which can create significant value if you pursue it fanatically.