Entrepreneurs thrive in high-growth evolving markets. There is more revenue to compete for every year, and entrepreneurial innovation can be a key driver of value creation.
However, every growth market must mature eventually, and entrepreneurs must be able to navigate the transition to maturity. Often the very basis for competition and value creation will change radically when a market matures.
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.
To take an extreme example, the U.S. canned/bottled beverage market is very mature. Customer desires are evolving (more water and non-carbonated beverages) but only gradually (carbonated beverages have lost roughly 1% share per annum in recent years). Coke, Pepsi and Nestle collectively hold a significant share of the market and have held those shares over time, in part with acquisitions of emerging brands. Competition is oriented around price, brand-building and distribution channel. All three companies return significant cash flows to shareholders each year in the form of dividends and share buybacks.
Note that even within the mature canned/bottled beverage market, there is plenty of innovation. For example, energy drinks and bottled coffee beverages have been significant innovations in recent years. In both cases, though, these have been niche innovations.
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.
It is critical to recognize the signs of a maturing market and adapt your business model to it.
Is your market maturing? How are you going to create value in that market? Share your thoughts with us at firstname.lastname@example.org.