The Importance of Market Growth and What Can Influence It

Stefen Smith
The ideal business situation involves bringing a high-demand product to market with very few competitors. However, this situation is rare and when found, it generally doesn’t last for very long. Consequently, companies must consistently focus on growing the market. In fact, market growth is virtually synonymous with creating more customers.

If this seems like a big undertaking, that’s because it is. Thankfully, understanding what it is, how it works and what influences this growth can simplify the process and maximize results.

What Is Market Growth?

This term refers to a positive change in the size of a consumer market over a specific period. In some instances, this can involve the entire consumer market. For example, there was a boom in the size of the general consumer market when Generation Z turned 18 and became active buyers. Similarly, the housing market saw a boom as millennials started purchasing homes in the past few years.

Most organizations calculate growth by the percentage of increase in the buyers. However, transactions or item ownership can also determine market growth. For example, Forbes predicts a 6.6% increase in home sales for 2022.

Why Is Market Growth Important?

Without growth, economies and the industries that comprise them would become saturated and stagnant. This would lead to decreased demands and the eventual phasing out or crashing of that industry or the entire economy. Take a closer look at why continuing to grow the market is important for economies and businesses.

Company Growth

Company growth correlates with market share growth. Consider the growth trajectory of Facebook. What started as a college project grew into one of the largest social media platforms. The company then continued to purchase other networks and technology products and expanded into advertising and virtual experiences.

Economies of Scale

When the market grows and companies grow with them, they can take advantage of economies of scale:

  • Larger companies have more power when bargaining.
  • Buying materials in bulk costs less than buying only a few.
  • Larger companies have the resources to invest in automation and other types of technology that ensure quality control and operational efficiencies.

Profitability

According to the Harvard Business Review, market share is the biggest determining factor of profitability. Consequently, businesses need a good mix of loyal customers and new customers to generate consistent income, boost cash flow and fuel expansion. The lower operating costs from economies of scale can also boost profitability.

Cash Flow

Even the largest and most successful companies in the world often struggle with cash flow. This is because their profitability is tied to their assets and they may operate heavily on credit. Continued market growth increases the opportunity for cash to come in. Cash flow helps a business meet its obligations, such as payroll, taxes, debt repayments and operational expenses.

Agility

Over the past two years, companies have learned the importance of agility. Pivoting as the markets change allows companies to grow even in the face of shrinking markets. Cash flow is an important ingredient in agility as companies often need to invest heavily in new equipment and experimental ways of organizing workflow.

Employment

Growth is essential for generating employment from an industry-wide and business-specific standpoint. For example, when the restaurant market shrank in 2020, many waiters and bartenders moved into other professions. This has contributed to the current difficulty of finding food workers to keep restaurants open.

What Influences Market Growth?

At its core, the biggest driving factor for market growth is demand. The solar market is an excellent example of this. It has experienced unprecedented growth over the years driven by consumers' desires to reduce carbon emissions, lower electricity bills and avoid rolling blackouts. However, there are additional components to consider.

Culture

Long-term culture and short-term fads can drive market growth. Consider that, for centuries, the American Dream has involved owning a home. The individualist nature of American culture also prompts many Americans to forego multi-generational living and buy large homes for a single person or a small family. This has likely contributed to the growing demand for homes over the years.

Cost

When new products hit the market, they are often so expensive that only a select few people can afford them. Solar once again provides an excellent example. Over the past decade, the cost of panels and batteries declined significantly to make solar more affordable. The housing market also provides a great example. While housing prices have increased, interests rates on mortgages remain at record lows, which helps the market to grow.

Awareness

For consumers to choose a product or service, they first need to know it exists. For example, electric unicycles represent a niche market. Awareness has not expanded enough for people to see them as safe, viable and compact forms of micro-transportation. Consequently, the level of adoption remains low, even among target demographics.

Marketing

To increase awareness and market growth, companies need to invest in marketing geared toward this goal. As more people begin to see a product or service as a viable solution to current problems, the item climbs higher on the purchase list. Then, as more people purchase the product and share their experiences, awareness and demand continue to increase.

Appeal

Sometimes, when markets expand, only some organizations in the industry benefit. Companies need to ensure they offer an appealing product or service that can compete with the best and become one of the best. The appeal of a specific product or service comes down to the offering itself, its specs, its delivery and the way the company markets it.

Market Growth Strategy

When companies have a solid strategy in place, it becomes easier to pinpoint the target market, create a message that resonates and build a strong connection. It also becomes easier to streamline this process, automate its components and continually generate leads.

How Can Seer Production Help?

At Seer Production, our goal is to simplify the steps of connecting, committing and closing. We make it easier for our clients to reach their target audiences and build lasting relationships to achieve market growth. Contact us for a quote today.

Sources:

https://www.forbes.com/sites/brendarichardson/2021/12/13/experts-predict-what-the-housing-market-will-look-like-in-2022/

https://hbr.org/1975/01/market-share-a-key-to-profitability

https://www.npr.org/2021/07/20/1016081936/low-pay-no-benefits-rude-customers-restaurant-workers-quit-at-record-rate

https://www.cnn.com/2021/01/07/success/mortgage-rates-fall-january/index.html