The most devastating (and common) profit killer in a saturated market is price discounting. Winners of price wars are usually losers of growth and profit wars. Most franchisees recognize that training customers to expect below-cost prices will eventually lead to extinction. The good news is that other options are available to not just survive but to profitably grow in a saturated market and a slower-growing economy.

More than ever before, businesses must quickly recognize the indicators of impending market saturation and act fast to develop and implement thoughtful responses before their competition. Though not an easy task, it is a critical step and one that requires strategies different from those successfully used in high-growth markets.

"Build it and they will come" no longer applies. Adding more outlets to increase sales and profits is now backfiring for most franchisees in today’s economy.

It’s difficult to find an industry today that isn’t saturated, especially consumer markets such as quick service restaurants, oil change outlets, picture framing stores or dry cleaners. Now there’s not only a gas station on every "main and main" corner but an entire retail center with convenient, one-stop shopping for a customer’s daily needs.

The usual responses to market saturation--cost cutting, price discounting or adding more outlets--are true profit killers. Panic responses not only cost money but seriously depress future profit potential. Instead, business owners need to quickly identify why competitors are getting the business that should be coming their way.

Most likely, a competitor is solving your customer’s critical problem more conveniently or quickly or offers a greater perceived value. Even though a franchisee might disagree with their customer’s decisions, it’s a reality that must be acted upon. The first step to resolving this issue is to refocus your front-line employees’ and managers’ attention away from saving money and towards solving a customer’s critical problem.

Obviously the shift from an "irrationally exuberant" economy to single-digit growth has caused overcapacity. This phenomenon has given customers dramatically increased power resulting in rampant price shopping, waiting to buy until items go on sale and the demand for outstanding service as part of a heavily discounted price.

Under-utilized capacity in a saturated market will cause severe financial hardship in businesses that aren’t solving a customer’s critical problem. Accepting this and realizing that the foreseeable economic reality will not revert back to the past is critical to grow a business profitably in a saturated market. It’s not fair, but it is today’s reality.

Growing profitably in these circumstances is an extremely daunting task. Sometimes business owners resign themselves and accept that the situation is out of their control and there’s nothing to do but to ride the storm out.

Unfortunately these tactics are extremely counter-productive and prevent the implementation of strategies that lead to profitable growth in a saturated market and mediocre economy times. The five steps outlined below are critical to implementing a multi-pronged business strategy:

1. Have a plan. Creating a business strategy is a continuous process, not a one-time event. A flexible strategy is re-evaluated when leading indicators point to external environmental changes or nontraditional competitors start to gain market share.

A strategy is not intended to be a strait jacket. Sometimes companies pass over great but unforeseen opportunities because they aren’t in the "plan." A strategy is a guide based upon information available at the time. To ensure a strategy remains relevant, assumptions need to be constantly challenged as customer needs change.

2. Innovate. Innovation is one of the few ways to enlarge market size and grow revenues and profits. Few CEOs say, "I’m going to make record profits by matching my competitor’s products and prices." Companies also don’t make record profits by just tweaking an existing product by adding extra condiments to a sandwich or pizza or introducing a new and improved lawn fertilizer.

Innovators constantly search for the next critical customer problem to solve. According to Harold Reynolds, vice president at McDonald’s Corp." This may require stepping outside of the traditional business model to fully utilize the excess capacity, while staying within the boundaries of protecting and enhancing the brand."

An example is that profits and market share dramatically increased each time McDonald’s introduced new products or entered into a different dining segment, such as expanding into the breakfast market and introducing chicken nuggets and Happy Meals. If your company doesn’t exploit these new opportunities, competitors will.

3. Make it easy for customers to do business with you. There’s nothing more frustrating to customers than waiting for a manager to resolve an issue or staring at five closed registers when the check-out line is 10 people deep. This situation is so out-of-control that customers now come to expect long lines, poor service, uninformed sales people and even rudeness.

When a customer receives what is normally considered average service, they are overwhelmed by a "terrific" experience. Usually all this signals is that the product or service was delivered on time, it performed as promised, or someone smiled. These are not very expensive actions, but they produce not only customer loyalty but increased market share and profits, regardless of market saturation levels or economic conditions.

4. Focus on productivity. Most business owners equate productivity with cost cutting--doing more with less by just getting rid of people, not upgrading antiquated computer systems or working longer hours.

It’s been proved too many times to mention that these actions never increase productivity and actually decrease current and future profits and growth. This has been proven in saturated markets and even in industries that are experiencing growth. Unfortunately, cost cutting is equated with waste reduction, which does increase productivity, profits and market share growth.

The difference between cost cutting and waste reduction is in the intent and execution. Waste reduction focuses on customers and the business processes needed to deliver the products and services. Whatever can’t be directly linked to solving a customer’s critical problem is a candidate for elimination.

Of course, this strategy leads to many controversies when it comes to staff departments. It can be difficult to link how accounting, tax and legal expenses solve a customer’s critical problem.

First, without following legal and tax regulations, the company would be out of business. Second, it does mean that unless accounting, tax or legal services are your business, most companies don’t need best-in-class processes. However, many businesses actually have more accountants or technology people and expenses than sales and front-line service people.

This is the best way to begin a waste reduction project. But beware--randomly slashing costs will be more expensive in the long run. To reduce waste, first determine the business needs and then an adequate way to satisfy them. Don’t buy a "Cadillac" when a "Focus" will do just fine.

5. Make decisions based on real-time information. Making decisions with outdated information is another profit killer. In a saturated market, assuming anything about customers, competitors and market trends is dangerous. Collecting this information is often avoided because it’s perceived to be difficult, but it doesn’t need to be.

The best way to gather phenomenal data is to visit competitors or potential competitors. Go shopping yourself rather than pay a customer research company. Also, examine your buying habits and then talk to people completely different from yourself.