What is Market Fragmentation?
In a fragmented market, product offerings are frequently diverse, with little innovation and restricted personalization. If you see a repeating array of products with little to no creative techniques, this indicates such a market. A fragmented market is one where no single company can steer the industry. A fragmented market has multiple small and medium companies competing with each other and with major companies. Most companies require a strong brand identity to stand out from the competition. It’s all about turning the challenges posed by a fragmented market into opportunities by creating targeted groups within your audience.
Because of their size, large firms can afford to sell things at reduced prices. Fragmented markets, on the other hand, lack significant economies of scale since they are primarily small and medium-sized businesses that lack the advantages of larger, more competitive organizations. A fragmented market is one in which no single entity dominates the industry. It is distinguished by many small and medium-sized firms vying for customers in their specific specialty sectors.
New consumer preferences
For example, if you were to enter the burger industry, chances are high that you would have to compete with dominant players such as McDonald’s and Burger King. In a fragmented industry such as dry cleaning, there is no major business that has won the public’s loyalty to such an extent that smaller companies can’t compete. So when you’re implementing your fragmented industry strategy, you won’t have to worry about fighting for market share against a major brand. You can develop your business according to your 8 simple steps for how to become a database administrator own instincts and market research, ensuring that you take full advantage of the fragmented industry meaning as it relates to new opportunities.
- Along those same lines, professional service firms hired by clients that want help solving new problems with innovative approaches can feel stifled after a merger or acquisition.
- So when you’re implementing your fragmented industry strategy, you won’t have to worry about fighting for market share against a major brand.
- Finally, it’s worth mentioning that many firms are run by individuals who see them as lifestyle businesses.
- Global suppliers and sources of items such as computer chips, coffee, and lithium for electric vehicle batteries were impacted by the challenges of lockdowns and shipment issues.
- This enables the organization to maintain a degree of control as it keeps building its presence outward.
Instead of one or two dominant chains serving identical products, today there’s a whole range of smaller niches, from artisanal spots to specialty bean roasters, and themed cafes to coworking spots. This kind of fragmentation may also be referred to as market segmentation. It occurs when market participants are separated or segmented into different groups based on their needs—notably consumers. This allows companies to best cryptocurrency to invest in identify and target certain trends based on how individuals consume goods and services, thereby increasing efficiencies and profits. Markets can be fragmented based on behavior, demographics, or geography. By identifying and capitalizing on a market fragment before anyone else does, a company can carve out a niche for itself to operate in with less competition and more visibility.
Keys to Gaining Market Shares
Firms that operate in developed economies research the components needed and find available suppliers. They then use the cheapest sites to source and assemble the parts for their finished items. For instance, companies may source cheaper materials in one country and inexpensive labor to produce their goods in another while the finished product ends up being sold in yet another country. While on the other hand, concentration allows companies to establish a strong foothold in the market.
Company
Just like globalization fuels diversity among people and within communities, it in turn does the same for the products and services being demanded. New submarkets are created and new businesses are launched to cater to them – often leveraging globalized supply chains to make it all happen. Highly competitive industries comprise numerous businesses that top the market in earnings. This is commonly attributed to their consistent release of innovative items.
And inside of a fragmented market, there are plenty of clients to pursue. Try to avoid the temptation of going after clients outside of your core market. The second way to win in a fragmented industry is through geographic expansion backed by a framework of formulas that have worked at previous locations. Another executive coaching organization has been doing this for more than 60 years. It opens new groups by recruiting a geographically focused coach, certifying the coach and expecting the coach to follow a standard operating procedure.
Identifying market fragmentation is perhaps easier said than done, but the ability to do so can pay off handsomely for a business. Shifts in the economy inevitably impact purchasing power, which itself creates new market segments. For example, an economic recession will increase demand for cheaper, higher-value goods. New regulations can fragment markets by creating space for alternative products that comply with new rules.
The crux of the problem is a lack of awareness or acknowledgment of emerging market fragments. If a business doesn’t recognize these evolving niches or understand their unique dynamics, it can’t effectively adapt. And when these larger enterprises do notice the shift, their size and established ways of working can make it hard to pivot quickly – often leading to a disconnect with consumers. A business leveraging market fragmentation is also empowered to allocate their resources in a more cost effective way. That’s because, instead of trying to cater to everyone and spreading themselves too thin, they can tailor their products, services and marketing efforts to resonate deeply with a well-defined audience.
What we often find here is that compliance with the changed regulations becomes the new fragment’s unique selling point. Market fragmentation isn’t random; it’s typically the result of various evolving forces within the marketplace. Here’s a breakdown of the major causes and real-world examples of their impact.
Holding an MBA in Marketing, Hitesh manages several offline ventures, where he applies all the concepts of Marketing that he writes about. Market fragmentation and market segmentation are two sides of the same coin, but crucially they’re not the same thing. Competition means there are lots of clients spending money on what you do. Their presence is a good thing – and something to be thankful for because it shows 15 of the best dividend stocks to buy for 2021 a demand for what you offer.
