Updated Mar 08, 2022

What is a Fragmented Market?

What is a Fragmented Market?

 

 

Fragmented markets can allow smaller firms to enter an industry and reach smaller target consumers. When a market divides, it creates smaller sub-markets that are more attractive to new entrants. There are various aspects to consider if you want to learn how a small business might enter a fragmented market. In this post, we'll look at what a fragmented market is, how they emerge, how to detect them, what industries tend to fragment, and how fragmented markets might benefit you.

 

 

 

What is a fragmented market?

 

A fragmented market (or fragmented industry) is one in which no single company or organisation has enough clout to sway the industry in a particular direction. Fragmented markets and industries are often made up of several companies and organisations that compete within a larger industry, but none of these small and medium-sized businesses dominate the whole market inside it.

 

There are several sub-markets in a fragmented market that represent distinct buyer wants and necessitate different approaches to marketing and advertising to clients who fall under these various fragments.

 

 

How does a fragmented market form?

 

A lot of variables contribute to fragmented markets. Growth inside a single market or industry, on the other hand, is frequently the most influential factor in why markets fragment. When a market or sector becomes large enough to accommodate a significant number of clients, multiple sub-markets begin to emerge from the main market. These sub-markets become fragments of the initial market and, in most cases, develop into wholly separate markets with distinct product and service offers. Several other variables influence how a fragmented market develops, including:

 

Multiple markets require leading to market alternatives

When a market expands, it caters to a wider range of customer wants. However, because there is no single dominant organisation in the market, the entire market may be unable to meet the market's new diversity of demand. In this situation, the changing and diverse nature of client demand may eventually force the entire market to fragment into smaller segments. When the market divides, small and medium-sized firms and organizations might develop solutions to meet demand in the emerging segments.

 

Organizations face fierce and equal market competition.

When no single firm has a dominant market position, fragmented marketplaces and industries can arise. If all firms within an industry are in equal rivalry with one another, no one company will outperform the others. This frequently leads to organisations breaking away and becoming dominant in a new, smaller sub-market. As a result, businesses position themselves at the top of new sub-markets within the industry as a whole, resulting in a fragmented market.

 

Alternatives to market offer at a lower cost

Outdated offerings within an industry can cause customers to leave the market in search of alternatives that are less expensive for the same quality of product or service. This can lead to companies within an industry splintering into smaller pieces to explore ways to meet the demand of customers who initially separated from the broader market. Organizations that accomplish this can develop enough clout to steer the fragment in a positive direction.

 

How to Recognize a Fragmented Market

Certain features in huge industries, such as hospitality and technology, can indicate if a market is fragmented or will fragment shortly. To determine the features of a fragmented market, follow the steps below:

 

1. Check whether there are any entry hurdles.

One of the most prominent characteristics of a fragmented market is the ease with which firms can enter and gain a position. Because companies in fragmented markets face equal competition, there should be no obstacles to entry. High start-up costs, legal and regulatory duties, and other impediments to entry into a market can all be reasons that prohibit competitors from entering the business. In a fragmented market, however, there are few, if any, entrance obstacles.

 

2. Identify areas of product innovation.

Highly competitive sectors are often made up of a few of enterprises and organisations that dominate the market in terms of revenue creation. This may be attributed to firms' ability to bring creative and new products to the market on a consistent basis. However, in a fragmented market, there is frequently a lack of diversity, innovation, and even personalization among the items offered by the enterprises in that market. A market is likely fragmented if the product offers inside it are identical across several firms and there are no truly unique methods to new offerings.

 

3. Lack of personalization

Consider the market's needs and how the organizations within that market are meeting those demands. In a fragmented market, you'll find that there are no distinctive offerings among the industry's businesses. This absence of customised or tailored offerings may imply a currently fragmented market or a market that will fragment over time.

 

4. Consider the economics of scale.

The cost advantage that a company gets due to the magnitude of its commercial operations is referred to as economy of scale. Because of the magnitude of their operation, major firms with large economies of scale can sell products at inexpensive prices. A fragmented market often lacks major economies of scale because it is dominated by small and medium-sized businesses that do not scale as well as large, competitive corporations.

 

 

Types of fragmented industries

 

Fragmented marketplaces can be found in a variety of industries, including:

 

Software development: 

Software development is an outstanding example of a fragmented industry because there is no single dominant small- or medium-sized firm in the market. As a result, new and emerging enterprises may be able to enter the market with few to no hurdles or competition.

 

Building and labor:

Markets in the construction and labor industries often split due to the ease with which small enterprises can enter the market.

 

Accounting and finance:

Financial and accounting services are a highly fragmented industry, with numerous sub-markets offering identical services. There is no single small or medium-sized enterprise that controls the whole industry; rather, industry fragments can include specialized financial services such as tax preparation or retirement planning.

 

Marketing and public relations:

Because of its size and the fact that no single marketing company occupies a dominant position within the sector, the marketing industry can be compared to the financial and accounting industries. Many small and medium-sized businesses can enter the industry with little to no difficulty.

 

Retail:

In a fragmented retail market, smaller enterprises may compete with one another for market leadership. However, the lack of economies of scale that small and medium-sized merchants normally possess can prevent any one of them from dominating the market, resulting in fragmentation and separation from the parent industry.

 

Hospitality:

The food and hospitality business is a prime example of a disjointed industry. Because of the dominance of huge restaurant chains, smaller restaurants establish sub-markets that meet a variety of market demands. Small, family-owned restaurants, for example, may compete with other small restaurants in a fragmented industry by offering distinctive menu items and dining experiences to achieve market impact.

 

 

Advantages of a fragmented market

 

Small and medium-sized businesses benefit from fragmented marketplaces in various ways, including:

 

There is no single corporation to compete with.

In a fragmented market, equal competition means that no single company has a larger consumer base than another. When no single group has enough clout to sway the industry, it suggests that customers aren't devoted to one company over another. This level of competition and lack of client loyalty to anyone corporation can benefit new entrants to the industry.

 

Entering the market presents little to no difficulty.

Small firms benefit from fragmented marketplaces since there are fewer barriers to entry. Cost is a significant barrier to entry for many companies. Marketing expenditures are typically greater in competitive industries where multiple large players maintain dominant positions. Local marketing and advertising tactics, on the other hand, lead smaller firms to cut expenses to acquire a foothold in the sector in a fragmented market.

 

Opportunity to differentiate and innovate

Many small businesses that flourish in fragmented marketplaces do so because they can offer innovative and differentiated products and services. A small landscaping company, for example, can set itself apart from competitors by personalizing the client experience or offering additional services to fit the needs of a broad customer base.

 

It is now easier to reach out to potential customers.

Because fragmented markets are largely made up of small businesses, marketing and advertising are frequently done on a local basis. This allows small enterprises to reach their target clients more easily and frequently, hence increasing income generation.

 

Bottom Line

A fragmented market makes it easier for firms to reach the proper customers. A fragmented market makes it easier for enterprises to target their products to the target consumer based on demographics, behavior, and interests.

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