The Advantages of a Fragmented Industry Chron com

The consolidation process has also made it difficult for small businesses to compete. A recent trend in this consolidation process is that companies are building their own supply chains, which either creates a monopoly or leads to independents outsourcing their manufacturing needs to big corporations. As CTV advertising continues evolving in 2024, the future remains bright for brands that know the importance of content in driving business outcomes and that develop a strategic approach to choosing content for their campaigns. Also, there are barriers like access to distribution channels and materials, cost advantages, and risk. Firms that can manage risk and have creativity in technology can enter the industry.

  1. Hitesh Bhasin is the CEO of Marketing91 and has over a decade of experience in the marketing field.
  2. So when you’re implementing your fragmented industry strategy, you won’t have to worry about fighting for market share against a major brand.
  3. The biggest risks are loss of control and agency issues with franchisees.
  4. This is true in markets with less regulation and in countries with more transparency.
  5. However, these outlets (or operational shops/stores/sales centers) must be operated very efficiently.

One of the most common contexts that one runs into in most parts of the world is that of a ‘fragmented industry’. One of the best examples of market fragmentation can be seen in the hospitality industry. In a fragmented market, there are many small suppliers and many small buyers.

Understanding Fragmentation

Since the market you’ve chosen is fragmented, you may be able to offer something in that market that no one else is, which means that you’ll face less competition. For example, let’s say you’re thinking about opening a comic book store in an area that has several thriving stores. However, you decide to differentiate your comic book store by offering a large selection of comics written, drawn, and targeted at women, who you recognize as an enthusiastic but under-served market. You would also invite female comic writers and artists for in-store meet-and-greet sessions, and hold monthly specials for female comic book fans. While you would still attract the male market for traditional comic books, you would also attract women customers who finally have a store that caters to their needs. Despite these snags, leaders of services firms within fragmented markets can bypass the typical playbook and grow and scale their businesses by applying alternative methods to get ahead.

Competitive Strategy in Emerging Industries

This is the opposite of what we usually observe in fragmented industries with lots of companies that hold only a small market share. Pricing coordination is virtually impossible, as there are too many market players to keep an eye on. Firms compete fiercely because even a small gain in sales can make a difference in their profits. Very often, you will see companies cutting prices in order to “steal” a market share from the competition. Based on the distribution of market share in an industry, we differentiate between concentrated and fragmented industries. A market with many participating firms holding a small market share is considered fragmented.

How do you identify a fragmented industry?

A fragmented market is a market in which there are many small suppliers and many small buyers. This can lead to a lot of competition, and can make it difficult for new companies to enter the market. First, it’s important to understand the industry landscape and identify the key players.

Fragmented retail markets typically consist of small to medium players that do not have the ability to become market leaders. Within the accounting market alone are specialized financial services including retirement planning, tax preparation, forensic accounting, auditing, and fiduciary (property) accounting. These barriers can include prohibitive start-up costs, legal or regulatory obligations, or patented technology. Identifying market fragmentation is perhaps easier said than done, but the ability to do so can pay off handsomely for a business.

Apart from these, specialising in geography, product and customer type are some of the strategies adopted. Fast-food restaurants are also differentiating themselves from some of the bigger brands by offering fast-casual dining. Fast food is dominated by a handful of restaurant chains, forcing many smaller establishments to differentiate themselves in sub-markets.

What is fragmentation?

Globalization and improved technology paved the way for fragmentation, as it becomes increasingly cheaper and easier to source, ship, and track goods as they travel from place to place. Fragmentation is common in the electronics, transportation, and apparel industries. These entities are often in different countries, especially where labor is plentiful and inexpensive. Fragmentation was made possible by improved technology and globalization.

Fragmentation is both the result of market growth and an avenue for growth for any business looking for a new opportunity. As the market expands, it becomes economically feasible at some point to develop and sell products to each group. It is our mission to make the world a better place by connecting people to what they want and need. We do this with our best forex system matching and marketplace software, and continual improvement process which when combined makes sophisticated solutions accessible to all. This is in contrast to an oligopoly, which is where a few large companies dominate the market. Another good example of a fragmented industry is the craft beer industry, where there are many small breweries competing.

Industry regulation does not discourage new competition or subsidize established enterprises. Upon exiting the industry, there is usually no need to take losses on expensive assets that cannot be sold or repurposed. Developing nations benefit because of the increase in demand for labor and materials. Local populations gain employment and may be able to boost their skills as companies search for source materials to produce their goods and services.

This causes further fragmentation as these organizations seek to dominate progressively smaller or niche markets. Therefore, it stands to reason that markets with existing barriers to entry are not likely to be fragmented. Some of them are health clinics, restaurants, hotels, automobile repairing, furniture- making, garments, computer software development, boutiques, pottery, and real estate. A fragmented industry is related to an industry environment, quite different from the other three types of the industry environment.

Other examples of a fragmented market include clothing retailers, businesses selling furniture, agriculture, plant nurseries and landscaping, book publishing, bulk building supplies and others. One big way travel businesses can get more ‘bang for their buck’ is to switch to offshore suppliers instead of producing their goods or services entirely in-house. From a travel industry perspective, this is where we begin to see travelers opting to shop around for the best price, even if that means sourcing their trip from multiple suppliers. As globalization takes hold of our industry we’re seeing more and more businesses and consumers seek more cost-effective options. These problems require strategic management and more focus on budgeting, tighter control, and new motivational systems are required.

And how will these outcomes align with any other channels in the customer journey? Look for content that delivers the results you’re looking for, ties back to overarching business outcomes and fits seamlessly with the other channels in your media mix. And if your viewers are tech-savvy, consider new shoppable formats, where offers are sent directly to their phones. The fragmented market opportunities are the small pieces of the market that are not controlled by a single company. These small pieces can be exploited by companies that are willing to put in the effort to do so.


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