The term market, in marketing, refers to the group of customers or organizations that have an interest in the product, have the ability to buy the product, and are allowed by law to acquire the product. Markets are never uniform and consumers vary fro

m place to place and circumstances to circumstances. They are also divided into several kinds. Fragmented Market is one of the many kinds of market.

The fragmented market is defined as a marketplace where no single organization has enough influence to move the industry in a single direction. Fragmented market consists of several small and medium organizations that compete with one another and with large organizations, but there is no one single company that dominates the entire market. Businesses generally need to establish a brand reputation that not only resonates throughout the marketplace but also sets it apart from its competitors. But this becomes difficult in a fragmented market.

The basic idea behind the concept of market fragmentation is that every market reflects different buyer needs and wants, is composed of different segments and responds differently to marketing. These multiple sections, that are characteristics of every market, point towards the fragmentation of the market.

Let us take the example of the Food Take-Away industry. The industry is fragmented into several segments such as Indian Take away restaurants, Chinese take away restaurants, Mexican take away restaurants and others – each competing with each other and with bigger restaurants that have multiple cuisines. Other examples of a fragmented market include clothing retailers, businesses selling furniture, agriculture, plant nurseries and landscaping, book publishing, bulk building supplies and others.

Fragmented market is here to stay and it would do well for businesses trying to enter such as market to understand it in detail.

Making Sense of a Fragmented Market

How does a fragmented market form?

Fragmented markets arise from a variety of factors. However, growth within a single market or industry can often be the biggest influence on why markets fragment. When a market or industry grows to support large numbers of customers, distinct sub-markets start to separate from the parent market. These sub-markets become fragments of the initial market and usually form into entirely separate markets that have different product and service offerings. There are several more factors that influence how a fragmented market forms, including:

Differing market needs leading to market alternatives

When a market grows, it expands to more diverse customer needs. However, with no single dominating organization within the market, the entire market may not be able to fulfill the new diversity of the markets demand. In this case, the change and diversity in customer demand can eventually cause the entire market to separate into smaller fragments. When the market breaks apart, small and medium businesses and organizations can develop solutions to fulfill the demand within the new fragments.

Strong and equal market competition between organizations

Fragmented markets and industries can also form when no single organization overrides another in terms of market position. If all the organizations within an industry are in equal competition with one another, this means no one company will out-perform another. This often causes organizations to break away and become dominant in a new, smaller sub-market. This results in organizations positioning themselves at the top of new sub-markets within the entire industry, creating a fragmented market.

Lower cost alternatives to market offerings

Outdated offerings within an industry can cause customers to break away from the market to find alternatives that are lower cost for the same quality of product or service. This can cause companies within an industry to separate into smaller fragments to develop ways to fulfill the demand of customers who initially broke away from the overall market. Organizations that do this can gain enough influence to move the fragment in a direction of growth.

What is a fragmented market?

A fragmented market (or fragmented industry) encompasses a customer market where no single company or organization has adequate influence to move the industry in a specific direction. Fragmented markets and industries typically consist of many companies and organizations that compete within an overall industry, however, none of these small and medium organizations are dominant over the entire market within it.

In a fragmented market, there are various sub-markets that reflect different buyer demands and require different approaches to marketing and advertising to customers who fall within these various fragments.

Types of fragmented industries

Fragmented markets occur across many types of industries, including:

How to identify a fragmented market

In large industries like hospitality and technology, there are certain characteristics that can tell you if a market is fragmented or if it will fragment in the near future. Use the steps below to identify the characteristics of a fragmented market:

1. Determine if there are any barriers to entry

One of the most common traits of a fragmented market is that they are easy for organizations to enter and gain a position. Since the organizations within fragmented markets are all in equal competition, there should be no barriers to entering the market. Barriers to entry into a market can include factors like high start-up costs, legal and regulatory obligations or other obstacles that can prevent competitors from entering the industry. In a fragmented market, though, there are very few, if any, barriers to entry.

2. Identify where theres product innovation

Highly competitive industries typically consist of several businesses and organizations that lead the market in revenue generation. This can be due to organizations abilities to continuously provide innovative and new products to the market. In a fragmented market, however, there is usually a lack of diversity, innovation and even customization among the products that companies in that market offer. If you notice that the product offerings within a market are similar between multiple organizations and there are no real innovative approaches to new offerings, it is likely a fragmented market.

3. Lack of customization

Think about the needs of the market and how the organizations within that market are fulfilling that demand. In a fragmented market, youll notice that there are no unique offerings between the organizations in the market. This lack of custom or personalized offerings can indicate a current fragmented market or a market that will become fragmented over time.

4. Look at the economy of scale

Economy of scale refers to the cost advantage that an organization has because of the size of its business operations. For instance, large corporations that have large economies of scale are able to sell products at low costs because of the size of their operation. A fragmented market typically has no significant economies of scale because it consists of mostly small- and medium-sized organizations that do not scale as large, competitive companies do.

Advantages of a fragmented market

Fragmented markets have several advantages for small- and medium-sized organizations, including:

No single company to compete with

Equal competition within a fragmented market indicates that no individual company has a greater customer following than another. When no single organization holds enough influence to move the industry, it indicates that customers havent given loyalty to one business over another. This equal competition and lack of customer loyalty to any one organization can be advantageous for new businesses entering the market.

Little to no challenge to enter the market

Fragmented markets are also advantages for small businesses because there is little barrier to entry. One critical barrier to entry for many organizations is cost. Typically, the marketing costs will be higher for competitive industries where several large companies hold dominant positions. In a fragmented market, though, local marketing and advertising approaches lead smaller organizations to reduce costs for gaining a position in the industry.

Opportunity to innovate and differentiate

Many small businesses that succeed in fragmented markets do so because of the ability to provide innovated and differentiated offerings. For instance, a small landscaping business can differentiate itself from other similar businesses by personalizing customer experience or providing additional services to meet diverse customer needs.

Easier to reach target customers

Since fragmented markets typically consist of small organizations, marketing and advertising generally occurs on a local level. This enables small businesses to reach their target customers more easily and consistently, supporting their revenue generation.

Disadvantages of a fragmented market

Although fragmented markets can be highly advantageous for smaller organizations, there are also some drawbacks to these types of industries, including:

Redundancy in offerings

Because of the similarities in offerings between the organizations in a fragmented market, the products, services and messaging to customer markets can become redundant. When there are too many repeated offerings, target markets eventually seek alternatives offerings.

Lack of economy of scale

Fragmented markets can be challenging for small businesses because of the small scale of operations. For instance, a small business that produces home decor items may not have the scalability to handle large influxes of customer orders, shipping demands and coordinating with suppliers.

Frequent strategy updates

Market needs can change within fragmented markets, so frequent evaluation are necessary to develop successful marketing strategies. For instance, technology like social media makes it easier for small businesses to advertise to target markets, however, understanding which platforms these target markets use can be challenging when these types of channels are always evolving.

Ways to overcome challenges in a fragmented market

There are several ways that businesses overcome the challenges of a fragmented market, including:

FAQ

What is fragmented market?

A marketplace where there is no one company that can exert enough influence to move the industry in a particular direction. The market consists of several small to medium-sized companies that compete with each other and large enterprises. Source: Cambridge Dictionaries Online. +1 -1.

Is a fragmented market good?

Fragmented industries make ideal targets for companies looking to enter and potentially dominate a market. The nature of fragmented industries means they often provide fewer barriers to entry than more consolidated industries.

What is a fragmented industry example?

A fragmented industry is one in which there are very many firms competing and, as a consequence, no ‘one’ player is big enough to influence the direction or growth of the industry. Restaurants, cab services, home-care services, auto dealership and the furniture business are some examples.

How do you know if a market is fragmented?

How to identify a fragmented market
  • Determine if there are any barriers to entry. One of the most common traits of a fragmented market is that they are easy for organizations to enter and gain a position. …
  • Identify where there’s product innovation. …
  • Lack of customization. …
  • Look at the economy of scale.

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