What Is Market Fragmentation?

From understanding the what and why to getting down to the nitty-gritty of building your first segmentation study, this eBook is packed with insights to help you connect with your customers more effectively. The 2008 financial crisis saw many consumers become more price-conscious, which led to the rise of budget grocery stores. Once peripheral players, discount chains like Aldi and Lidl tapped into the fragmenting grocery market by drawing customers away from traditional supermarkets – placing their focus on lower prices, not variety and brands. 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.

The consumer push for products that align with their values and lifestyle is a major fragmentation driver. As new trends take hold and old ones fall out of favor, consumer preferences are in a constant state of flux – markets respond by splitting into niches. Recall how Henry Ford established assembly lines to make it easier and more efficient to build standardized vehicles. In other words, it avoids standardizing products to homogeneous groups and instead seeks to personalize them.

Companies are pushed to up their game, think creatively and personalize their offerings to stand out. Going back several steps, market fragmentation creates new companies altogether. However, something could be said for the fact that consumers fragment themselves whereas businesses segment consumers.

1. 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.
2. With an in-depth understanding of the concept of a fragmented market, businesses have a better chance of dealing with the challenges that the market offers and thus succeed.
3. As a result, it is easier for new companies to gain customers and enter the market.

This first-mover advantage means that a business can establish strong ties with its customer base early on and set the stage for robust brand loyalty – which itself can often lead to word-of-mouth promotion and repeat purchases. For some businesses – especially the larger industry incumbents – market fragmentation often spells trouble. One big market transforming into multiple smaller ones will naturally lead to a rise in competition that can compromise a once dominant position for the clear leader.

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Further, fragments are typically specific to products and services while segments can define other activities. 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. Effective market research is almost always a prerequisite for any company leveraging market fragmentation.

In a concentrated market, there are only one or two dominant players, making it challenging for new companies to gain customers. In fragmentation, there are many different players in the market and each may have their own niche or specialty. As a result, it is easier for new companies to gain customers and enter the market. A fragmented market is a marketplace in which no one company dominates the industry. It is characterized by a large number of small and medium businesses that compete for customers in their respective niche markets. An example of a fragmented market would be the retail sector, where there are many small and medium-sized businesses vying for customers.

Market fragmentation is the concept that all markets are diverse and over time break into distinct groups of customers (i.e., fragments)—especially as markets grow. For example, when an entirely new product is created, until consumers can spend enough time with it, it solves the needs https://www.topforexnews.org/ of most early adopters. As more customers adopt the product, however, the need for more unique product features, benefits, and other aspects arise. It’s all about turning the challenges posed by a fragmented market into opportunities by creating targeted groups within your audience.

Disadvantages of a Fragmented market

Navigating the maze of market fragmentation can be complex, but understanding how to segment your customer base is a powerful way to steer through it. ‘How to Drive Profits with Customer Segmentation’ is your free guide to mastering this craft. Leveraging market fragmentation can be a game-changer for businesses – particularly nimble and adaptable startups and smaller https://www.day-trading.info/ companies. It’s a fragment of the groceries market that has grown in response to stricter food safety and farming regulations, and consumer demand for food products free of things like pesticides. With an in-depth understanding of the concept of a fragmented market, businesses have a better chance of dealing with the challenges that the market offers and thus succeed.

Some brands still choose to appeal to the masses, but market fragmentation can make that difficult and lead to disadvantages when it comes to mass marketing efforts and achieving brand loyalty. As a result, market fragmentation can pose more of an obstacle for larger companies, or those with a greater market share. Smaller companies that focus on distinct fragments can focus their efforts on building relationships with a unique set of consumers—and making those consumers feel special.

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. 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. Advancements in technology will typically lower a market’s barriers to entry for new competitors and enable the creation of tailored products. We’ve quickly seen how the advent of online marketplaces and social media has empowered small businesses to reach specific customer groups more easily.

Market fragmentation

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 https://www.forexbox.info/ globalized supply chains to make it all happen. Other examples of a fragmented market include clothing retailers, businesses selling furniture, agriculture, plant nurseries and landscaping, book publishing, bulk building supplies and others.

Two common varieties of fragmentation are market fragmentation and version fragmentation.Fragmentation is the opposite of, and is solved by standardization. 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. Like any other market, fragmented market has its own set of challenges too. Market fragmentation and market segmentation are two sides of the same coin, but crucially they’re not the same thing. Hitesh Bhasin is the CEO of Marketing91 and has over a decade of experience in the marketing field.

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