Fragmented market – Definition, what it is and concept

A fragmenting market is one where there are many generally small and medium-sized companies competing within the same commercial or industrial sector.

So, as there is much business within the competition, none of them can be considered to have important participant within the market, as a result, none has power in setting the price of the product.

Consequently, their market share is very similar in relation to the large number of companies competing in the market. Therefore, if they want to obtain benefits or profits, their approach is not aimed at selling in large volumes and obtaining a market share that is representative.

That is, a company that competes in a fragmented market must strive to achieve the differentiation of its products and services, since their market share price or share strategies do not affect the position that the other competing companies occupy within the market sector.

Difference between segmented market and fragmented market

So, it is very important to be clear that when talking about the segmented and fragmented market, we are not talking about the same topic.

  • Segmented market
    Since, the term segmented market is mainly aimed at consumers or customers within a market, indicating that there are many groups of consumers that present many differences when they want to satisfy a need.Then, for that reason, segmentation can be performed attending to demographic, psychosocial and economic characteristics such as
    important elements to be able to divide the different consumers that
    They aim to meet your needs in a very specific way.
  • Fragmented Market
    Of course, when we talk about market fragmented, the focus is on the production and marketing of products, that’s why we say that a fragmented market is a market where there are many competing companies that offer similar goods and services.Since, in a fragmented market, it is more difficult to have an important position and participation within the competitive environment, because almost all companies operate and operate in a similar way in their production and marketing strategies.

Factors that allow a more fragmented market

So, the factors that can be considered as favouring so that a fragmented market can be generated are the following:

  • Few or no barriers to entry
    Since the absence of barriers or the existence of few entry barriers to certain sectors of commerce or industry, it allows any company to enter the competitive field, which makes the markets very fragmented.
  • No high capital investments are needed
    In addition, these business sectors do not require high capital investments, which allows any small business or medium can compete, in the same way, they do not need to use the economies of scale to be competitive.
  • High transportation costs
    On the other hand, if transportation costs are high, production is limited to supplying nearby market areas to production plants, so the market is fragmented more.
  • Little bargaining power
    So, for being companies with a low volume of production its negotiation capacity is very limited, likewise, consumers and customers can easily change of companies that supply the goods and services they need.Therefore, the scarce bargaining power it makes markets more fragmented both at the level of the local economy, the national economy, the regional economy and the international economy.
  • Very specific legislation for each sector
    At the same time, when the legislation is very detailed and specific for each sector of the market causes a greater fractionation of industry, economic activities and the market in general.
  • Legislation that favors competition
    On the other hand, if the legislation favours the competition, the emergence of monopolies and markets is highly avoided concentrates, which allows a greater amount of competitors.The more competitors there are in a portion of the market, greater benefits get the consumers and customers of each one of the private markets.
  • Differentiated production lines
    Finally, there are certain products that need to be created based on customer requirements, which requires a close relationship of producers and customers, this situation greatly favours small businesses that produce in small quantities appropriate to customer requests.

Examples of fragmented markets

As we have seen the fragmented market includes a lot of competitors, to
exemplify fragmented markets we can mention, among some important:

  • Restaurants.
  • Beauty salons.
  • Automotive service workshops.

It turns out that, in these examples, we can observe that in each case is a fragmented market type because the companies that are dedicated to offering these services do not need high levels of investment to be able to compete, they can produce with low volumes and if they are oriented to customer needs can be profitable companies, even if they are small.

Finally, we can conclude that in general in this type of fragmented markets companies achieve success by focusing more in achieving the differentiation of the product or service they offer to the market; which, trying to increase its market share, as well as looking to get the price or low-cost leadership.