Market Fragmentation Meaning & Definition Marketing Overview

Whether it’s caused by globalization, regulatory changes, or market forces, the goal is normally to lower costs and boost profits. But just like any other story, there are also downsides to this process. The search for cheap labor and materials often comes at the expense of the local market. Outsourcing the production and manufacturing process takes jobs away from domestic workers, which means an increase in unemployment in the company’s home nation. By going to different suppliers and manufacturers, companies can cut their costs. This benefit can be passed on to the consumer, resulting in more affordable goods and services.

Understanding Fragmentation

In 2022, supply chains were affected by the COVID-19 pandemic as consumers saw shortages of products on shelves and price increases for those products. Global suppliers and sources of items such as computer chips, coffee, and lithium why new traders should use stop loss orders for electric vehicle batteries were impacted by the challenges of lockdowns and shipment issues. Fragmentation involves using different suppliers and manufacturers in the production process. Companies fragment to reduce production costs—even if this means going abroad. Developing nations with cheap and plentiful labor are common locations, such as those in Asia and Latin America. The term fragmentation refers to a supply chain that is broken up into different parts.

Two common varieties of fragmentation are market fragmentation and version fragmentation.Fragmentation is the opposite of, and is solved by standardization. Fragmentation in computers involves Day trading benefits storing a single file in several different locations on a hard drive or other storage devices. This often occurs when individuals create, move, make changes, or delete files. This type of fragmentation can lead to lower computer speeds and a drop in efficiency. An industry that is far too fragmented can often be problematic as outlets may find it difficult to reach their target audiences. The industry is further fragmented by how consumers receive their information, from television and radio to newspapers and digital sources.

1. Thanks to market fragmentation, businesses can develop a local marketing strategy that will help them gain a competitive edge over larger firms.
2. This phenomenon leads to a diverse range of offerings as brands strive to cater to the unique needs of these segments.
3. In many cases, business fragmentation may lead to inefficiencies and even losses.
4. Businesses can achieve long-term success in their industries by utilizing the market’s benefits and tackling its obstacles.
5. Whether it’s caused by globalization, regulatory changes, or market forces, the goal is normally to lower costs and boost profits.

Single-Market Marketing Strategy

A concentrated market also makes it easier for an existing player to dominate and increase their profits. Market fragmentation is based on the premise that each market has diverse customer needs, groups, and marketing responses. These many parts, which are typical of every market, indicate fragmentation. One of the best examples of market fragmentation can be seen in the hospitality industry. This causes further fragmentation as these organizations seek to dominate progressively smaller or niche markets. Therefore, it stands to reason that markets with existing Tech stocks to watch barriers to entry are not likely to be fragmented.

Types of Fragmentation

It means people can find products or services that feel like they were made just for them, rather than settling for something generic. The 2008 financial crisis saw many consumers become more price-conscious, which led to the rise of budget grocery stores. 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.

This enables the organization to maintain a degree of control as it keeps building its presence outward. Market fragmentation happens when multiple competing firms offer highly-incompatible technologies or technology stacks, likely leading to vendor lock-in. The airline industry is one that experienced a great deal of fragmentation. Not only does the metal have to be acquired but larger items, such as electronic systems, must also be assembled. Companies often source these materials in addition to labor in countries where they are cheaper.

Free trade agreements may often provide countries with duty-free access to labor and materials. For instance, the USMCA and its predecessor, NAFTA, set this up between the U.S., Canada, and Mexico. 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. Hitesh Bhasin is the CEO of Marketing91 and has over a decade of experience in the marketing field. He is an accomplished author of thousands of insightful articles, including in-depth analyses of brands and companies.

Within the accounting market alone are specialized financial services including retirement planning, tax preparation, forensic accounting, auditing, and fiduciary (property) accounting. Or the cost advantage a business enjoys because of the size of its operations. Globalization – with the help of the internet – is responsible for the popularity of anime outside of Japan, and K-pop outside of South Korea. Whereas today anime and K-pop fan bases are easily found in Western countries, they were far more niche two decades ago.

In fact, a fragmented market provides small business owners with opportunities to compete because most of the companies in that market tend to be small, and business practices vary widely. That doesn’t mean, however, that the industry itself if small because a fragmented market can be quite robust. All of these factors offer advantages for your small business and can help you craft a successful fragmented industry strategy. When you’re putting together your fragmented industry strategy, one of the biggest advantages to consider is the lack of major players in that market. Fragmented industries feature a number of different companies that are doing well, but no individual company is dominant.

Fragmentation: Definition, Examples, Pros and Cons in Business

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. More importantly, you would now have a decidedly competitive advantage. 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.