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Market Fragmentation

Disciplines > Marketing > Understanding Markets > Market Fragmentation

Description | Example | Discussion | See also

Description

As markets grow, they fragment, forming distinct sub-markets that may break away from the parent market to become sustainable separate markets, with different products and services.

Fragments start as small segments of customers with similar needs but for which there is no customized solution available. As a result they do not buy or make do with the best alternative. As the market grows, it becomes economically viable to develop and sell products to the fragment. Improvements in technology and production can also help with this.

Fragmentation is a way to growth. If you can spot (or even cause) a fragment to break away from an existing market, you can become that market's leader. You can also of course continue to serve the parent market (where your reputation in the new market may enhanced your parent market position).

Example

The original market for cars fragmented into those for richer and less rich people, then sports cars, off-road cars, family cars and so on.

The market for pasta was at one time served by dried pasta only. When innovations in fresh pasta were introduced, a new market for this appeared.

Discussion

Markets are never homogeneous and customers are not all the same, in fact they are all different. They only exist as a convenience to companies who can address them with similar products and campaigns.

It can be difficult to decide whether a set of customers constitutes a segment or a separate market. Separate markets tend to have different customers, products and competitors, which lead to different marketing. In the end, the word is less important than getting the marketing right.

The idea of the 'market of one' has been mooted several times and customized production can build individual products per customer, although usually at a higher price. In effect this is a lower-cost tailoring approach and may help fragments form when more people choose the higher-cost solution that is, for them, worth it.

Fragments are often initially ignored by market leaders as they are small and unprofitable. This gives smaller players or new entrants the opportunity to dominate these new markets and later expand to become more serious competitors in larger markets.

Fragmentation can be something of a problem for market leaders and those with significant market shares as this means they may lose customers or have to spend more on further products to keep them. Those who are satisfied with the status quo may hence try to prevent market fragmentation, for example with scare tactics that suggest the new market does not have sufficient support or will be very expensive.

Fragments can be caused by customers who find alternatives and go elsewhere, for example seeking out artisans for higher quality goods or doing personal importing for cheaper products. Fragmentation can also be caused as customers realize they can ask for more and so become fussier.

See also

What is Marketing?