Markets (fragmented)

Hi there,

It's a great question and something that too many candidates mix up!

Neither a fragmented nor a concentrated market is necessarily good nor bad to enter.

Fragmented

Pros:

• Easy to enter (presumably)
• No one player can dominate you or force you out (Amazon/Facebook/Amazon for example)
• No one player has unfair advantage in the form of buyer/supplier power
• You can product differentiate to win
• You can possibly merge/acquire/grow to gain market share and eventually dominate

Cons:

• Likely highly competitive
• New (and possibly better) entrants may come in all the time
• Margins will likely be tight
• Price competition likely
• You are not a market maker (i.e. you are bound by the laws of supply meeting demand)

Concentrated Market

​Pros:

• Once you're in, risk of new entrants/competition is low (high barriers to entry)
• Once you win, you have monopoly power (high margins, market control, etc.)
• The existing player(s) is/are likely very weak (high marginal cost structure, inefficiencies, slow to move)

Cons:

• Will be extremely hard to enter
• Will be extremely costly to enter
• Once you're in, you will likely get bullied by the existing power
• The existing power will have more buyer/seller power and a natural advantage over you

What information do I need to decide whether to enter? Well, not to be cheap/use a generic framework, but I need to know the three Cs (Company, Customer, Competition).

Fundamentally, if I enter, will I win?

• Company - Who am I
• Customer - Do I offer something people want
• Competition - Can I do this better than everyone else?

So, to decide this, you need to solve a whole case ;)

Fragmented market: Numerous players, none having a significant market share, many small/medium enterprises. Can also be referred to as a competitive market.

Implications of entering a fragmented market:

• Always room for one more player to join
• Easy for the new player to find their niche and build it out
• Potentially tough economics due to commoditization - which might be driving the fragmentation
• Hence, potential for consolidation of smaller players to gain market share and competitive advantage
• Due to fragmentation, procurement and outsourcing can be a bit unorganised.
• Difficult to drive economies of scale due to fragmented supply and production

Consolidated market: Few and large players, Top-3 could be having 50-90% market share, typically global corporations. Can also be referred to as oligopolistic market, and in some cases a monopoly as well.

Implications of entering a consolidate market:

• Difficult for a new entrant to enter. Larger players can play the game long and hard to push a new player out. A successful entry example is Jio Telecom in India - which was built on a capital base of $25Bn. Whereas, smaller telecom entrants got crushed. So not easy for an everyday company to join the group.
• Difficult to find a foothold for niche at times. The larger players often expand their product presence to service all audiences. e.g. Starbucks Reserve for artisanal coffee drinkers.
• Lobbying and regulation hurdles. Larger players in a consolidated market often make their nests comfortable by lobbying for regulation that supports their business and helps them better defend their territory.

It must be noted that whether or not a market becomes fragmented or consolidated is not purely by chance. It is generally strongly dependent on the industry and the economic situation of the country.

Sectors that have high capex/R&D requirement are generally found to be concentrated often (e.g. airlines, pharma, computer chips, mining etc.). While sectors that involve commoditised goods & services can be either concentrated or fragmented (e.g. Walmart, mom & pop stores). Sectors will small ticket prices and only price-based differentiation are often fragmented (e.g. low-end fashion retail)

Neither is a good or bad situation to be in by the way. It is what it is.

Hi there, 

Basically, if the market is not fragmented, it means it's consolidated, which means that it's similar to an oligopoly, which means there are a couple of big players. 

So, for instance, if I want now to start a brand of soft drinks, I'd have to take into account that +90% of the market is dominated by the big brands (e.g., coke, Pepsi….). 

Other industries are a lot more fragmented - coaching for instance. It's not like three coaches do +90% of all sessions in the market. 

So if you're starting a new business, knowing the structure of the market is critical in terms of how you define your market entry strategy. 

Hope this helps!
Best,
Cristian

When considering the implications of market fragmentation versus market concentration (the term for a non-fragmented market), it's important to understand the dynamics and challenges associated with each scenario for potential new entries.

In a fragmented market, where there are many small players with no dominant market leader, the barriers to entry may be lower. New entrants can potentially carve out a niche and compete with existing players by offering differentiated products or services. However, fragmentation also means intense competition, limited economies of scale, and the need to establish brand recognition and distribution channels. It requires significant effort to capture market share and build a sustainable position.

On the other hand, in a concentrated market, dominated by a few large players, the barriers to entry can be higher. Existing market leaders may benefit from significant economies of scale, established customer relationships, and strong brand recognition. New entrants may face challenges in gaining traction and competing effectively. They would need to differentiate themselves through innovation, superior customer experience, or unique value propositions to overcome the advantages enjoyed by incumbents.

Understanding the market dynamics is crucial for potential new entries. Fragmentation may present opportunities for agile and innovative startups, while concentration requires strategic thinking and a strong value proposition. In both cases, thorough market analysis, competitive intelligence, and a well-crafted business strategy are essential to navigate the challenges and capitalize on the opportunities.

Ultimately, the choice of entering a fragmented or concentrated market depends on various factors, including the specific industry, the target customer segments, and the resources and capabilities of the new entrant. Each scenario presents its own set of opportunities and challenges, and careful consideration is necessary to make an informed decision.

In fact, this is a very complex question. There's no definite answer to being good or bad, nor meaning X or Y. There are many factors into play.

But generally speaking, a concentrated market is one where scale is relevant. It can be related to production cost, distribution cost/access, or marketing cost (brand). 

For a company trying to get in, it will be very hard. Either they have a real competitive advantage or grabbing a relevant piece of the market will be tough.

A fragmented market means that it's usually one where you have product/service differentiation. You most likely have customers valuing different things, and multiple valid value propositions in the market. Getting in is easier. You need to find the right segment to target and have a superior offer. Nevertheless, a market may be fragmented for other reasons (you have markets that seem to be very competitive because they are fragmented, but in fact they are a sum of local monopolies/oligopolies).

While this is definitely very, very interesting, I doubt it is relevant during case interviews, as most interviewers do not actually know this.

So, for a case interview, you are basically assessing:

• Barriers to entry
• Size of the prize
• Competitors strengths

This was a great question. Thank you!

I fully agree with Ian's clear and detailed answer! My additional two cents would be to remember that having a fragmented/concentrated market is not a good or bad thing in and of itself. Always evaluate the advantages and disadvantages given the specific case prompt.