Fragmentation – Cope or Innovate!

Many industries over a period of time get fragmented. In my experience, fragmentation can lead to fierce competition and also a weak bargaining position with customers and suppliers. To cope with low profitability, strategic positioning is of crucial significance.

Facebook entered the mobile advertising landscape when the industry was already filled with a lot of players. In this environment, it aimed to become one of the most successful firms. Now almost going head to head with Google.

Still, every industry is different, there is no generalized method for competing in a fragmented industry.  Based on my experience, marketing departments, play a big role in determining which customer type, category type, type of order, the geographic market can provide a strategic position.

Here are some commonly used strategies:

  • Specializing by Customer Type:

In retail competition is intense, Ross department stores specialize in a particular category of customer, a customer who is price sensitive and desire to shop for branded goods.

  • Specializing by Type of Order:

One approach is to service only small orders for which customers want immediate delivery and is less price sensitive. Doordash and Uber Eats are examples where this differentiates them from good old “Chinese delivery”

  • A focussed geographic area:

There may be substantial economies by concentrating in a given geographic area. The blanketing strategy has been quite effective for food stores, which remain fragmented industry in spite of some large national chains. Niche Asian grocery stores in geographies with a large population of Asians in the US are good examples of this strategy.

If the chances of overcoming fragmentation are unfavourable, it becomes harder to get attractive returns and create a defendable position. So, this creates the next wave of innovation as entrepreneurs look for how to alter the industry and is the basis of technological predictions and forecasting.

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