Hello community,
Why is a fragmented competitive landscape usually prefered over a concentrated one?
(edited)
Hello community,
Why is a fragmented competitive landscape usually prefered over a concentrated one?
(edited)
Hi!
I'm no sure I agree with the basic premise of your question ("a fragmented market structure is usually preferred over a concentrated one").
The question is how easily an entrant could reach a strong market position. Usually, it is easier to grab a sizable chunk of the market demand if there are fewer competitors (especially when you have a clear USP), and it is harder if the competitive intensity is very high and there are many granular players. It is much easier to get, say, 5% market share if you only have 2 or 3 players in the market, as opposed to a situation with dozens of competitors, where 5% market share would be equivalent to becoming a leading player immediately (usually not very realistic). However the context might also reverse that rationale. One thing you have to check for example is whether there is an Oligopoly structure which has erected market entry barriers (e.g., created lock-in effects for the customers). In this case it might become very hard to break this Oligopoly.
So in summary – if there are fewer competitors and there are no fundamental entry barriers, then this is a much better scenario then a granular market with dozens of competitors.
Cheers, Sidi
(edited)
Hi,
It highly depends on the constraints that your client has.
Competitive market with numerous players would usually signal that the entry barriers are not high but it will be more difficult to reach a high market share.
Concentrated market would usually signal that there are high entry barriers but once you manage to overcome it you can get a higher share.
Conclusion: without understanding of a particular client situation any piece of advice is useless.
Best,
Anton
Hi Anonymous,
Tactically speaking from thousands of cases I saw in my life, in a simplified case interview world a fragmented competitive landscape is usually preferred because it's easier to enter a market without well-established dominent players who can easily force you out of the game.
Howerver, above is just tactical advice valid for most interview cases - but in reality you need to think and analyse the landscape in more detail to understand whether a fragmented or concentraed landscape is preferred. Let's just think of a simple scenario in which you have a couple of huge well-established players, however with an outdated business model from previous century - if for example you can fundamentally change your competitive position with technology, it might be easier to handle a few big competitors and attack them on their weak points, than many small ones. Just one example - so don't use general statements but rather push yourself to think about the specific situation at hand!
Hope that helps - if so, please be so kind and give it a thumbs-up with the green upvote button below!
Robert
Hello!
First of all, it´s a big dangerous, without other context, to state something like that in general terms.
However, it´s true that, in most cases, fragmented markets are easier to penetrate (e.g., groth cases, new product launch, etc.) than concentrated ones.
When there is one/two big big players that dominate the industry, they are very well stablished and it´s more difficult to gain access. However, when they are many many little/smaller players, "enemy" is divided and it´s easier to find the entry way.
Hope it helps!
Cheers,
Clara
Fragmented usually means there is no clear market leader, which is most likely the case if the Competitive landscape is concentrated.
It also implies any one competitor cannot influence market pricing.
There is room for consolidation between players to become more efficient.
Hi there,
There are several reasons why you may want to target a fragmented market. You would have:
This doesn’t mean a fragmented market is always better though. You could have
Also, if your product is extremely innovative, a concentrated market could be better. You could attack the big player directly and steal most of its market share through its weak points (eg digital banking vs traditional banking). However, extremely innovative products are not the standard. Moreover, the competitors' reaction could kill the profits of the market – or you!
Best,
Francesco
Dear A,
Fragmented competitive landscape is preferred over a concentrated, because there are more smaller players, the competition is mre fare and you could easily increase marketure in this segment compare to the concentrated one, where companies are in a sort of oligopoly. Therefore it's better to have fragmented competitive landscape.
Best,
André
Hi
If I were to generalize:
1. Fragmented markets:
- More competitive, lower profitability
- Low barriers to entry
2. Consolidated markets
- Less competitive pressure, higher profitability
- Typically high barriers to enter
If you are already in the market, you would prefer to be in a consolidated one because you will be more profitable all things equal and you are protected from the competitive pressure of new entrants. If you want to enter a market, a more fragmented market may be more preferable assuming you have a feasible way to consolidate the market / gain market share.
-A