How to decide which market is better to enter - fragmented or concentrated?

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 ;)

Hi there,

Which market is better depends on the objective.

A fragmented market offers the following plus:

• Weaker reaction of competitors - think about the probability of starting a price war in a fragmented market vs concentrated
• Higher likelihood of successful entry – barriers are usually lower
• More space to get market share from weak players - which by definition are fewer in a concentrated market
• Higher likelihood to find niches where you can expand – offering future growth opportunities

On the other hand, it could have the following minus:

• Continuous competition due to the low barriers (eg restaurant industry)
• Weak direct competition but strong substitutes (eg apartment owners vs hotels chains)

To sum up, you should assess which market helps to meet better your goal and choose accordingly.

Best,

Francesco

Hi,

It highly depends on the constraints that your client has and goals.

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 particular client situation any piece of advice is useless.

Best,

Anton

Hi

The answer depends on the objective

- If you are looking for a market with high margins and high barriers to entry then one with few players and high costs for entry is a better option. Of course given these characteristics it is not easy to enter the market so you typically have to buy your way in through an expensive M&A deal or spend a lot of money on investments. An example of this is something like autonomous vehicles or even electric cars

- If what you want is a market where the costs of entry are lower (but so are the margins and profits to be made) then higher competition is a good sign. It indicates that the market is open to new entrants and that entering it requires limited investment. It also indicates that your profits are largely limited to how well you can market and brand your product as there is limited meaningful innovation - most of the innovation can be easily copied. An example of this is the beauty/skincare market which has exploded of late with many players

Best,

Udayan

(edited)

Hi Anonymous,

Ian gave an excellent answer on that content-side of the question.

I'll approach it from a different angle and say that's the idea of an interactive case interviewe with your interviewer. Based on the information given it's impossible to decide to go for the fragmented or concentrated one since neither the one nor the other is universally better - the idea is to find that out in a structured discussion with your interviewer, specifically for that situation of your client!

Hope that helps - if so, please be so kind to give it a thumbs-up with the green upvote button below!

Robert

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

Hello!

On add on top of what has been said already: DEPENDS. On the following:

• Target
• Specific client/product contratints
• TImelines

Hope it helps!

Best,

Clara