Cookie and Privacy Settings

This website uses cookies to enable essential functions like the user login and sessions. We also use cookies and third-party tools to improve your surfing experience on preplounge.com. You can choose to activate only essential cookies or all cookies. You can always change your preference in the cookie and privacy settings. This link can also be found in the footer of the site. If you need more information, please visit our privacy policy.

Data processing in the USA: By clicking on "I accept", you also consent, in accordance with article 49 paragraph 1 sentence 1 lit. GDPR, to your data being processed in the USA (by Google LLC, Facebook Inc., LinkedIn Inc., Stripe, Paypal).

Manage settings individually I accept
expert
Expert with best answer

Ian

100% Recommendation Rate

200 Meetings

16,330 Q&A Upvotes

USD 289 / Coaching

5

Analysing competition when determining market attractiveness

Hi,

I'm a little confused when understanding how attractive a market is to enter and analysing the barriers to entry or level of competition. It seems that a market with a few consolidated players with high market shares is attractive to be in, but difficult to enter and capture initial market share. Conversely, a fragmented market with several small players is likely easier to enter but less attractive to be in. So, which of these is desirable, and what use does it serve in an analysis of whether to enter or not?

Thanks!

Hi,

I'm a little confused when understanding how attractive a market is to enter and analysing the barriers to entry or level of competition. It seems that a market with a few consolidated players with high market shares is attractive to be in, but difficult to enter and capture initial market share. Conversely, a fragmented market with several small players is likely easier to enter but less attractive to be in. So, which of these is desirable, and what use does it serve in an analysis of whether to enter or not?

Thanks!

(edited)

5 answers

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Book a coaching with Ian

100% Recommendation Rate

200 Meetings

16,330 Q&A Upvotes

USD 289 / Coaching

Hi there,

You're absolutely right! One is not necessarily more attractive than the other!

The best thing to look at, in realitty is expected margins and expected market share. That's what really matters. That said, there are a few pros/cons with each...

CONSOLIDATED MARKET

Cons:

  • Presumably very high barriers to entry
  • When entering you will have low buyer + seller power compared to the dominant players
  • Prone to "bullying" by incumbents

Pros:

  • Incumbents are likely "weak". I.e. they're not operating as effeciently as possible (High Costs)
  • Incumbents are prime for disruption (Missing out on Revenues)
  • If you win, you dominate

FRAGMENTED MARKET

Cons:

  • Unlikely to "win" outright
  • Expensive to win/stay in the market
  • Constant competition...if you reach the top, you may not stay there
  • Low margins likely

Pros:

  • Low barriers to entry
  • Huge opportunity to dominate via market size gain...either through aggressive organic growth or M&A
  • Market is likely in the growth phase, representing opportunity for strong future profits

Hi there,

You're absolutely right! One is not necessarily more attractive than the other!

The best thing to look at, in realitty is expected margins and expected market share. That's what really matters. That said, there are a few pros/cons with each...

CONSOLIDATED MARKET

Cons:

  • Presumably very high barriers to entry
  • When entering you will have low buyer + seller power compared to the dominant players
  • Prone to "bullying" by incumbents

Pros:

  • Incumbents are likely "weak". I.e. they're not operating as effeciently as possible (High Costs)
  • Incumbents are prime for disruption (Missing out on Revenues)
  • If you win, you dominate

FRAGMENTED MARKET

Cons:

  • Unlikely to "win" outright
  • Expensive to win/stay in the market
  • Constant competition...if you reach the top, you may not stay there
  • Low margins likely

Pros:

  • Low barriers to entry
  • Huge opportunity to dominate via market size gain...either through aggressive organic growth or M&A
  • Market is likely in the growth phase, representing opportunity for strong future profits
Book a coaching with Francesco

100% Recommendation Rate

3,283 Meetings

12,063 Q&A Upvotes

USD 449 / Coaching

Hi there,

Very good question!

I agree with Udayan that you should first clarify the objective.

Once you have done so, you can analyze which market would help you to achieve that particular goal.

Say for example that your goal is revenues. This would be given by:

  • Market size
  • Market share you can get

Say market size is equivalent, the best market will be defined as the one where you can get the highest market share in this case.

A fragmented market may be good (and a concentrated bad) in terms of market share because:

  1. Barriers to entry are low (you could enter – unlike a concentrated one where that may be impossible – so at least get some market share)
  2. The reaction of competitors is low
  3. It is easier to get market share from the weakest players (at least some of them should be worst than you)

But a fragmented market may also be bad (and a concentrated one good) in terms of market share because:

  1. Competitors will continue to enter the market in the future
  2. It may be difficult to grow (which is why the market is fragmented in the first place), unless you have a disruptive product or service

So overall, you should consider both the plus and minus of the fragmented market, and evaluate accordingly if it is the best.

Best,

Francesco

Hi there,

Very good question!

I agree with Udayan that you should first clarify the objective.

Once you have done so, you can analyze which market would help you to achieve that particular goal.

Say for example that your goal is revenues. This would be given by:

  • Market size
  • Market share you can get

Say market size is equivalent, the best market will be defined as the one where you can get the highest market share in this case.

A fragmented market may be good (and a concentrated bad) in terms of market share because:

  1. Barriers to entry are low (you could enter – unlike a concentrated one where that may be impossible – so at least get some market share)
  2. The reaction of competitors is low
  3. It is easier to get market share from the weakest players (at least some of them should be worst than you)

But a fragmented market may also be bad (and a concentrated one good) in terms of market share because:

  1. Competitors will continue to enter the market in the future
  2. It may be difficult to grow (which is why the market is fragmented in the first place), unless you have a disruptive product or service

So overall, you should consider both the plus and minus of the fragmented market, and evaluate accordingly if it is the best.

Best,

Francesco

Book a coaching with Vlad

98% Recommendation Rate

405 Meetings

11,353 Q&A Upvotes

USD 239 / Coaching

Hi,

Here is the logic:

  1. In most of the markets, players are competing on price
  2. Those who have lower costs can compete on price better and lower the price further
  3. If the players are big, they'll have lower costs due to: economies of scale, supplier power, brand power, etc
  4. Thus it's hard to compete with big players when you are small

Here are the implications:

  • Consolidated markets are hard to enter from a scratch (organically)
  • Consolidated markets are great if you want to acquire someone big (non-organically)
  • Consolidated markets OK if you have investments and a business in the other country that you can replicate quickly

Best

Hi,

Here is the logic:

  1. In most of the markets, players are competing on price
  2. Those who have lower costs can compete on price better and lower the price further
  3. If the players are big, they'll have lower costs due to: economies of scale, supplier power, brand power, etc
  4. Thus it's hard to compete with big players when you are small

Here are the implications:

  • Consolidated markets are hard to enter from a scratch (organically)
  • Consolidated markets are great if you want to acquire someone big (non-organically)
  • Consolidated markets OK if you have investments and a business in the other country that you can replicate quickly

Best

Book a coaching with Udayan

98% Recommendation Rate

94 Meetings

2,739 Q&A Upvotes

USD 209 / Coaching

The answer depends on the objective and the nature of the market.

Broadly speaking - a market can be fragmented for 2 reasons

1. It is a highly commoditized market like coffee or cheap electronics etc.- which is less appealing as anyone can enter it and the growth largely comes for marketing and not innovation. Entering here is easy but profits are low and expected to get lower and this is a market best avoided.

2. It is a new space where companies are still targeting various niches/growth opportunities - for example ecommerce in 2000. The growth potential was very high but many companies started and failed until Amazon figured out a way to deliver products in 2 days for free. Here growth is based on true innovation which allows you to capture the market in the future once there is a behavioral change that takes place. This is a market you do want to be in.

In general you want to be in a market which is not easily accessible as your profitability is highest there (peaking theoretically in a monopoly)

Best,

Udayan

The answer depends on the objective and the nature of the market.

Broadly speaking - a market can be fragmented for 2 reasons

1. It is a highly commoditized market like coffee or cheap electronics etc.- which is less appealing as anyone can enter it and the growth largely comes for marketing and not innovation. Entering here is easy but profits are low and expected to get lower and this is a market best avoided.

2. It is a new space where companies are still targeting various niches/growth opportunities - for example ecommerce in 2000. The growth potential was very high but many companies started and failed until Amazon figured out a way to deliver products in 2 days for free. Here growth is based on true innovation which allows you to capture the market in the future once there is a behavioral change that takes place. This is a market you do want to be in.

In general you want to be in a market which is not easily accessible as your profitability is highest there (peaking theoretically in a monopoly)

Best,

Udayan

Book a coaching with Clara

100% Recommendation Rate

50 Meetings

12,476 Q&A Upvotes

USD 229 / Coaching

Hello!

Classical 5Ps of Porter :)

It depends on the position of the player you are anlyzing.

In case of a market entry in which you are consulting the player who is considering entering, indeed a consolidated market with few players is a very difficult scenario -to enter-.

Hope it helps!

Cheers,

Clara

Hello!

Classical 5Ps of Porter :)

It depends on the position of the player you are anlyzing.

In case of a market entry in which you are consulting the player who is considering entering, indeed a consolidated market with few players is a very difficult scenario -to enter-.

Hope it helps!

Cheers,

Clara

Related BootCamp article(s)

Market Entry

Market Entry Strategy Frameworks may be a great solution to apply in your Case Interview if your client is searching for growth alternatives.

2 Q&As

Approaching a Case

In order to get into consulting, the case study is the most important element of the interview. Here, you can learn the specific skills and concepts to solve them.

1 Q&A

Getting Up to Speed

In order to repeatedly demonstrate prerequisite skills under the pressure of a real case interview, you need to learn the basics and practice cases.

1 Q&A

The Value Chain

The Value Chain - as e.g. by Porter - is a classic framework to structure the activities of a business and add value to products by transforming resources.

Cost-Benefit Analysis

Investments or single business cases need to be evaluated based on a certain set of criteria. Since financial performance is the key criterion in most cases you need to have an idea about future financial impacts. A key tool to asses this impact is the cost-benefit analysis which is used to determine the net effect of potential revenues and costs.

1 Q&A

Related case(s)

Bain case: Asian lubricants producer

Solved 154.0k times
Bain case: Asian lubricants producer LubricantsCo, a very successful Asian premium producer of lubricants in their native region, would like to further increase their revenue and profit. The product range ranges from lubricants in the automotive sector (e.g. motor and gear oil) to industrial applications (e.g. fats, heavy-duty oils). According to preliminary examinations, further growth potentials in the Asian core market are rather limited. Thus LubricantsCo would like to investigate options to internationalize in the passenger car business – also outside the premium segment which is given priority. Therefore your consulting firm was instructed to elaborate a market entry strategy for the European market.  
4.6 5 29352
| Rating: (4.6 / 5.0)

LubricantsCo, a very successful Asian premium producer of lubricants in their native region, would like to further increase their revenue and profit. The product range ranges from lubricants in the automotive sector (e.g. motor and gear oil) to industrial applications (e.g. fats, heavy-duty oils). ... Open whole case

Oliver Wyman case: Full Electrons Ahead

Solved 97.5k times
Oliver Wyman case: Full Electrons Ahead Your client, large automotive OEM WyCar, has developed its first fully electric vehicle (EV) and introduced it as a pilot on the Austrian market last year. However, sales have been far below the expected numbers. The management has engaged you to support them in understanding the reasons and advise them on how to adjust the product offering.
4.6 5 6434
| Rating: (4.6 / 5.0)

Your client, large automotive OEM WyCar, has developed its first fully electric vehicle (EV) and introduced it as a pilot on the Austrian market last year. However, sales have been far below the expected numbers. The management has engaged you to support them in understanding the reasons and advise ... Open whole case

Roland Berger case: Light on!

Solved 74.6k times
Roland Berger case: Light on! LumCO, a company producing injection-molded components for lighting applications, has operated successfully in its native European market. The company wants to open up one production facility each in China and the United States and establish their own distribution network in both countries to serve as a hub for the entire region. The products LumCO manufactures can be categorized into Specialties, which are designed and produced by LumCO according to customer specifications (e.g. head lamp casing and lenses in vehicles, luminaires for design lighting applications) and Standards, which encompasses an assortment of components for multiple lighting applications for different industries (fixtures, lenses, luminaires). Based on the only slight but stable growth outlook in Europe, LumCO is eager to establish the production sites in China and the U.S. as soon as possible and also to begin to distribute their products directly. As a consultant, you are asked by the board of management to assess this plan considering your knowledge of each region and the lighting market in particular.
4.6 5 14546
| Rating: (4.6 / 5.0)

LumCO, a company producing injection-molded components for lighting applications, has operated successfully in its native European market. The company wants to open up one production facility each in China and the United States and establish their own distribution network in both countries to serve ... Open whole case

Deloitte Consulting case: Footloose

Solved 70.1k times
Deloitte Consulting case: Footloose Duraflex is a German footwear company with annual men’s footwear sales of approximately €1 b. They have always relied on the boot market for the majority of their volume. In this market they compete with three other major competitors. In the fall of 2019, Badger – one of Duraflex’s competitiors – launched a new line of aggressively priced work boots. The strong success of this line has caused Duraflex’s management to re-evaluate their position in work boots. With limited additional resources, the management must now decide if they should focus their efforts on competing with Badger in the work boot sector, or allocate their resources on further strengthening their position with casual boots. The management team approached you and asked for your advice. In order to advise them on their future work boot strategy please prepare first some insights regarding market size and competitive landscape.
4.5 5 13166
| Rating: (4.5 / 5.0)

Duraflex is a German footwear company with annual men’s footwear sales of approximately €1 b. They have always relied on the boot market for the majority of their volume. In this market they compete with three other major competitors. In the fall of 2019, Badger – one of Duraflex’s competitiors – ... Open whole case

Bain Case: Old Winery

Solved 66.3k times
Bain Case: Old Winery You have inherited the “Old Winery” from your grandfather, a winery which has been family owned for five generations and can be dated back to the 16th century. Half of the eleven hectares are used to grow white grapes, the other half to grow red grapes. They are grown in the conventional way, i.e. they are not organically farmed and certified. The vine stocks are in a good condition regarding age and care. Overall, only ¼ of the harvest is made into wine by the winery itself; the rest is sold. Your grandfather never wanted to change the image of the winery and left the managerial and administrative task to a young and energetic wine-maker. Due to the not so well-known brand , the demand for the “Old Winery” wine is currently rather low. You do not intent to run the winery operatively, given your limited knowledge of wine making, but find the idea of owning a winery exciting. Your plan is to give the winery some fresh impetus.
4.4 5 1791
| Rating: (4.4 / 5.0)

You have inherited the “Old Winery” from your grandfather, a winery which has been family owned for five generations and can be dated back to the 16th century. Half of the eleven hectares are used to grow white grapes, the other half to grow red grapes. They are grown in the conventional way, i.e. ... Open whole case