Competition in segmented industries

In some industries, there are hundreds and even thousands of small and medium-sized companies, none of which owns a significant market share [44 ch.9]. The main difference between the competitive situation in fragmented industries is the absence of industry leaders with a large market share or a recognizable trademark. Typical segmented industries include the following: book publishing, landscape architecture and horticulture, real estate operations, supermarkets, banking, healthcare, catalog trade, software development, individual printing, kitchen furniture manufacturing , trucking, auto repair work, restaurants and fast food establishments, external audit, clothing production and sale, cardboard container production, hotel and motel business, furniture production.

The reasons for the fragmentation of proposals in such industries are different:

Market demand is so vast and diversified that many companies coexist peacefully, meeting the diverse needs of customers and serving vast geographical regions; Low entry barriers allow small companies to enter the market quickly and at little cost; The impossibility of economies of scale provides equal competitive opportunities for small and large companies; Lack of demand for personalized goods (production of forms for enterprises, kitchen furniture, advertising; interior design); The market for a product or service is at the stage of globalization, and many companies from different countries operate in a narrow market space (clothing production); The technologies used in the industry value chain are so diverse and develop in so many areas that specialization is necessary at least in order to maintain competitiveness in one field of activity; The industry has recently formed and has many new companies, none of which has yet created a solid resource base, competitive capabilities and has not won the recognition of consumers sufficient to capture a significant market share (retail trade in consumer goods via the Internet).

Predominantly in highly segmented industries, as they enter the maturity and slowdown phases, consolidation processes are intensifying, leading to the displacement of weak or inefficient companies with a simultaneous concentration of production in a few large companies. However, there are industries that remain fragmented, since none of the companies operating in them has sufficient resources or competencies to gain a large market share.

Competition in segmented industries ranges from moderate to fairly fierce. Low entry barriers pose a constant threat to the emergence of new competitors. Substitute products are becoming a significant factor in the competitive environment, although not always. Companies in segmented industries are relatively small, so they may be subject to competitive pressure from large suppliers and consumer companies; in order to avoid this, they unite in various associations to conduct joint negotiations and improve the conditions for the supply or sale of goods. In such conditions, the best thing that a company can count on in a segmented industry is to form a group of regular consumers and achieve growth rates slightly higher than the industry average. Strategies to achieve cost leadership or differentiation can be equally successful, unless the product is highly standardized or homogeneous (e.g., sand, cardboard boxes, concrete blocks). Focusing on a market niche or segment usually gives a more significant competitive advantage than targeting a wide range of consumers. In a segmented industry, the following competition strategies are optimal:

Creation of standard company divisions. This strategic approach is often applied in the retail and restaurant business, where the company creates numerous standard outlets with a convenient location and minimal costs for the most efficient operation. This strategic approach is taken by Tricon Global restaurants (including Pizza Hut, Taco Bell and Kentucky Fried Chicken), McDonald’s, Home Depot and 7-Eleven; Gaining cost leadership. When price competition is intense enough and leads to a decrease in profitability, companies can choose a strategy of minimal costs, including reducing overhead costs, increasing labor productivity with low wages, a flexible policy of acquiring capital assets and forming a corporate culture of the most effective functioning. Companies that successfully apply this strategy are able to regularly reduce prices, while maintaining a level of profitability above the industry average. Many e-retailers compete at the expense of low prices, the same strategy is used by supermarkets, gas stations and regional tire dealers; Commodity specialization. If a segmented industry includes an extensive list of services or goods with a wide model range, then concentrating on one type of product or service can be very effective. Some companies in the furniture industry specialize in the production of only one type of furniture, for example, metal beds, rattan and wicker furniture, garden and country furniture. In auto repair, workshops specialize in repairing transmissions, bodies or quick oil changes; Consumer specialization. The company can focus on servicing a particular group of consumers, for example, with high price sensitivity or requiring specific consumer properties of the goods, special services, etc. Some restaurants specialize in takeaway services, others in organizing meals at sports competitions, etc .; Geographical specialization. If a company in a segmented industry cannot count on a large share of the industry market, nothing prevents it from fighting for leadership in the geographical market. Concentrating efforts on servicing a small region leads to increased efficiency, faster delivery of goods to customers, improved service, increased brand awareness in the region, opens up new opportunities for massive advertising. At the same time, the company avoids the increase in costs that are inevitable when servicing too large an area. Supermarkets, banks, round-the-clock supermarkets, sporting goods stores actively “settle” the selected geographical region and achieve good results.