Editor’s note: Brooke Patton is research and content specialist at market research firm GutCheck, Denver. This is an edited version of a post that originally appeared under the title, “What is market fragmentation.”
Recall how Henry Ford established assembly lines to make it easier and more efficient to build standardized vehicles. Well, market fragmentation is the opposite of that concept. In other words, it avoids standardizing products to homogeneous groups and instead seeks to personalize them.
Market fragmentation, as it relates to market research, is important because it happens in every industry, both domestically and globally, and can determine brand positioning, marketing strategy and product development.
Market fragmentation is the concept that all markets are diverse and over time break into distinct groups of customers (i.e., fragments) – especially as markets grow. For example, when an entirely new product is created it solves the needs of most early adopters until consumers can spend enough time with it. As more customers adopt the product, however, the need for more unique product features, benefits and other aspects arise.
The line between market fragments and segments is blurred. However, something could be said for the fact that consumers fragment themselves whereas businesses segment consumers. Further, fragments are typically specific to products and services while segments can define other activities.
Why is market fragmentation important?
Market fragmentation can be a great thing for customers and some businesses but not so great for others – it depends on the situation. Spotting a fragment before the competition does can give a business a competitive edge – and if it can address consumer needs first, it may be more likely to increase brand loyalty. Other advantages of market fragmentation include:
- increased market competition;
- lower entry to a market;
- greater differentiation in the market; and
- lower marketing expenses.
Some brands still choose to appeal to the masses but market fragmentation can make that difficult and lead to disadvantages when it comes to mass marketing efforts and achieving brand loyalty. As a result, market fragmentation can pose more of an obstacle for larger companies or those with a greater market share. Smaller companies that focus on distinct fragments can focus their efforts on building relationships with a unique set of consumers, making those consumers feel special.
So whether market fragmentation is good or bad depends on the situation. I argue that it’s often good. It can increase competition, innovation and the personalization of products. It can be a challenge for brands that don’t know what market fragments to go after or those that don’t have the means to do so – but there are solutions to help with that. Market research provides the means to identify and home in on a fragment and understand their specific preferences and habits as compared to the rest of the market. Marketing can then take this information to micro-target or adopt advertising with specific elements that appeal to their fragment in question.