Industry Research

A Fragmented Industry Is A Good Thing

Sara Eastwood
Posted on January 5, 2016
Guess what? They don't all agree. 

Guess what? They don't all agree. 

Guess what? They don't all agree. 
Guess what? They don't all agree. 
Most small industries such as ours are fragmented, meaning no major players control everything. Fragmentation can be a challenge when times call for centralized efforts and communications on regulatory issues, but isn’t that why we have the National Limousine Association to lean on?

Overall, however, does fragmentation hurt us? I keep hearing it does, but I’ve seen no evidence that supports the rhetoric. The true definition of a fragmented industry is “an industry in which no single enterprise has a large enough share of the market to influence the industry’s direction.”

Kevin Johnston, editor of Demand Media, recently wrote a piece called "The Advantages of a Fragmented Industry," in which he points out a fragmented industry can be “quite robust.” I have highlighted some of the positives he argues on the subject:

“The lack of major players in a fragmented industry means the consumers have not given their loyalty to any one business. You have room for both innovation and experimentation, and you do not have to fight for market share against a major brand. Fragmentation means you have the opportunity to develop your business according to your own instincts and market research.

“Your marketing expenses are lower for a fragmented market than for one dominated by big names. Because of the fragmentation, much of your media focus can and should be local, and such advertising is much less expensive than national media. You also can use word-of-mouth advertising, because customers in fragmented industries tend to look for new businesses, and those customers are much more willing to experiment. Fragmented industries tend to have a reputation for smallness. In fact, customers may prefer businesses in a fragmented industry for this very reason. You can compete with other businesses in a fragmented industry through differentiation.”

The once very fragmented travel world is now uber (pardon the pun) consolidated. Expedia now owns ALL of the online travel agencies. While there remain a reasonable selection of so-called “brands,” in truth the airline and car rental industries respectively have only three major network carriers and only seven hotel companies control 80% of that business.

Fragmentation is being tossed around the chauffeured car industry as a dirty word. I challenge the assertion that being a cottage industry is a negative. It has its challenges for the NLA when they are trying to defend us as a whole, but they consistently win on that battle front, so it’s not an insurmountable problem. As we embark into the world of one-branded apps, be careful not to lose your own brand identity in the process or inadvertently sign on to be dissolved into a booking commodity. Use the mobile tech options to grow your own business portfolio, not someone else’s.

Bill McGee, travel editor for USA Today, recently asserted, “There’s a long history of consumers not benefitting from mergers and acquisitions. And in most industries, customers are best served when competitors fight fiercely to please them, not link arms as siblings. Gobbling up the competition may help a parent company’s bottom line, but it weakens the marketplace for consumers.”

Related Topics: industry trends, LCT Publisher, Sara Eastwood, small business, state of industry, staying competitive

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