Competitive Strategies in Fragmented, Emerging & Declining Industries

Instructor: David Whitsett

David has taught computer applications, computer fundamentals, computer networking, and marketing at the college level. He has a MBA in marketing.

It can be challenging to develop strategies for competing in fragmented, emerging and declining industries. In this lesson, we'll examine these different scenarios and look at ways to make things work for the best.

Away From The Herd

It's easy to be part of something that's booming or very popular. Think how many pizza joints are in your neighborhood. There are also businesses with low barriers to entry (low initial startup costs), like construction or real estate. But how do you thrive in an industry that is fragmented, just emerging or even one that's in decline? Let's look at each category in more detail.

Fragmented Industries

A fragmented industry is one without a dominant player. Many times the business itself is small, but the industry overall can be large. Two examples would be landscaping companies and barbers. There's plenty of them, but there's not really a major player in most markets.

Why are there so many fragmented industries? Here are some characteristics of fragmented industries:

  • Low entry barriers
  • Low level of product innovation
  • High need for trust and local firms inspire more trust
  • Lack of need for standardization
  • No real economies of scale

There are barber shops everywhere, but few dominant players
Barber shop

So, if you're in one of these industries, how can you be competitive? Differentiation is a key factor. For example, your hair salon could focus on African hair braiding instead of doing the same thing as everyone else. The salon could provide more service with the sale over the competition and therefore add value. Check out the neighborhood competition and offer something different or better. Keep a small focus and become an expert on your area's unique wants and needs.

Emerging Industries

An emerging industry is one centered on a new product or service. There's usually not many companies involved in the beginning, so competition is low. But marketing costs may be high because at the start, the product or service is an unknown quantity.

One of the key advantages of being a company in an emerging industry is the first mover advantage: Positioning your company to be considered the technology leader in your particular space so it can have a competitive advantage. Being first can also give you more time to perfect your product before other companies jump into that space. You can also begin to build brand loyalty faster when you're the first company to market with a product.

Amazon and eBay are both prime examples of the power of the first mover advantage. Amazon started selling books online when everybody told them they were crazy and that people would never stop going to bookstores. Once their book sales were running full steam, no other online retailer could match the organization they had built! eBay took the online garage sale to new heights at such a rapid clip, that no other site was able to gain any momentum.

Also when you're first in, you can help shape the industry to suit your company's strengths. You might also be able to get preferential treatment from suppliers and the distribution channel.

Declining Industries

Declining industries can end up this way due to demographic shifts, lower-price substitute products, changes in needs/wants or high component costs. Assuming that the decline is not likely to be reversed, remaining players in the market have somewhat limited options. One strategy might be to make moves to capture the majority of the remaining market; this is know as the profitable survivor strategy.

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