If the new product sells well, new firms will enter the market, ushering in a market growth stage. Where will a second firm enter the market, assuming that the first firm established itself in the center? If the second firm is small, it is likely to avoid head on competition with the pioneer and to launch its brand in one of the market corners. If the second firm is large, it might launch its brand in the center against the pioneer. The two firms can easily end up sharing the mass market. Or a large second firm can implement a multiple niche strategy and surround and box in the pioneer.
Eventually, the competitors cover and serve all the major market segments and the market enters the maturity stage. In fact, they go further and invade each othersâ€™ segments, reducing everyoneâ€™s profits in the process. As market growth slow down, the market splits into finer segments and high market fragmentation occurs. Note that two segments are un-served because they are too small to yield a profit.
Market fragmentation is often followed by a market consolidation caused by the emergence of a new attribute that has strong appeal.
However, even a consolidated market condition will not last. Other companies will copy a successful brand, and the market will eventually splinter again. Mature markets swing between fragmentation and consolidation. The fragmentation is brought about by competition, and the consolidation is brought about by innovation. Consider the evolution of the paper towel market.
Originally homemakers used cotton and linen dish cloths and towels in their kitchens. A paper company, looking for new markets, developed paper towels. This development crystallized a latent market. Other manufacturers entered the market. The number of brands grew and created market fragmentation. Industry over capacity led manufacturers to search for new features. One manufacturer, hearing consumers complain that paper towels were not absorbent, introduced â€œabsorbentâ€ towels and increased its market share. This market consolidation did not last long because competitors came out with their versions of absorbent paper towels. The market fragmented again. Then another manufacturer introduced a â€œsuper strengthâ€ towel. It was son copied. Another manufacturer introduced a â€œlint-freeâ€ paper towel, which was subsequently copied. Thus paper towels evolved from a single product to one with various absorbencies, strengths, and application. Market evolution was driven by the forces of innovation and competition.
Eventually, demand for the present products will begin to decrease, and the market will enter the decline stage. Either societyâ€™s total need level declines or a new technology replaces the old. For example, Video cassette tapes replaced conventional roll of film for small projector home viewing and now the tapes are replaced by Cassette Discs. The manufacturers in these lines had to reconsider how to conduct their business and make changes in their products accordingly.