Rule of Three
(Sheth Sisodia)

Over a million managers and consultants are working together on management issues via 12manage each month...

Dominating your industry. Explanation of Rule of Three by Sheth and Sisodia. ('02)

Contributed by: Amita Paul

What is the Rule of Three? Description

The Rule of Three method from Jagdish Sheth and Rajendra Sisodia holds that 3 big companies will evolve/adapt to dominate any industry. Name the players in almost any industry; from airlines (United, America, and Delta) to fast food (McDonalds, Burger King and Wendy's) and you'll find that 3 is the magic number. Other companies will be niche players, or fall in the ditch (i.e. a market position between generalist and specialist that offers no long-term viability).

The theory explains how in every industry 3 major players emerge to dominate the market. With the balance filled by specialist niche players. And how this determines business strategy. The vast majority of industries follow a particular pattern and ultimately fall under the influence of 'the Rule of Three.' Evidence suggests that 3 volume-driven competitors eventually emerge to capture between seventy to ninety percent of a given market. The theory talks of existence of either generalists, or specialists that thrive to succeed in this competitive environment. Any loose strategy will let the company fall in the ditch.

Origin of the Rule of Three. History

Empirical study and case studies of a large set of companies were studied by Professors Jagdish Sheth and Rajendra Sisodia. Based upon years of research on hundreds of both national and local companies, Sheth and Sisodia showed that three market leaders are eventually surrounded by smaller "specialists" who successfully concentrate on niche products (such as high-end audio gear) or niche markets (like fashions for professional women). Sheth and Sisodia say most markets resemble a shopping mall. With specialty shops anchored by large companies.

Usage of the Rule of Three. Applications

Useful for strategy/competitive moves by businesses, small or large.

Strengths of the Rule of Three. Benefits

Rule of thumb.
Identifying the position of a company with respect to competitors.
It helps to find a way to improve or change the strategy if required before companies fall in the ditch.

Limitations of the Rule of Three. Disadvantages

Is unable to explain the exceptions to a great extent.
Other factors may influence the number and dominance of market players, which need to be explored further.
Some people say that there's no magic number 3, and attribute the presence of today of several dominant players in many US industries to the way that antitrust laws are currently enforced.
Limited applicability in many countries outside the US. A Rule of Four may be better in the European Union?

Book: Jagdish Sheth and Rajendra Sisodia - Rule of Three -

Book: Michael E. Porter - Competitive Strategy : Techniques for analyzing industries and competitors -

Rule of Three Special Interest Group

Visit the Special Interest Group

Rule of Three Forum

Recent User Comments

    			 
             Arati - India
  	       
  		     Suggestions and Details on Rule of Three
  	  		 "I am a MBA student and doing a study on "rule of 3". Can somebody please throw some light on egs of companies that have used this in the past. Also more details on this concept. Any help will be highly appreciated!! Thanks!"
  			   
    	  		 0

    			 
             Cal Brown - USA
  	       
  		     Rule of Three Dismantled by WWW
  	  		 "I believe the web dismantles this formerly accurate thesis. I cite search (google) online auctions (eBay) and movie rentals (Netflix) as prime examples of how a single category killer can completely own a market. That is not to say they will own it forever. Facebook has displaced Myspace. Technology and smarter positioning allows you to eclipse a competitor rather than compete with it."
  			   
    	  		 0

    			 
             Mugunthan N - India
  	       
  		     Rule of Two?
  	  		 "I fail to understand why main stream needs 3 dominant players... Coke,Pepsi,? Microsoft,Google,? Mobile phones.. Please explain what conditions needs to be met for application of this rule."
  			   
    	  		 0

    			 
  			   Steve H. - USA
  	       
  		     Law of duality crushed?
  	  		 "Thanks, and I can see your argument -- perhaps there is a growing trend for a three-horse race (or more), but you don't mention a critical factor here -- timeframe.  A look at the empirical analysis for your evidence would be interesting.

This theory runs counter to Ries and Trout's Law of Duality in their book "The 22 Immutable Laws of Marketing."  The references mentioned in the their book are a bit dated, Nike vs. Reebok, but they also state clearly that it's a LONG RUN theory -- add your own definition of "long run".

Dual examples: Coke & Pepsi, Energizer and Duracell, Visa and MasterCard"
  			   
    	  		 0

Comment on this Page

Rule of Three Education & Events

Find Trainings, Seminars and Events

More information?

12manage Premium contains advanced insights about (the) Rule of Three :

- Expert Tips and Management Papers -
- News and Videos on this method -

Return to Management Hub: Marketing | Strategy

More Management Methods, Models and Theory

12manage for:

	└► Mrinal Ghosh (India)	Rule of Three	"I guess this rule will only apply to developed or saturated markets and does not hold for emerging markets where there are no static forces and in these emerging markets there is no equilibrium point for the industry. This rule will only hold good for developed markets."
	└► Arati (India)	Rule of 3	"I believe that the rule of 3 is applicable to only developed markets... From what I have understood of this concept. Also, it may not be necessary that every industry will have only 3 main players. This will hold good for specific industries."

                     
                      └► David Paul (India)
                      
                    Re:
                    "Well, i actually don't think that the Law of Duality is Crushed, three well might be a magic number but the duality serves very well, well there might also be four to five,  just as they say, there are exceptions!"

Rule of Three (Sheth Sisodia)