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
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
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
Rule of Three Education & Events
The Importance of Customer Differences in Markets with Network Effects: the Limits of Scale
The network effect
Compare with Sheth and Sisodia's Rule of Three:
| Delta Model
| BCG Matrix |
Distinctive Capabilities |
Relative Value of Growth
| Experience Curve
Principles of the Network Economy |
Blue Ocean Strategy
| Strategic Types
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