Rule of Three
(Sheth Sisodia)

Knowledge Center

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

Forum Forum discussions about the Rule of Three. Below you can ask a question about this topic, share your experiences, report a new development, or explain something. Start a new topic about Rule of Three Share your knowledge here (or ask a question)   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 o... 0   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 highl... -1   🔥 NEW Rule of 3 is for Developing Markets In my opinion rule of 3 is not for developed markets but for developing markets. Leaders, challengers and followers are basically the 3 main stages via each organisation moves. Now the basic concept... -2   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 f... -2   1 comments Rule of Three or 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.... -3   3 comments

Expert Tips Advanced insights about the Rule of Three. Here you will find professional advices by experts. The Importance of Customer Differences in Markets with Network Effects: the Limits of Scale Network Effect, Network Strategy, First Mover Advantage, Second-mover Strategy, Customer Intimacy, Market Segmentation The network effect (Metcalfe's Law) is the phenomenon that the value of a product or service increases (exponentially) w...

Information Sources Various sources of information regarding the Rule of Three. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.

Research Links Jump to further research sources regarding the Rule of Three. News Videos Presentations   Books Academic More

Compare with Sheth and Sisodia's Rule of Three: Competitive Advantage  |  Delta Model  |  BCG Matrix  |  Distinctive Capabilities  |  Relative Value of Growth  |  Experience Curve  |  Twelve Principles of the Network Economy  |  Blue Ocean Strategy  |  Strategic Types

Return to Management Hub: Marketing & Sales  |  Strategy & Innovation

More Management Methods, Models and Theory