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
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 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 concepts says that the sum of the markets ...
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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!...
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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 o...
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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....
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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 t...
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Rule of Three Special Interest Group
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Rule of Three Education & Events
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The Importance of Customer Differences in Markets with Network Effects: the Limits of Scale
The network effect ( Metcalfe's Law) is the phenomenon that the value of a product or serv...
Usage (application): Network Effect, Network Strategy, First Mover Advantage, Second-mover Strategy, Customer Intimacy, Market Segmentation
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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
| Strategy
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