Name any industry and more likely than not you will find that the three strongest, most efficient companies control 70 to 90 percent of the market. Here are just a few examples:
• McDonald's, Burger King, and Wendy's • General Mills, Kellogg, and Post • Nike, Adidas, and Reebok • Bank of America, Chase Manhattan, and Banc One • American, United, and Delta • Merck, Johnson & Johnson, and Bristol-Myers Squibb
Based on extensive studies of market forces, the distinguished business school strategists and corporate advisers Jagdish Sheth and Rajendra Sisodia show that natural competitive forces shape the vast majority of companies under "the rule of three." This stunning new concept has powerful strategic implications for businesses large and small alike.
Drawing on years of research covering hundreds of industries both local and global, The Rule of Three documents the evolution of markets into two complementary sectors -- generalists, which cater to a large, mainstream group of customers; and specialists, which satisfy the needs of customers at both the high and low ends of the market. Any company caught in the middle ("the ditch") is likely to be swallowed up or destroyed. Sheth and Sisodia show how most markets resemble a shopping mall with specialty shops anchored by large stores. Drawing wisdom from these markets, The Rule of Three offers counterintuitive insights, with suggested strategies for the "Big 3" players, as well as for mid-sized companies that may want to mount a challenge and for specialists striving to flourish in the shadow of industry giants. The book explains how to recognize signs of market disruptions that can result in serious reversals and upheavals for companies caught unprepared. Such disruptions include new technologies, regulatory shifts, innovations in distribution and packaging, demographic and cultural shifts, and venture capital as well as other forms of investor funding.
Years in the making and sweeping in scope, The Rule of Three provides authoritative, research-based insights into market dynamics that no business manager should be without.
Business school professors Sheth (Emory University) and Sisodia (Bentley College) argue forcefully that competitive forces, free of government interference or other special circumstances, will inevitably create a situation where three companies and only three will dominate any given market. Whether it's U.S. fast food restaurants (McDonald's, Burger King and Wendy's) or South Korean chipmakers (Goldstar, Hyundai and Samsung), three large firms hold most of the market share. To be successful, everyone else is forced to specialize either by product or market segment. Sure, there are the "Big Two" in U.S. soft drinks, and there really aren't three dominant advertising agencies but these are the exceptions that prove the rule. Markets, the authors explain, are inherently efficient, and efficiency's favorite number is three: two companies would lead to monopoly pricing or mutual destruction, while four guarantees consistent price wars. For managers who follow this logic, the implications are clear. Companies faced with three established competitors may want to battle them indirectly by specializing. Sheth and Sisodia also discuss strategies firms should pursue if they are one of the three major players in a field: e.g., the market leader should be a "fast follower" rather than a consistent innovator, while it's the job of the number three firm to create new products to stay competitive. While the writing veers toward the academic, senior managers of all types are bound to be intrigued by these arguments.