The Rule of Three by P-SimonSchuster

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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'sGeneral Mills, Kellogg, and PostNike, Adidas, and ReebokBank of America, Chase Manhattan, and Banc OneAmerican, United, and Delta Merck, Johnson & Johnson, and Bristol-Myers SquibbBased 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, re

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									The Rule of Three
Author: Jagdish Sheth
Author: Rajendra Sisodia
Table of Contents

ContentsIntroductionThe Rule of Three: What It Is and How It WorksFour Mechanisms for Increasing
EfficiencyWhere Three Is Not a CrowdSpecialists and GeneralistsThe DitchGlobalization and the Rule of
Three Strategies for GeneralistsStrategies for SpecialistsThe Disruption of MarketsConclusionAppendix
1: A Brief History of Mergers in the United StatesAppendix 2: Market SnapshotsAppendix 3: The Big
Three NotesAcknowledgmentsIndex
Description

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'sGeneral Mills, Kellogg, and PostNike, Adidas, and ReebokBank of America, Chase
Manhattan, and Banc OneAmerican, United, and Delta Merck, Johnson & Johnson, and Bristol-Myers
SquibbBased 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.
Excerpt

Chapter 1: Four Mechanisms for Increasing EfficiencyIn 1966, the U.S. Supreme Court refused to allow
two supermarkets in Los Angeles to merge. The Vons Grocery Company and Shopping Bag Food
Stores, had they been allowed to combine, would have controlled a whopping 7.5 percent of the market.
Over 3,800 single-store grocers would still have been doing business in the city. In spite of these
statistics, the Court ruled against the merger, citing "the threatening trend toward concentration."Much
has changed in the public's perception of merger activity in the four decades since the Supreme Court's
ruling in the Los Angeles supermarket case. Over time, the view that market efficiencies matter and that
consumer welfare is actually enhanced by a measure of industry concentration has slowly gained
acceptance, although there still are loud complaints from consumer groups that this or that merger will
result in higher prices. In truth, markets remain highly competitive even after such concentration, and
industries that have experienced consolidation have seen prices remain stable or actually fall. To be sure,
profits are generally higher in concentrated industries, but the prices consumers pay may actually
decline. This evidence suggests that efficiency gains are a prime driver of greater profitability and market
evolution.For that evolution to be sustainable, markets need both growth and efficiency. Growth comes
primarily from understanding and shaping customer demand, whereas efficiency is a function of
operations. Through the cyclical pursuit of these objectives, markets become organized and reorganized
over time.Once its basic viability has been established, a start-up industry enjoys high growth but has low
efficiency. No matter what criterion is used to measure efficiency -- revenue per customer, revenue
relative to assets deployed, revenue per employee, for instance -- the start-up costs are high. The first
shakeout occurs during the industry's initial growth phase to make it more efficient without sacrificing
growth. Subsequent attempts to make the industry more efficient come from four key sources or events:
the creation of standards, the development of an industry-wide cost structure as well as a shared
infrastructure, government intervention, and industry consolidation through shakeouts. These four drivers
force the industry as well as the players in it to become more and more efficient in order to stay
competitive. As we will see in this chapter, they can occur at any time and in any order, sometimes
independently, sometimes closely dependent on each other. Their primary effect, however, is to promote
efficiency and fair competition within an industry such that no one company becomes a monopoly.In
subsequent shakeouts, the industry is reorganized for growth, typically through market expansion,
including globalization. Driven primarily by investor demands, companies at this stage are concerned with
growth of all kinds: revenue growth, cash flow growth, earnings growth, growth in the number of
customers and revenue per customer, and growth in market capitalization. To continue to attract
investment capital and growth, the industry needs to make productive use of all inputs, including capital,
labor, and management talent.The Creation of StandardsMarket inefficiency can hasten the creation of de
facto standards. Henry Ford paved the way for one such standard when he devised the highly efficient
assembly-line manufacturing process for the Model T. Bill Gates was fortunate indeed when Microsoft
received the nod from IBM and...
Author Bio
Jagdish Sheth
Jagdish Sheth, Ph.D., teaches at the Goizueta Business School of Emory University, where he is the
Charles H. Kellstadt Professor of market strategy. He has been a strategy adviser to many prominent
companies for over thirty years, including AT&T, Bell South, Cox Communications, Ford, General Motors,
Motorola, Nortel, Texas Instruments, Whirlpool, Young & Rubicam, and dozens of other major
organizations. Dr. Sheth serves as corporate director of Norstan, PacWest, and Wipro. He is the co-
author of Clients for Life, and author of several other books. He is internationally known for his intellectual
insight in the areas of market strategies, global competition, strategic thinking, and customer relationship
management. He is the founder of the Center for Telecommunications Management at the University of
Southern California and the Center for Relationship Management at Emory University. Dr. Sheth is a
Fellow of the American Psychological Association, and a Distinguished Fellow of the Academy of
Marketing Science and the International Engineering Consortium. He lives in Atlanta, Georgia.<br/>


Rajendra Sisodia
Jagdish Sheth, Ph.D., teaches at the Goizueta Business School of Emory University, where he is the
Charles H. Kellstadt Professor of market strategy. He has been a strategy adviser to many prominent
companies for over thirty years, including AT&T, Bell South, Cox Communications, Ford, General Motors,
Motorola, Nortel, Texas Instruments, Whirlpool, Young & Rubicam, and dozens of other major
organizations. Dr. Sheth serves as corporate director of Norstan, PacWest, and Wipro. He is the co-
author of Clients for Life, and author of several other books. He is internationally known for his intellectual
insight in the areas of market strategies, global competition, strategic thinking, and customer relationship
management. He is the founder of the Center for Telecommunications Management at the University of
Southern California and the Center for Relationship Management at Emory University. Dr. Sheth is a
Fellow of the American Psychological Association, and a Distinguished Fellow of the Academy of
Marketing Science and the International Engineering Consortium. He lives in Atlanta, Georgia.<br/>
Reviews

will help you walk through the minefields and around the ditch.



Associate Dean, Yale School of ManagementSheth and Sisodia present original research and analysis
that reveal a Nobel-prize-quality realization of how mature markets work. No corporate leaders can wisely
guide their enterprises through the turbulence of contemporary competitive markets without this book as
their navigational map.



and Lessons from the FutureThese two know what they're talking about. This is not about a business fad.
With a deceptively simple principle, The Rule of Three richly explains the evolution of industry structures
and the appropriate strategic responses. It's built on solid research and powerful insight. I found myself
underlining gems on every other page. Whether your company is a full-line generalist or a niche
specialist, and especially if it is in the endangered middle, this book is a thoughtful and solid guide for
everyone who intends to stay in business for a long time.

								
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