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From Barnes & NobleThe Barnes & Noble Review
While the 80/20 rule, which maintains that 80 percent of company's business typically comes from 20 percent of its customers, has gained currency lately, the authors of this insightful book claim that the "rule of three" is bound to be the formula that companies must now attend to if they want to survive in today's ruthlessly competitive business environment.
Simply put, Sheth and Sisodia posit a "rule of three" in which competitive forces in mature markets will always end up creating three dominant players. These three players are generalists who offer a wide range of products or services and inevitably compete against each other, while specialist companies operate happily on the periphery by attending either to product specialization or to niche market specialization. A specialist example is Comedy Central, a cable television network that focuses exclusively on comedy while the big three networks (ABC, NBC, and CBS) offer a wide range of programming (with Fox struggling to enter the trinity).
And what if your generalist company is No. 4? That's a dangerous position, according to Sheth and Sisodia. You're in the "Ditch" -- you probably aren't quite big enough to benefit from economies of scale like the generalist Big Three, but you're too big to be a specialist. The Ditch becomes then a kind of business purgatory from which it's almost impossible to escape, unless you merge with another competitor or are bought.
Mergers, then, consolidate the market, with the result that consumers get lower prices, the market is more efficient, and investors receive higher returns. Sheth and Sisodia argue that too much competition can be a bad thing -- too much static for customers to make decisions and too much cutthroat activity for businesses to really profit. The authors see consolidation coming at an accelerated pace for the pharmaceutical industry, whose 50 competing global companies are currently unable to benefit from the efficiencies of a Big Three market.
The Big Three may dominate their market, but they still leave room for specialists to prosper by focusing on a product (think Foot Locker or Krispy Kreme) or a market. These specialists shouldn't be thought of as competitors to the Big Three, because they're not going after the same customer -- rather, they occupy a complementary position in the market. In fact, Sheth and Sisodia see specialists and generalists learning from each other.
With these principles stated, Sheth and Sisodia get down to business by helping both the generalist and specialist develop winning strategies for thriving in a Rule of Three market and being aware of disruptions that can alter the rules of a mature market.
The Rule of Three is an important resource for CEOs, managers, and anyone interested in corporate strategy: Knowing the implications of the rule can help a company define its place in the market and develop strategies to ensure continued growth. Quite simply, Sheth and Sisodia have written an indispensible book. (Holly McGuire)
Holly McGuire is a book editor and consultant based in Chicago, Illinois.