lehigh_the rule of 3

8/8/2019 Lehigh_The Rule of 3

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DR. JAGDISH N. SHETH

Charles H. Kellstadt Professor of Marketing

Emory University

[email protected]

The Rule of Three:

How CompetitionShapes Markets

The Rule of Three:

How CompetitionShapes Markets

Publication: The Rule of Three (with Rajendra Sisodia), Free Press, 2002


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2002 Dr. Jagdish N. Sheth. All rights reserved.

The Rule of Three: How Competition Shapes Markets

2

Market Share and Financial

Performance

Market Share and Financial

Performance

FINANCIAL

PERFORMANCE(Return on Assets)


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3

FULL LINE

GENERALIST

The Shopping Mall AnalogThe Shopping Mall Analog

FULL LINE

GENERALIST

FULL LINE

GENERALISTFULL LINE

GENERALIST

FULL LINE

GENERALIST

FULL LINE

GENERALIST

FULL LINE

GENERALIST

FOOD COURT

PRODUCTSPECIALIST

MARKET

SPECIALIST


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5

The Rule of Three:

Some Observations

The Rule of Three:

Some Observations

4. The number one company usually has

40% market share; number two has 20%

market share; and number three has 10%

market share.

5. If the three full line generalists do not

concentrate 70% of the market, there is

room for a fourth full line generalist, so

long as each has at least 10% market

share.


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6

Best Practices for Generalists vs.

Specialists

Best Practices for Generalists vs.

Specialists

1. Volume & Velocity Driven

2. Asset Turns Advantage3. One-Stop Shop

4. Full Line Products/Services

5. Broad Market Positioning

6. Value/Promotion Competition

7. Multiple Channels

8. Integrated Enterprise

9. Shared Operations

10. Single Corporate Identity

1. Service & Selection Driven

2. Exclusivity Advantage3. Separate Stops Shop

4. Focused Products/Services

5. Target Market Positioning

6. Image/Service Competition

7. Focused Channels

8. Multi-business Enterprise

9. Dedicated Operations

10. Multiple Brands Identity

GENERALIST SPECIALIST


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Strategies of Different CompetitorsStrategies of Different CompetitorsBECOME A

CONSOLIDATOR

MOVE UP

TO A

SUPER NICHE

INSULATE

FAST

FOLLOWER

CHALLENGE

#1 COMPANY

INNOVATE

GROW THE

TOTAL MARKET

SELL TO

FULL LINE

GENERALIST

COEXIST

WITH

#1 COMPANY

REFOCUS AS

SPECIALIST

#1 COMPANY

#2 COMPANY

#3 COMPANY

NICHE

PLAYERS

DITCHDWELLERS


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Strategies of Full Line GeneralistsStrategies of Full Line Generalists Full Line Generalist #1 Fast Follower

IBM, Microsoft

Grow the Total Market

Coca Cola, Wal-Mart

Full Line Generalist #2 Coexist with the Leader

Avis, McDonald Douglas, EDS

Challenge the Leader

MCI WorldCom, Pepsi, Lowes

Full Line Generalist #3 Insulate from Competition

Uniroyal, Sprint, Coors

Innovate

RC Cola, Chrysler, Sprint


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Strategies of Niche PlayersStrategies of Niche Players Niche Players Strategies

Sell to Full Line Generalist

Mennon, Maybeline, Gatorade, Ascend, Bay Networks

Move Up to Super Niche

Cruise Lines Concorde, Rolls Royce, Boutique Practices

Ditch Dwellers Strategies

Refocus as Specialist

A&P, Service Merchandise, Chapter11 Protection

Become a Consolidator

General Motors, Coors


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10

Market Size and the Rule of

Three

Market Size and the Rule of

Three Local to Regional

Banking Industry

Regional HoldingCompanies

Cable T.V.

Regional to National Airlines

Long Distance

Cellular and Paging

National to Global Airlines

Consumer Electronics

Telco Manufacturers

No matter how large themarket, the Rule of Three is

prevalent.

Therefore, when marketsgrow from local to regionalor from regional to nationalor from national to global,

there is furtherconsolidation of theindustry.


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The Global Rule of ThreeThe Global Rule of Three

U.S.

3 PLAYERS

JAPAN

3 PLAYERS

EUROPE3 PLAYERS

GLOBALGLOBAL

3 PLAYERS3 PLAYERS


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The Global Rule of ThreeThe Global Rule of Three

Passenger Car TiresPassenger Car Tires

GOODYEAR

FIRESTONE

B.F. GOODRICH

MICHELIN

PIRELLI

DUNLOP MICHELIN

BRIDGESTONE

GOODYEAR

BRIDGESTONE

TOYO

YOKOHAMA

Automobile ManufacturingAutomobile Manufacturing

GM

FORDCHRYSLER

TOYOTA

GMFORD?

D-C?

VW?

TOYOTA

NISSANHONDA

RENAULT

PEUGEOT

D-C

BMW

VWFIAT


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The Global Rule of ThreeThe Global Rule of ThreeAircraft ManufacturingAircraft Manufacturing

BOEING

AIRBUS

BOEINGAIRBUS

?

?

Airline AlliancesAirline Alliances

UNITED

AMERICANDELTA

STAR ALLIANCEONE WORLD

SKY TEAM

LUFTHANSA

BRITISH AIRWAYS

KLM

AIR FRANCE

JAPAN AIRLINES

ALL NIPPON

SINGAPORE AIR

QUANTAS


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Exceptions to the Rule of Three

Exceptions to the Rule of Three

Industries not allowed or encouraged tobe efficient through competition are:

Patent Based Industries

Pharmaceuticals

Owner Managed Businesses Professional Services

Regulated Monopolies

Utilities Regulated Markets

Communist Bloc, India, China, Brazil


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Industry Life Cycle:E

fficiency vs. Growth

Industry Life Cycle:E

fficiency vs. Growth

GROWTH

INDUSTRY

(SCOPE)

GROWTH

INDUSTRY

(SCOPE)

START UP

INDUSTRY

(SCALE)

START UP

INDUSTRY

(SCALE)

MATURE

INDUSTRY

(REVITALIZE)

MATURE

INDUSTRY

(REVITALIZE)

AGING

INDUSTRY

(DESCALE)

AGING

INDUSTRY

(DESCALE)

HIGHLOW

HIGH

LOW

INDUSTRY

GROWTH

INDUSTRY

EFFICIENCY


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Efficiency Processes for Start-upIndustries


REGULATEDMONOPOLY

EFFICIENCYPROCESSES FOR

START-UP INDUSTRIES

SHAKEOUTS &MERGERS

SHAREDSTANDARDS/

COSTS

GOVERNMENTMANDATE


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Scale Through PublicPolicy Government Mandate

Safety Rules Environmental Policy

Mandatory Use

Legalized Consumption

Regulated Monopolies

Municipality Services Public Highways

Public Health

Welfare Programs

Scale By Markets Shared Standards/Costs

Digital Electronics

Licensing of IntellectualProperty

Contract Manufacturing

Third Party Warehousing

Shakeouts & Mergers

Automobile Industry ISPs

Utility Industry

General Foods


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Scope Processes for GrowthIndustries

Scope Processes for GrowthIndustries

FullLineSpecialty

GlobalGLOCAL

DIVERSIFICATION

GLOCAL

DIVERSIFICATION

GLOBAL

EXPANSION

GLOBAL

EXPANSION

FULL LINE

EXPANSION

FULL LINE

EXPANSION

LOCAL

PENETRATION

LOCAL

PENETRATIONLocal

MARKETMARKET

EXPANSIONEXPANSION

PRODUCTPRODUCT

EXPANSIONEXPANSION


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Revitalization Processes for

MatureIndustries

Revitalization Processes for

MatureIndustries

MARKETSHIFTS

REVITALIZATIONPROCESSES FOR

MATUREINDUSTRIES

INVESTOREXPECTATIONS

REGULATIONCHANGE

SUBSTITUTETECHNOLOGY


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Revitalization Processes for MatureIndustries

Revitalization Processes for MatureIndustries

Substitute

Technology

Tire Industry

Computers

Television

Regulation Change

Airlines

Health Care

Telecommunications

Market Shifts Changing

Demographics

Information Services

Temporary Services

Investor Expectations Diversification vs.

Refocus

Growth vs. Income

Old vs. New Economy


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Descaling Processes for AgingIndustries

Descaling Processes for AgingIndustries

Capacity Reduction

Geographic reduction

Product reduction

Segment reduction

Horizontal mergers

Outsourcing Functions

Corporate supportfunctions

Contract manufacturing

Third party warehousing

Customer support

Breakup of Vertical

Integration

Manufacturing vs.

marketing

Oil industry example

Value chain analysis

Exit the Industry

Offshore ownership

Theory of comparative

advantage

Chapter11 protection

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