The Rule of Three: Surviving and Thriving in Competitive Markets - Softcover

Sheth, Jagdish

 
9781439172933: The Rule of Three: Surviving and Thriving in Competitive Markets
Softcover
ISBN 10: 1439172935 ISBN 13: 9781439172933
Verlag: Free Press, 2010

Inhaltsangabe

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.

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Über die Autorin bzw. den Autor

Jagdish Sheth is the Charles H. Kellstadt Professor of Marketing at the Goizueta Business School, Emory University, and the founder of the Center of Relationship Marketing. He has served as an advisor and consultant to AT&T, Lucent, Motorola, and Young and Rubicam, and contributes regularly to The Wall Street Journal and other publications. He lives in Atlanta, Georgia.

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Chapter 1: Four Mechanisms for Increasing Efficiency

In 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 Standards

Market 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 others to make the MS-DOS operating system the standard for personal computers. Once that standard was set, even Big Blue, known primarily for its hardware, could not wrest away control with its proprietary OS/2 system.

When standards play a major role and remain largely proprietary, there may not be room for three separate platforms. Typically at most two platforms can survive in the broad market: VHS & Beta for video recorders, VHS-C and 8mm for camcorders, PAL and NTSC for television broadcasts, CDMA and GSM for wireless telephony, PC and Mac for personal computing. Eventually, one platform becomes dominant, if not universal. Thus, 8mm has a big lead over VHS-C, PCs have triumphed over the Mac, and VHS has overwhelmed Beta. The other platform, if it survives, is relegated to a niche market.

The simultaneous existence of two or more standards, as in the case of NTSC and PAL, can be attributed in large part to protectionist ideologies and government regulation. Thanks to a double standard in the worldwide electric industry, tourists must contend with shifting between 110 volts and 220 volts, not to mention remembering to pack a variety of prongs and socket styles; in Europe alone there are some 20 different types of electrical plugs currently in use. To the delight of those tourists, these types of essentially meaningless and highly inefficient differences will start to go away as the electric industry adopts universal standards and the world at large becomes more driven by market economies. The cost of converting to a new single standard, however, is estimated to be $125 billion!

Already we can see the power of a fully adopted worldwide standard in the World Wide Web. The extraordinarily rapid diffusion of this technology across the globe has resulted in large measure because of that single standard. Emerging industries today are highly cognizant of this fact, and organizations that set industry standards now occupy an influential place in the world economy. The impact of evolving standards is illustrated by the stories of the evolution of the VCR industry and the development in Europe of the Group Special Mobile (GSM) network.

The VCR Industry

Based in Redwood City, California, the Ampex Corporation invented video tape recorder (VTR) technology in 1956. It sold machines to professionals initially for $75,000, but it was never successful in creating a product for ordinary consumers. However, it was successful in licensing its technology to Sony, which turned it into a competitive advantage.

Sony first introduced videocassette recorders (VCR) to the mass market in 1971, but even its "U-Matic" machines and cassettes were too big and expensive. Accordingly, Sony made modifications and repositioned the machines for industrial users. Next, Sony approached JVC and Matsushita -- two of its biggest competitors -- about establishing a standard (based on a new Sony technology) that would reduce the size of both machines and cassettes. JVC and Matsushita would accept only the U-Matic format, and JVC refused to cooperate or compromise on technology for smaller machines.

In 1971, JVC established a video home system (VHS) project team and charged it with the mission to develop a viable VCR for consumers, not just one that was technologically possible, but something consumers would prefer. Experimenting with ten different ways of building a home VCR, Sony settled by mid-1974 on the Betamax prototype. It set up a new plant to produce 10,000 units a month, but designed the machine to record for only one hour, reasoning that customers would use it to record television programs for later viewing. Later, when Sony asked Matsushita and JVC to adopt the Beta format, both refused, citing the one-hour recording limit as a major drawback. JVC's VHS format, then in development, would deliver up to three hours. After the Betamax was launched, Hitachi tried unsuccessfully to license Betamax technology from Sony, which basically had decided to go it alone.

Meanwhile, JVC formed an alliance of companies around the VHS standard before it shipped any products. The group included Matsushita, Hitachi, Mitsubishi, Sharp, Sanyo, and Toshiba. The standards war was on, and not even the intervention of Japan's Ministry of International...

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Verlag
Free Press
Erscheinungsdatum
2010
Sprache
Englisch
ISBN 10 
1439172935
ISBN 13 
9781439172933
Einband
Taschenbuch
Anzahl der Seiten
288
Kontakt zum Hersteller
Nicht verfügbar
Verantwortliche Person
Simon and Schuster Netherlands BV
info@simonandschuster.nl

Herculesplein 96
Utrecht
3584 AA
Niederlande

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