Marketing Classics: The Rule of Three and Four
June 2, 2009
Those that know me know that I’m a huge fan of classical marketing writing. Stuff from the 20′s through the 80′s that most of us have forgotten but that’s still so highly relevant today, especially with all of the new tools & channels that we have to wade through. So, in each newsletter from now going forward, I’ll be highlighting a classical marketing concept and pointing a a resource to learn more about it or to refresh your marketing memory.
This week’s concept is from some work done in the 60′s & 70′s by the Boston Consulting Group on what they called the "The Rule of Three and Four".
The Rule of Three and Four states that in any stable competitive market (now, it’s up to you to define the ‘market’) there are rarely more than three or four main competitors (think soft drinks, diapers, cars, etc) and those competitors exist in a world where the largest of them has no more than four times the market share of the smallest.
Why does this matter?
1. Defining your relevant market and its boundaries is of utmost importance. (redefining is even more important, over time!)
2. Challengers who expect to topple a competitor must out-market them by capturing independent market sectors first.
3. The rule is not easy to apply, but it’s effects on the company that does not abide can be undesirable (to say the least)
For those who are still looking at this cross-eyed, remember back in the early 80′s (or, from your business textbook that talked about the early 80′s!) when Jack Welch, the then CEO of GE told the company that every GE business unit should be number one or number two in its market, or else. Or else what? “Fix it, sell it or close it”. Well, the Rule of Three and Four is one of the oft forgotten business & marketing classic where Jack’s mandate was derived from.
This ‘rule’ that Welch applied turned out to be one of the more effective mandates of his time, so much so, that scores of companies have adopted and profited from it since, even if they don’t know where the idea originated.
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