What is Cannibalization?
Cannibalization, or, to be more precise, market cannibalization is a loss in a company’s sales following introduction of a new product that displaces one of its own previous products. Though the new product shows growth in sales, cannibalization does not help the company to increase its market share.
Types of Market Cannibalization
Planned Cannibalism
This is a known type of cannibalism typical for Apple, for example, when a company releases new versions of their product at the expense of older models. Careful marketing campaigns help attract new customers, even though the previous models are forced from the market.
Cannibalization Through Discounts
Retailers regularly offer discounts to certain types of products to make room for new products or to instantly boost cash flow. Yet, buyers might get used to periodic sales, refusing to buy products at their full price.
Cannibalization Through eCommerce
eCommerce flourishes at the expense of traditional stores. Yet, it also attracts new customers outside the regular client base and lets companies explore new markets and business strategies.
Advantages and Disadvantages of Market Cannibalization
Market cannibalism usually happens when two products are similar in features and share customer based and, as a rule, is unintentional and undesirable. However, many market leaders see it as a necessary evil, since it encourages customers to switch to a newer model and to select the company’s new product over that of a competitor. In this sense, cannibalization can be seen as a conscious strategy for growth.
To sum it up,
Cannibalization benefits:
- Newer products that can revive interest in outdated product lines
- This can prevent competitors from winning your customers.
Risks of cannibalization:
- Bargain alternatives offered by a company can dilute the value of higher-end brands.
- Greater competition can lead to market saturation.
Strategies to minimize cannibalization risks
If carefully planned, cannibalism might have a stimulating and refreshing effect on a business, it may lead to a boost in innovation and creativity and help a company conquer new markets. However, to have it under control it is useful to follow rules of reducing its adverse effects:
- Clearly communicate the positioning of new products
Uncareful launching of a new product or an upgraded model can cause consumer confusion, especially if the products are not clearly differentiated. Too many options of seemingly similar things can leave the consumer frustrated. Moreover, if a premium brand decides to enter the mass market, its image can be significantly damaged. This can be mitigated or even avoided by clear marketing communications and targeting of product lines. - Find the best timing
Timing is important: consumers might get used to seeing a new model by Christmas or adding new movies to streaming services several months after their showing in cinemas. It is necessary to calculate the best period between the high-margin movie premiere in cinemas and low-margin but highly popular online streaming. - Focus on profit impact
Though cannibalization is measured by sales lost to the company’s other products, it is the overall impact on the company’s profits that is critical. If a high-margin product displaces a lower-margin one, cannibalization can be considered as a positive change for the company.
Market cannibalization is a sales loss following introduction of a new product that shares branding and the consumer base to an existing product. Market research and testing are tools that help prevent cannibalization and even turn it into a well-working strategy.
