Cannibalization
Cannibalization refers to the phenomenon where a new product or service introduced by a company takes market share or sales away from its existing products or services. This often occurs within the same brand or product line and is an important issue that companies must consider when launching new products.
Characteristics of Cannibalization
Intra-Brand Competition
The new product competes with existing products within the same brand, causing promotional activities aimed at the same target market to compete with each other.
Example: When Apple launches a new iPhone model, sales of the previous model may decline.
Market Share Shifts
The new product's sales take away from the existing product's sales, leading to changes in the market share of each product, though the overall market share remains unchanged.
Example: A new restaurant chain opening in the same area may reduce sales at existing chain locations.
Self-Competition
The company's products or services compete with each other, potentially leading to an unexpected drop in overall revenue and profit.
Example: A new subscription service draws customers away from an existing service.
Examples of Cannibalization
Technology Industry
The introduction of new tech products often reduces sales of existing products.
Example: When Microsoft launches a new Surface model, sales of the old model may decrease.
Fashion Industry
New fashion lines can impact the sales of older lines.
Example: When H&M launches a new collection, sales of the previous collection may decline.
Automotive Industry
The introduction of new car models can affect the sales of existing models.
Example: When Toyota launches a new Prius model, sales of the older model may decrease.
Advantages of Cannibalization
Quick Response to Market Needs
Cannibalization allows companies to quickly respond to market changes and new consumer needs.
Example: Introducing new products to maintain market share as consumer preferences change.
Maintaining Competitive Advantage
Launching new products before competitors helps maintain a competitive edge within the industry.
Example: Leading the market with new products to capture market share from competitors.
Refreshing Brand Image
Introducing new products helps keep the brand fresh and continues to attract consumer interest.
Example: Emphasizing innovation by launching new products with new designs or features.
Challenges of Cannibalization
Decline in Total Revenue
If the new product only takes sales away from existing products without increasing overall market share, total revenue may decline.
Example: Sales of an expensive new product consume sales of a high-margin existing product.
Complex Inventory Management
Managing inventory for both new and old products simultaneously can be complex.
Example: Delays in clearing old inventory can complicate new product inventory management.
Customer Confusion
Customers may be unsure which product to choose, delaying purchase decisions.
Example: A complex product lineup makes it difficult for customers to select the right product.
Strategies for Managing Cannibalization
Product Differentiation
Clearly differentiating between new and existing products minimizes the impact of cannibalization.
Example: Introducing products with different features or price points.
Expanding Target Markets
Launching new products to different target markets avoids competition with existing products.
Example: Selling new products to new regions or customer segments.
Adjusting Marketing Strategies
Properly adjusting marketing strategies for both new and existing products maximizes sales for both.
Example: Timing the launch of new products to prevent a decline in existing product sales.
Cannibalization is an inevitable phenomenon in a company's growth strategy, but with proper management, it can contribute to maintaining or expanding overall market share.