What is cannibalization?
Cannibalization is the loss of sales revenue, market share, and sales volumes of a company’s product when it introduces another line of products into the market. Due to the fear of cannibalization, companies may avoid releasing new products.
Market cannibalization, also referred to as corporate cannibalism, occurs when a company aiming to attract new and existing customers with a new development ends up losing the market share on another successful product. So, the company does not increase its market share, and the customer base shifts to the new product, thus resulting in market cannibalization.
Sometimes even with a thorough market plan and investing resources into market research, cannibalism can still happen. Cannibalization usually occurs when two similar products target the same group of consumers.
Cannibalization can affect the financial aspects of the company if the production costs are high. However, some companies are deliberate about cannibalism as it enables them to stay relevant and competitive in the market.
What Are the Causes of Cannibalization?
When launching new products in the market, the company should ensure the product differs significantly from the predecessor product in terms of features, design, pricing, and target audience.
The possible causes of cannibalizations are:
● Creating Nearly Identical Products
The new product should be significantly different. It should have unique features, different aesthetics, new or different uses. Otherwise, it will attract the same market hence product cannibalism.
● Failing to Reach New Clients
If the new product is launched into a similar market as the initial one, it will attract the same customers as the old one, and the sales will be split or shifted to the new product altogether.
● Wrong Pricing
When introducing a new product into the market, you should be careful about the pricing. If low-priced, the sales will shift from the initial development to the new one. This happens when there isn’t much difference in design and features.
What Does Deliberate Cannibalization Entail?
Market cannibalization is not always detrimental to the well-being of a company. Several companies do deliberate cannibalization. The reasons for deliberate cannibalism are to expand the market share, meet all customers’ needs, and stay competitive.
Companies such as Google, Apple, Facebook, and others continually launch new products into the market. The self-cannibalization aims to improve existing products and prevent upcoming companies from overtaking them.
For example, Steve Jobs, in his biography, states, “If you don’t cannibalize yourself, someone else will.” He launched the iPhone in the market when the iPod’s sales and popularity were at their peak. Although iPod sales went down, the iPhone attracted new customers, making Apple relevant and competitive in the market. To date, Apple has released new models of iPhone with improved features, ensuring its position as a market leader for years.
Before undertaking corporate cannibalism, it is wise to consider the sales growth rate over the years of all the products. Analyze how the new product can affect the sales of the initial innovation and its effect on the company.