What Is Market Cannibalization?
Market cannibalization refers to the phenomenon where a company’s introduction of a new product results in a reduction of sales of its existing products. This internal competition does not necessarily expand the company’s overall market share but may shift customer focus from one product to another within the same brand.
How Market Cannibalization Works
Occasionally dubbed as corporate cannibalism, this occurrence can lead to increased production costs and confused marketing messages. Although often unintentional, as with overlapping marketing campaigns that favor newer over established products, it can negatively impact the company’s profitability.
Strategically, though, market cannibalization might be employed to dominate more market territory by weakening competitors, albeit at the risk of one’s own older products’ performance. Well-known examples include supermarkets or fast food chains opening new locations close to existing ones, hoping to out-compete other local businesses despite the internal sales overlap.
Types of Market Cannibalization
Planned Cannibalism
Tech giants like Apple demonstrate planned cannibalism when they launch updated gadget models designed to capture both existing and new customers’ attention, sometimes at the cost of older model sales.
Cannibalization Through Discounts
Retail marketing strategies often involve discounts to boost short-term sales or clear inventory, which can lead to customers waiting for deals and avoiding full-price purchases.
Cannibalization Through eCommerce
As retail businesses expand online, they might see a decline in brick-and-mortar sales, which can be offset by attracting a broader online customer base.
How to Prevent Market Cannibalization
Preventing unwanted market cannibalization involves strategic branding and market positioning. Properly differentiating products by pricing, features, and target demographics can help minimize internal competition. Key strategies include:
- Conducting thorough market research to ensure new products adequately differentiate from older ones.
- Strategic product placement and promotional tactics that do not overshadow existing offerings.
- Continuous monitoring of sales data to identify and address cannibalization issues promptly.
Key Takeaways
- Deliberate Strategy or Unintended Consequence: Market cannibalization can either be a calculated risk to suppress competitors or an unplanned strategy leading to lost sales.
- Cannibalization Rate: A vital metric for assessing the impact of new products on existing ones.
- Product Differentiation: Essential for reducing risks of cannibalization.
Further Reading
- Competitive Strategy by Michael E. Porter – Explore techniques for gaining competitive advantage in varying market structures.
- Marketing Warfare by Al Ries and Jack Trout – A guide to understanding and applying military strategies in marketing campaigns.
- Crossing the Chasm by Geoffrey A. Moore – Insights into marketing and selling high-tech products in mainstream markets.
In the dynamic battlefield of market share, understanding and strategically managing market cannibalization can mean the difference between a company eating its own lunch, or serving up a competitive feast. So, keep your friends close, your products closer, and your new releases strategically aligned.
