Market Cannibalization

What Is Market Cannibalization?

Market cannibalization is a loss in sales brought about by a company's presentation of another product that uproots one of its own more seasoned products. The cannibalization of existing products prompts no increase in the company's market share regardless of sales growth for the new product.

Market cannibalization can happen when another product is like an existing product, and both share a similar customer base. Cannibalization can likewise happen when a chain store or fast food outlet loses customers due to one more store of a similar brand opening close by.

How Market Cannibalization Works

Likewise alluded to as corporate cannibalism, market cannibalization happens when another product barges in on the existing market for a more established product. By engaging its current customers as opposed to catching new customers, the company has failed to increase its market share while in all likelihood expanding its costs of production.

Marketing cannibalization is frequently done unexpectedly while the marketing or advertising campaign for new products draws customers from a laid out product. Thus, market cannibalization can hurt a company's bottom line.

Nonetheless, market cannibalization can be a deliberate strategy for growth. A supermarket chain, for instance, could open another store close to one of its more established stores, realizing that they will unavoidably tear up one another's sales. In any case, the new store will likewise take market share from neighboring contenders, even driving them out of business eventually.

Cannibalization as a marketing strategy is generally disliked by stock analysts and investors, who consider it to be a likely drag on short-term profits. As companies design their marketing strategies, marketing cannibalization should be kept away from, and individual product sales should be closely checked to determine in the event that cannibalization is happening.

For instance, while taking a gander at the fast expansion of chains, for example, Starbucks or Shake Shack, these companies continually gauge the opportunities for sales growth with the risks of nearby market cannibalization.

Types of Market Cannibalization

Arranged Cannibalism

One natural type of cannibalism happens each year when companies like Apple and Samsung release new renditions to the detriment of more seasoned models. Albeit these new releases cut into sales of the more seasoned models, which might in any case be well known, they likewise draw in new buyers from different brands.

Cannibalization Through Discounts

Numerous retailers consistently put products on sale, either to increase cash flow or to account for more up to date products. However, customary discounts can have a tearing up effect, on the off chance that buyers begin to anticipate routine discounts. Assuming that customers will not buy things at full price, the retailer might be forced to offer progressively steep discounts.

Cannibalization Through eCommerce

Numerous traditional retailers presently offer online sales, which could come to the detriment of their brick-and-mortar stores. Be that as it may, these losses could be a net benefit, assuming online shopping draws in new customers from outside the retailers' normal base.

Instructions to Prevent Market Cannibalization

To prevent new products from tearing up on more seasoned ones, it is important to consider how the two products are branded. Products with comparable pricing and situation — like new flavors or added highlights — represent a high risk of market cannibalization, as per the Nuremberg Institute for Marketing Decisions.

This risk can be decreased through more unmistakable branding — for instance, making modest "battling brands" to rival low-cost contenders without ripping apart from the premium brands. New offerings can likewise be carefully planned to try not to upset more seasoned offerings.

At the point when Market Cannibalism Is Unavoidable

Sometimes, market cannibalism can't be kept away from. Each major department store currently operates an online store, realizing without a doubt that its sales can tear up its brick-and-mortar business. Their main other decision is to allow internet retailers to keep removing market share from them.

Macy's, starting around 2021, is currently closing 125 brick-and-mortar stores from one side of the country to the other, as indicated by CNBC. In the mean time, Amazon is in the middle of opening a chain of convenience stores called Amazon Go. Will the new stores tear apart the website? It's not likely since Amazon Go just sells things that can't be purchased on the website, to be specific prepared to-eat new feasts.

Benefits and Disadvantages of Market Cannibalization

Market cannibalism isn't dependably to be feared, particularly in the event that it can secure or expand a company's market share. Apple organizer Steve Jobs is reported to have embraced the practice, saying: "In the event that you don't tear up yourself, another person will." Although the recently released iPhone tore apart buyers from more established iPods, they left a greater mark on Apple's rivals.

Market cannibalization may likewise be a fitting defensive measure against contenders, as when Airbnb began cutting into the edges of the inn business. Marriott then began their own home rental business, which ripped apart from their own lodging revenue — at the end of the day denied market share to Airbnb.

Yet, there are likewise major risks to market cannibalism. High-end retailers ought to be mindful about introducing low-priced renditions, which could weaken the value of their premium brands.

There is likewise a risk of market saturation, as could happen when two indistinguishable fast food caf\u00e9s show up on a similar block. Contingent upon neighborhood market dynamics, the brand could wind up contending with itself.

Similarly as with other marketing choices, intensive market research and careful timing can have a significant effect among positive and negative market cannibalization.

Apple is an illustration of a company that has disregarded the risk of market cannibalization in quest for bigger objectives. At the point when Apple reports another iPhone, the sales of its more seasoned iPhone models promptly drop. In any case, Apple is depending on its new telephone catching contenders' current customers, expanding its overall market share.

Companies frequently risk market cannibalization in order to gain a bounce in overall market share. For instance, a company that makes wafers might present a low-fat or lower-salt rendition of its brand. It knows a portion of its sales will be ripped apart from the original brand, yet it desires to expand its market share by engaging wellbeing cognizant consumers who in any case would buy an alternate brand or skip the wafers through and through.

Cannibalization Rate.

Market cannibalization is measured by the Cannibalization Rate:

• Cannibalization Rate = 100 x (Lost sales on old product)/(Sales of new product)

Product Cannibalization FAQs

Is Product Cannibalization Good or Bad?

While product cannibalization is an expected result of sending off another product line. While an ill-conceived entry might hurt sales of existing products, a very much arranged market send off can assist a company with gaining more overall market share.

How Might You Measure Product Cannibalization?

Product cannibalization is addressed by cannibalization rate, the percentage of new sales which happened to the detriment of old product lines. The cannibalization rate is calculated by partitioning the lost sales for more established products by the total sales of the new product.

Why Is Product Cannibalization Important?

Product cannibalization is an important factor in brand marketing. Since any new send off runs the risk of poaching customers from other product lines, it is essential to carefully research the market and conduct exhaustive testing to determine assuming that the risks offset the benefits.

Highlights

• Market cannibalization is measured by the cannibalization rate, the number of lost sales for old products as a percentage of new sales.
• Market cannibalization is sometimes a deliberate strategy to blow out the competition while different times, it's an inability to arrive at another target market.
• Market cannibalization is a sales loss brought about by a company's presentation of another product that uproots one of its own more seasoned products.
• Market cannibalization can happen when another product is like an existing product and both share a similar customer base.
• Products with comparable branding are most at risk of cannibalization. It is important to conduct exhaustive market research and testing to prevent cannibalization.