Cannibalization (marketing)
1. Definition
Cannibalization in marketing refers to the situation where a new product or service introduced by a company eats into the sales of its existing offerings. This often occurs when a company launches similar products or enters overlapping markets. While cannibalization can lead to internal competition between products, it is not always negative. It can be part of a strategic move to maintain market share or respond to consumer demand. However, if not managed properly, it may erode profitability or market share.
2. Applications of Cannibalization in Marketing
- Product Line Expansion: Companies often introduce new products to target a specific market segment. Cannibalization might occur when these new products attract existing customers rather than new ones.
- Market Penetration: It can be a calculated risk when companies aim to outcompete rivals by offering a similar product at a lower price, even if it impacts sales of their existing products.
- Digital Transformation: Transitioning from traditional to digital platforms can lead to cannibalization, as customers move from physical products to digital equivalents.
- Brand Evolution: A company rebranding or modernizing its portfolio may cause older products to lose relevance in favor of newer offerings.
3. Types of Cannibalization in Marketing
- Intra-Brand Cannibalization: This happens within the same brand when a company’s new product competes with its own existing products. For example, a new smartphone model may reduce sales of earlier models.
- Cross-Brand Cannibalization: Occurs when a company owns multiple brands in the same category, and products from one brand affect the sales of another.
- Channel Cannibalization: This arises when a company introduces a new sales or distribution channel (e.g., online stores), reducing sales in traditional channels like physical stores.
- Price Cannibalization: Happens when a lower-priced version of a product undercuts the sales of higher-priced offerings within the same portfolio.
Cannibalization is a double-edged sword in marketing—it can stimulate innovation and competitiveness but also requires careful management to avoid eroding overall business performance.