What Is Market Cannibalization?

Market cannibalization refers to a drop in sales and demand for a product when the company replaces it with a new one. Market cannibalization can occur when a new product is similar to an existing product, and both share the same customer base. It leads to no increase in the company's market share ♛despite sales growth for the new product. Cannibalization can also occur when a chain store or fast food outlet loses customers due to another store of the same brand opening nearby.

How Market Cannibalization Works

Market cannibalization occurs when a new product intrudes on the existing market for an older product from the same company. By appealing to its current customers instead of capturing new customers, the company 澳洲幸运5官方开奖结果体彩网:fails to increase its market share while💜 almost certainly increasing its costs of production.

Marketing cannibalization is often unintentional when the marketing or advertising campaign for new products draws customers away from an established product. As a result, market cannibalization can hurt a company's 澳洲幸运5官方开奖结果体彩网:bottom line.

This phenomenon can be a deliberate growth strategy. For example, a supermarket chain might open a new store near one of its older stores, knowing that they will inevitably cannibalize each other's sales. However, the new store will also steal market share from nearby competitors with the possibility of eventually driving them out of business.

Stock analysts and investors generally look down upon cannibalization as a 澳洲幸运5官方开奖结果体彩网:marketing strategy. That's because they see it as a potential drag on short-term profits. As companies design their marketing strategies, marketing cannibalization should be avoided. This means companies should closely monitor individual product sales to determine if cannibalization is occurring. For instance, companie💮s like Starbucks and Shake Shack constantly weigh sales growth opportunities with the risks of local market cannibalization.

Special Considerations

There may be times when market cannibalism cannot be avoided. Every major department store operates an online store, knowing full well that its sales can only cannibalize its 澳洲幸运5官方开奖结果体彩网:brick-and-mortar locations. Their only other choice is to allow internet retailers to continue taking market share away from them. Consider how online sales are hurting major retailers like Macy's, which continues to close down some of its stores across the country.

Types of Market Cannibalization

There are several types of market cannibalization. They include planned cannibalization, discount-related cannibalization, and cannibalization through e-commerce.

• Planned Cannibalism: One familiar type of cannibalism occurs every year when companies like 澳洲幸运5官方开奖结果体彩网:Apple and Samsung release new versions at the expense of older models, even if the products are still popular. While these new releases may cut into sales of older models, they also attract new buyers from other brands.
• Cannibalization Through Discounts: Many retailers regularly put products on sale, either to increase 澳洲幸运5官方开奖结果体彩网:cash flow or to make room for newer products. But, regular discounts can have a cannibalizing effect if buyers start to expect routine discounts. If customers refuse to buy items at full price, the retailer may be forced to offer increasingly steep discounts.
• Cannibalization Through E-commerce: Many traditional retailers now offer 澳洲幸运5官方开奖结果体彩网:online sales, which could come at the expense of their brick-and-mortar stores. However, these losses could be a net benefit if online shopping attracts new customers from outside the retailers' normal base.

How to Prevent Market Cannibalization

It is important to consider how the two products are branded to prevent new products from cannibalizing older ones. Products with similar pricing and placement, such as new flavors or added features, pose a high risk of market cannibalization, according to the Nuremberg Institute for Marketing Decisions.

This risk can be reduced through more distinctive branding. For example, creating inexpensive fighting brands to compete with low-cost competitors without cannibalizing from the premium brands. New offerings can also be carefully timed to avoid disrupting older offerings.

Advant☂🦹ages and Disadvantages of Market Cannibalization

Advantages

Market cannibalism is not always to be feared, especially if it can protect or expand a company's market share. Apple founder 澳洲幸运5官方开奖结果体彩网:Steve Jobs is reported to have embraced the practice, saying: "If we don't cannibalize ourselves, someone else will." Although newly-released iPhones do c𝔍annibalize buyers from older models and other devices (like iPods), tꦓhey make a bigger dent in Apple's competitors.

It may also be an appropriate defensive measure against competitors, as when Airbnb started cutting into the margins of the hotel business. In 2019, Marriott started its own home rental business, which cannibalized from its hotel revenue—but ultimately denied market share to Airbnb.

Disadvantages

There are also major risks to market cannibalism. High-end retailers should be cautiou🍎s about introducing low-priced versions, which could dilute the v🌌alue of their premium brands.

There is also a danger of 澳洲幸运5官方开奖结果体彩网:market saturation, as might occur whenꦛ two identical fast-food restaurants appear on the same block. Depending on local market dynamics, the brand might end up competing against itself.

As with other marketing decisions, thorough 澳洲幸运5官方开奖结果体彩网:market research and careful timing can make all the difference between positive and 𒆙negative market cannibalization.

Examples of Market Cannibalization

Apple is an examp🎃le of a company that ignores the risk of market cannibalization in pursuit of larger objectives. When the company announces a new 💝iPhone, the sales of its older models immediately drop. However, Apple counts on its new phone to capture customers from its competitors so it can increase its market share.

Companies often risk market cannibalization to see a boost in their market share. For example, a company that makes crackers may introduce a low-fat or lower-salt version of its brand. It knows some of its sales will be cannibalized from the original brand, but it hopes to expand its market share by appealing to health-conscious consumers who otherwise would buy a different brand or skip the crackers altogether.

The Bottom Line

Companies have different growth strategies they can explore to help them gain market share and increase their sales. At times, it may come at the expense of their existing product lines. When a company loses sales for an existing product to a newer one, it's called market cannibalization. While it can help businesses innovate, increase their customer base, and release new product lines, there are risks with this strategy. Low-priced goods and market saturation can be hard to avoid. This is why companies should do their research first.