What is Cannibalization?

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cannibalization

What Is Cannibalization?

Cannibalization Definition

Cannibalization occurs when a company introduces products and competes with them in the same marketplace. Cannibalization helps companies compete with the same customers and gives variety and market choices. 

Cannibalization is a term used to describe when the same company’s products compete in the same market. 

At first impression, this comes off as a disadvantage. 

That is mainly because the company loses out on the market share for its product and the resources spent on the products. To add to that, it also doesn’t create any impact. 

On the brighter side, cannibalization creates an image of the diversity of products and the choices provided. 

Moreover, internal competition for the same customers is better than external customers because the profits are coming from the company. 

There are several factors which impact Cannibalization.

Factors that impact cannibalization

How to Measure Market Cannibalization?

It is challenging to predict whether the product that the company launches in the market will do good or not in the future.

The below formula can help you determine the sales of the product. 

To measure market cannibalization, you need first to find the cannibalization rate. 

The market cannibalization formula is: 

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

If you launch a product in the market, you may lose the existing batch of customers. 

The cannibalization rate allows companies to determine the loss of sales and the impact the new batch of products will have on the old ones. 

Revenue Source of New Products -Cannibalization

What Are the Examples of Market Cannibalization?

When a company’s original product’s demand decreases due to the launch of its new products, that is the market cannibalization.

Due to cannibalization, businesses experience loss in sales volume, market share, and revenue. 

The market cannibalization phenomenon is also sometimes called corporate cannibalism.

Introducing new products aims to retain some old customers and attract some new ones.

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However, things always don’t go as they are on paper.

Sometimes a company releases new products but attracts many existing customers. Many current customer bases fail to increase the customer market base. 

Apple is an excellent example of a company that uses market cannibalization.

When Apple releases a new product into the market, they don’t shy away from making their newer versions available in all their stores. 

The sales of the old iPhones do go down. However, Apple makes up by capturing its competitors’ current customers. All of this results in increasing Apple’s client base.

What are the examples of product cannibalization?

Introducing new products or versions of products and attracting your competitor’s consumers and market share is exciting. However, sometimes if instead of your competitor’s consumers, it’s your consumers that are going away, then it is a problem of product cannibalization.

When a company notices the loss of sales volume or revenue when they launch new products or versions of an existing product, it is product cannibalization.

One of the well-known examples of product cannibalization is that of Coca-Cola. Coca-cola has products ranging from cherry coke and vanilla coke to coke zero, and they are all competing for the same customers.

Due to this phenomenon, it takes market share and sales away from each other.

However, this is a good strategy that coca-cola applies, and Coca-cola can get access to newer markets and segments. 

Are Market and Product Cannibalization the same?

Market and product cannibalization are not the same. Market cannibalization is when a company’s market share drops because of introducing a new product or service into that market. 

Product cannibalization is when a company’s products or services are replaced by introducing another product or service, which leads to decreased sales for the original product or service.

New technology in the market will inevitably cause some degree of cannibalization for existing companies who have invested in that technology. The question is whether it’s worth investing in that technology, given how much time and money it takes to build up an industry.

Companies should be aware that they might lose some customers to competitors if they launch their products or services with similar features.

Market cannibalization is a term used in the advertising industry to describe how a company’s product or service has been replaced by a new competitor’s product or service, resulting in the loss of market share.

Market cannibalization is when one of your competitor’s products or services takes away your market share and profits. Market cannibalization happens when there is a change in consumer tastes, preferences, and habits.

Market cannibalization is also known as “competitive displacement.”

Product cannibalization occurs when one product eats into another. When a company releases a product in the market similar to the one that already exists. 

The new product will take away the sales of the first one, and the company is competing with itself. That is product cannibalization.

An example of product cannibalization is if you have a flavored lemon juice that you are selling. Now you decide to sell the same product with less sugar and price reduction. 

Your consumers will go for the second product because it has an added advantage and lower price. All of this will result in less revenue for your company. And eventually, you will have to take out the original product itself.

FAQs

What is the advantage of cannibalization?

Cannibalization creates an image of the diversity of products and the customers’ choices. 

Moreover, internal competition for the same customers is better than external customers because the profits are coming from the company.

What is the disadvantage of cannibalization?

The disadvantage of cannibalization is that the company is losing out on the market share of its product.

However, the resources spent on both the products are not creating an impact up to their potential.

Why do some companies let their brands cannibalize each other?

Some companies let their brands cannibalize each other’s products because it helps them gain demand for new products. This strategy decreases the sales of the former products from the similar product line.

Why is product/market cannibalization often necessary?

It is often necessary to cannibalize a product/market because it is the last resort to innovate and go ahead. Doing so helps companies not stagnate the market by selling the same products for an extended period. Sometimes companies use the cannibalization strategy to blow out their competitors.

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