Market Cannibalization

Market Cannibalization is also known as corporate cannibalism; it is a revenue loss triggered by the launch of a new product by a corporation that substitutes one of its own older goods. When cannibalization happens, not just in sales volume, but also in revenue and market share, the company suffers losses. The cannibalization of present merchandise leads to no expand in the company’s market share regardless of income boom for the new product. Due to cannibalization, some corporations opt not to release their new products because they don’t choose the market share of their existing merchandise to decline. Cannibalization may also happen if a chain store or fast food outlet loses customers due to the nearby opening of another store of the same name.

In e-commerce, some agencies intentionally cannibalize their retail sales thru decrease fees on their online product offerings. When an organization manufactures a new product or introduces a new service, the aim is to attract a few of their existing customers and a large number of new customers. In other words, a new product line appeals to the existing market of the business rather than appealing to an external segment of the market, decreasing demand for its developed products. The discounted goods may be purchased by more consumers than normal, especially if they were previously anchored to retail prices. In this respect, market cannibalization is an example in which two product lines owned by a corporation compete against each other.

(Example of Market Cannibalization)

Sometimes, the release of the new product into the market attracts a giant share of its present-day patron base. Marketing cannibalization is regularly executed unintentionally when the advertising or advertising campaign for new products draws customers away from a setup product. As a consequence, market cannibalization will harm the bottom line of a company. The expected profit generated from the new product must be reduced by the earnings on the missed sales in the project assessment. Market cannibalization, however, may be a deliberate growth technique.

A common case of cannibalization is when companies, especially retail companies, open websites too close to each other, in effect, competing for equal customers. It regularly happens when an organization fails to perform due diligence before launching its new product. In some instances, the new product does now not only harm a company’s sales volume and revenue. For example, a supermarket chain might open a new store near one of its older stores, recognizing that they would eventually cannibalize revenue from each other. The new store would, however, also steal market share from neighboring rivals, even ultimately pushing them out of business.

Actually, cannibalization is a vital issue in marketing methods when an enterprise or agencies pursuits to carry out a brand extension. As agencies design their advertising strategies, advertising cannibalization wants to be avoided, and person product income wants to be intently monitored to decide if cannibalization is occurring.

ABC, the watch-making firm, for example, has been manufacturing luxury watches for a while. The watches however don’t appeal to the intended target audience for some reason. Instead of making an entirely new product, the business chooses to change its latest luxury watch. The changes are expected to draw the same buyers to the market. In this scenario, ABC is purposely releasing a new line of watches because it wants to maintain and attract new customers.

Sometimes, market cannibalism can’t be avoided; each and every major department keep now operates an online store, understanding fully properly that its sales can solely cannibalize its brick-and-mortar business. Cannibalization is an imperative evil in a lot of cases. As sales plateau and decline solely to stabilize at a decrease amount, it is vital for businesses to innovate and experiment in order to create something new and reducing aspect to keep market share. A business that makes crackers, for example, can introduce a low-fat or lower-salt version of its brand. It acknowledges that some of its sales from the original brand would be cannibalized, but it aims to increase its market share by appealing to health-conscious customers who would either purchase a different brand or completely miss the crackers.

 

Information Sources:

  1. investinganswers.com
  2. investopedia.com
  3. corporatefinanceinstitute.com
  4. wikipedia