Key Takeaways
- New product reduces sales of existing product.
- Occurs when products are close substitutes.
- Strategic cannibalization protects market share.
- Cannibalization rate measures sales displacement.
What is Market Cannibalization?
Market cannibalization occurs when a company's new product reduces the sales of its existing product, potentially decreasing overall revenue despite increased total sales volume. This typically happens when the new offering attracts the same customer base rather than expanding into new market segments.
Understanding this concept helps you evaluate product launches and portfolio strategies to avoid unintended revenue losses.
Key Characteristics
Market cannibalization involves distinct traits that impact company performance:
- Overlap in customer base: New products appeal primarily to existing customers rather than new segments.
- Similar or substitute products: Cannibalization usually occurs between products that serve comparable needs or functions.
- Impact on financial factors: It influences revenue, market share, and profitability metrics.
- Strategic vs. unintentional: Some companies, like Apple, use cannibalization strategically to maintain competitive advantage.
How It Works
When a new product is introduced, customers may switch from an existing product to the new one, reducing demand for the former. This shift often happens when both products are close substitutes, such as different smartphone models or software versions.
Companies must assess how new launches affect overall macroeconomic factors and internal sales dynamics to balance growth with potential losses from cannibalization.
Examples and Use Cases
Market cannibalization appears across industries, with notable examples demonstrating both risks and strategic benefits:
- Technology: Apple frequently cannibalizes its own iPhone models by releasing newer versions that reduce sales of older ones, yet this strategy sustains market leadership.
- Social Media: Meta manages overlapping products like Facebook and Instagram, balancing user engagement without excessively cannibalizing its platforms.
- Search Engines: Google introduces new services that sometimes compete with its existing offerings, carefully monitoring cannibalization rates to optimize portfolio performance.
Important Considerations
To manage market cannibalization effectively, you should differentiate target customer segments and price new products strategically to minimize negative impacts. Conducting thorough market research before launches helps predict cannibalization risks.
Tracking key financial factors and adjusting product timing can turn cannibalization into a competitive advantage rather than a liability.
Final Words
Market cannibalization can erode your existing product sales even as overall revenue grows, so it’s crucial to measure its impact carefully. Evaluate your product portfolio regularly to identify overlap and adjust your strategy to minimize internal competition.
Frequently Asked Questions
Market cannibalization happens when a company's new product reduces sales of its existing product, causing a loss in revenue and market share despite overall sales increasing. This usually occurs when the new product appeals mainly to the company's current customers rather than attracting a new audience.
Cannibalization occurs when customers switch from an existing product to a newer, similar alternative, leading to decreased demand for the original product. For example, a coffee shop offering a new macchiato might see fewer sales of its traditional espresso.
There are several types including product cannibalization, where a new product replaces an existing one; discount-based cannibalization, caused by promotional pricing; location-based cannibalization, when nearby stores compete with each other; and eCommerce cannibalization, where online sales reduce physical store traffic.
The cannibalization rate is calculated by dividing the sales lost from the existing product by the sales gained from the new product, then multiplying by 100. For example, if a new product sells 3,000 units and the old product loses 1,000 units, the cannibalization rate is 33.3%.
Yes, strategic cannibalization can help companies stay competitive and prevent rivals from capturing market share. Companies like Apple deliberately cannibalize older products by introducing new ones to maintain leadership and attract new customers.
Apple is a well-known example, often lowering prices on older iPhone models when new ones launch, even discontinuing some lines. Coca-Cola also used cannibalization by introducing Coke Zero, which reduced Diet Coke sales but expanded their market by attracting new consumers.
Intentional cannibalization is when companies deliberately launch products that may reduce sales of their existing offerings to stay competitive. Unintentional cannibalization happens without strategy, often leading to unexpected revenue loss and market confusion.
