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In marketing strategy, cannibalization is a reduction in sales volume, sales revenue, or market share of one product when the same company introduces a new product.
In e-commerce, some companies intentionally cannibalize their retail sales through lower prices on their online product offerings. More consumers than usual may buy the discounted products, especially if they'd previously been anchored to the retail prices. Even though their in-store sales might decline, the company may see overall gains.
Another example of cannibalization occurs when a retailer discounts a particular product. The tendency of consumers is to buy the discounted product rather than competing products with higher prices. When the promotion event is over and prices return to normal, however, the effect will tend to disappear. This temporary change in consumer behavior can be described as cannibalization, though scholars do not normally use the phrase "cannibalization" to denote such a phenomenon.
In project evaluation, the estimated profit generated from the new product must be reduced by the earnings on the lost sales.
Another common case of cannibalization is when companies, particularly retail companies, open sites too close to each other, in effect, competing for the same customers. The potential for cannibalization is often discussed [1] when considering companies with many outlets in an area, such as Starbucks or McDonald's.
Cannibalization is an important issue in marketing strategy when an organization aims to carry out brand extension. Normally, when a brand extension is carried out from one sub-category (e.g. Marlboro) to another sub-category (e.g. Marlboro Light), there is an eventuality of a part of the former's sales being taken away by the latter. However, if the strategic intent of such an extension is to capture a larger market of a different market segment notwithstanding the potential loss of sales in an existing segment, the move to launch the new product can be termed as "cannibalization strategy". In India, where the passenger-car segment is going up dramatically since the turn of this century, Maruti Suzuki's launch of Suzuki Alto in the same sub-category as Maruti 800, which was the leader of the small-car segment to counter the competition from Hyundai is seen to be a classic case of cannibalization strategy.
Cannibalization is also referenced in the search engine optimization (SEO) industry; it is known as keyword cannibalization. Keyword cannibalization happens when multiple pages on a website specifically target the same content, [2] to the point where the search engine has a difficult time determining which page is most relevant for the search query, and thus might not necessarily promote the page one would want website visitors to see most.
A company engaging in corporate cannibalism is effectively competing against itself. There are two main reasons companies do this. Firstly, the company wants to increase its market share and is taking a gamble that introducing the new product will harm other competitors more than the company itself. Secondly, the company may believe that the new product will sell better than the first, or will sell to a different sort of buyer. For example, a company may manufacture cars, and later begin manufacturing trucks. While both products appeal to the same general market (drivers) one may fit an individual's needs better than the other. However, corporate cannibalism often has negative effects: the car manufacturer's customer base may begin buying trucks instead of cars, resulting in good truck sales, but not increasing the company's market share. There may even be a decrease. This is also called market cannibalization.
In the context of a carefully planned strategy, cannibalization can be effective, by ultimately growing the market, or better meeting consumer demands.
Cannibalization is a key consideration in product portfolio analysis. For example, when Apple introduced the iPad, it took sales away from the original Macintosh, but ultimately led to an expanded market for consumer computing hardware.
To accurately determine the success of a new product it is important to understand the detriment its sales are having to older products in a company’s line up. The danger is the new products are taking from old products made by the business instead of increasing market share by taking consumers from competing products made by different businesses. A model was created in 2012 to gauge the change in sales. [3]
This model needs to try and deal with three problems with accurately estimating the success of a new product. Market volatility means many new products enter and leave the market making it harder to understand what specific product is affecting the market share. Slowness of the market to react to new products that have been introduced, meaning that there has to be time scope allowing for seasonal changes and the consumers to act accordingly. Correlated error structures may permeate the brand as not just one product will be effected so it is important to understand the scope of the commodity and see total impact. The model tries to mitigate these areas of error that make older models less reliable.
There is also the danger of multiple distribution channel cannibalization which can lead to job insecurity and risk for the old channels as the new channels open. In the case of travel agencies; in the past nearly all travel groups relied on them as an intermediary for tourism, this meant face to face meetings to introduce the products or services that one group wishes to sell to the travelers. In recent years with new technology the necessity of travel agencies has been declining, with people being able to connect to the businesses they need to travel directly and cheaper than going through the more conventional means. [4] Airlines and similar tourism focused companies instead push through marketing the populace towards using their website instead of booking with a tourism agency, this is because it’s cheaper to run and can be more convenient for the consumer. So the update in technology has forced market cannibalization to cut the spending in certain business groups leading to job insecurity, decreased job satisfaction, job alienation and risk aversion. [5]
Cannibalization is a necessary evil in lot of cases. As sales plateau and decline only to stabilize at a lower amount, it is important for business to innovate and experiment in order to create something new and cutting edge to maintain market share. Strategic development is important for business and integral for moving forward. Nitin Pangarkar said it is very important for businesses to maximize competitiveness with business strategy and cannibalization is part of this. [6] Cannibalization of markets is competing with others success and self-cannibalization is competing with yourself. As Steve Jobs said when he released the iPhone: "If you don't cannibalize yourself, someone else will". [7] Even though there are dangers with cannibalization it has been very successful at pushing business innovation forward and identifying stagnant areas of a business.
The diversion of sales from one product to another or from the same product to a different product can adversely effect the overall sales of a business. Wendy Lomax theorized that using a brand name and leverage of current users of a brand to push them into using a new product can be a large risk. [8] ) This is due to the damaging nature which a failed product would have on the preexisting parent product. As sales dropped from the new product after it is no longer pushed there is no guarantee that sales will stabilize to the old product that was sacrificed for the current item. One of the unavoidable risks is to the established product but for self-cannibalization and growth this is essential.
Apple cannibalized their own sales of the iPad when the iPhone 6 was released in September 2014. [9] According to a Forbes article, shipment of iPads was down 23% since the announcement of the iPhone 6. This is due to the new product (the iPhone) being large enough to have a lot of the features of the iPad without being as large making the iPad outdated and irrelevant. [10] While the iPhone shipped massive amounts of product, the iPad never recovered to its previous sales plateau. Overall, this is a positive effect as turnover of new products allows company to get old users to spend money and keeps their products current which is very important in technology related fields. This is still an example of Apple betting sales of the old product to get higher sales on a new product in this case it was a success.
Apple Inc. is an American multinational electronics company incorporated and headquartered in Cupertino, California, in Silicon Valley. It is best known for its consumer electronics, software, and services. The company was incorporated as Apple Computer, Inc. by Steve Wozniak and Steve Jobs in 1977; as of 2023, Apple is the largest technology company by revenue, with US$394.33 billion.
Marketing is the act of satisfying and retaining customers. It is one of the primary components of business management and commerce.
Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is the sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and then sells in smaller quantities to consumers for a profit. Retailers are the final link in the supply chain from producers to consumers.
In marketing jargon, product lining refers to the offering of several related products for individual sale. Unlike product bundling, where several products are combined into one group, which is then offered for sale as a units, product lining involves offering the products for sale separately. A line can comprise related products of various sizes, types, colors, qualities, or prices. Line depth refers to the number of subcategories under a category. Line consistency refers to how closely related the products that make up the line are. Line vulnerability refers to the percentage of sales or profits that are derived from only a few products in the line.
Pricing is the process whereby a business sets the price at which it will sell its products and services and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it could acquire the goods, the manufacturing cost, the marketplace, competition, market condition, brand, and quality of the product.
Brand equity, in marketing, is the worth of a brand in and of itself – i.e., the social value of a well-known brand name. The owner of a well-known brand name can generate more revenue simply from brand recognition, as consumers perceive the products of well-known brands as better than those of lesser-known brands.
Market penetration refers to the successful selling of a good or service in a specific market. It involves using tactics that increase the growth of an existing product in an existing market. It is measured by the amount of sales volume of an existing good or service compared to the total target market for that product or service. Market penetration is the key for a business growth strategy stemming from the Ansoff Matrix (Richardson, M., & Evans, C.. H. Igor Ansoff first devised and published the Ansoff Matrix in the Harvard Business Review in 1957, within an article titled "Strategies for Diversification". The grid/matrix is utilized across businesses to help evaluate and determine the next stages the company must take in order to grow and the risks associated with the chosen strategy. With numerous options available, this matrix helps narrow down the best fit for an organization.
Umbrella branding is a marketing practice involving the use of a single brand name for the sale of two or more related products. Umbrella branding is mainly used by companies with a positive brand equity. All products use the same means of identification and lack additional brand names or symbols etc. This marketing practice differs from brand extension in that umbrella branding involves the marketing of similar products, rather than differentiated products, under one brand name. Hence, umbrella branding may be considered as a type of brand extension. The practice of umbrella branding does not disallow a firm to implement different branding approaches for different product lines.
Apple Inc., originally Apple Computer, Inc., is a multinational corporation that creates and markets consumer electronics and attendant computer software, and is a digital distributor of media content. Apple's core product lines are the iPhone smartphone, iPad tablet computer, and the Mac personal computer. The company offers its products online and has a chain of retail stores known as Apple Stores. Founders Steve Jobs, Steve Wozniak, and Ronald Wayne created Apple Computer Co. on April 1, 1976, to market Wozniak's Apple I desktop computer, and Jobs and Wozniak incorporated the company on January 3, 1977, in Cupertino, California.
A business can use a variety of pricing strategies when selling a product or service. To determine the most effective pricing strategy for a company, senior executives need to first identify the company's pricing position, pricing segment, pricing capability and their competitive pricing reaction strategy. Pricing strategies and tactics vary from company to company, and also differ across countries, cultures, industries and over time, with the maturing of industries and markets and changes in wider economic conditions.
A lifestyle brand is a brand that attempts to embody the values, aspirations, interests, attitudes, or opinions of a group or a culture for marketing purposes. Lifestyle brands seek to inspire, guide, and motivate people, with the goal of making their products contribute to the definition of the consumer's way of life. As such, they are closely associated with the advertising and other promotions used to gain mind share in their target market. They often operate from an ideology, hoping to attract a relatively high number of people and ultimately become a recognised social phenomenon.
Category management is a retailing and purchasing concept in which the range of products purchased by a business organization or sold by a retailer is broken down into discrete groups of similar or related products. These groups are known as product categories. It is a systematic, disciplined approach to managing a product category as a strategic business unit. The phrase "category management" was coined by Brian F. Harris.
A core product or flagship product is a company's primary promotion, service or product that can be purchased by a consumer. Core products may be integrated into end products, either by the company producing the core product or by other companies to which the core product is sold.
The following outline is provided as an overview of and topical guide to marketing:
Marketing Mix Modeling (MMM) is a forecasting methodology used to estimate the impact of various marketing tactic scenarios on product sales. MMMs use statistical models, such as multivariate regressions, and use sales and marketing time-series data. They are often used to optimize advertising mix and promotional tactics with respect to sales, revenue, or profit to maximize their return on investment.
A touchpoint can be defined as any way consumers can interact with a business organization, whether person-to-person, through a website, an app or any form of communication. When consumers connect with these touchpoints they can consider their perceptions of the business and form an opinion.
A marketing channel consists of the people, organizations, and activities necessary to transfer the ownership of goods from the point of production to the point of consumption. It is the way products get to the end-user, the consumer; and is also known as a distribution channel. A marketing channel is a useful tool for management, and is crucial to creating an effective and well-planned marketing strategy.
Brand awareness is the extent to which customers are able to recall or recognize a brand under different conditions. Brand awareness is one of two dimensions from brand knowledge, an associative network memory model. It is a key consideration in consumer behavior, advertising management, and brand management. The consumer's ability to recognize or recall a brand is central to purchasing decision-making because purchasing cannot proceed unless a consumer is first aware of a product category and a brand within that category. Awareness does not necessarily mean that the consumer must be able to recall a specific brand name, but they must be able to recall enough distinguishing features for purchasing to proceed. Creating brand awareness is the main step in advertising a new product or bringing back the older brand in light.
Customer experience, sometimes abbreviated to CX, is the totality of cognitive, affective, sensory, and behavioral customer responses during all stages of the consumption process including pre-purchase, consumption, and post-purchase stages.
In business and marketing, “trade” refers to the relationship between manufacturers and retailers. Trade Promotion refers to marketing activities that are executed in retail between these two partners. Trade Promotion is a marketing technique aimed at increasing demand for products in retail stores based on special pricing, display fixtures, demonstrations, value-added bonuses, no-obligation gifts, and more.
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