Corporate Cannibalization – Risk - Cost Assessment & Case Study

What Is Market Cannibalization Or Corporate Cannibalization?

Market cannibalization refers to the negative impact a company's new product has on the sales performance of its related products. It basically refers to a situation where anew product is responsible for “eating up” the demand for the current product, potentially reducing overall sales. Market cannibalization is also known as corporate cannibalism an indicates a self-induced decline in sales. It is regularly a circumstance where the new items grab the spotlight of the current items as opposed to growing the organization's market base.

Cannibalization alludes to the conditions in which the new item advances to the current market as opposed to making another portion of the market and expanding the piece of the pie. Therefore, the organization experiences with a decrease of offers and a piece of the pie for the current item. This loss of sales equates to the loss of market share and is a result of internal factors rather than that of competitive pressures.

In the field of promoting procedure, a decrease of offers volume deals income or piece of the pie of one item when a similar maker presents another item in the market is characterized as the demonstration of Cannibalization. It is essentially a negative impression of the business execution of an organization's new acquainted item which is connected with existing items.

Product cannibalization is yet another aspect of market cannibalization where a firm has multiple products that compete with each other in the same market. Some firms consider cannibalization fruitful and hence encourage business units to intentionally develop similar products meant to compete for the same customer segment.

Some examples of firms encouraging cannibalization are:

A fast-moving consumer goods company that offers both a regular kiwi juice and an organic kiwi juice to customers, under different brands.
Firms that offer new flavors of sparkling water, or scents in laundry detergent.

As they say:

“Every coin has two faces.”

Same is the case with market cannibalization. Though some businesses find it beneficial, others have a varying opinion. In fact, some of them consider it fatal to the growth of a business. Here’s why.

What Are The Potential Risks Of Cannibalization?

Steve Jobs said when he released the iPhone:

"If you don't cannibalize yourself, someone else will."

Cannibalization can undoubtedly be beneficial for a business in terms of boosted sales and revenue. However, not being able to employ cannibalization strategies in a proper manner can pose certain risks. Have a look at the possible scenarios:

There are instances where national chains, cannibalize individual store sales by placing multiple storefronts at different locations in the same market. This strategy may help a business beat the competition but it would eventually add stress to their stores, which must compete against one another.

When a firm decides to introduce a new product, it often starts with the announcements about upcoming product launches or software upgrades. Once the target audience gets to know about a new version they will wait for it, slowing down sales cycles to evaluate the new version if these new features truly core to its competitive position. This diversion of sales from one product to another can eventually have a negative impact on the overall sales of a business.

Whenever a new product is introduced, there is no guarantee that sales will stabilize to the old product that was sacrificed for the current item. So, one of the highest risks that cannibalization poses is to the established product.

So, is there a solution to this issue? Well, yes. Read on to know.

How to avoid Cannibalization?

Cannibalization may often prove to be fatal for business and that's when there arises a need to steer clear of employing any cannibalizing strategies. Now the question is, how can a business avoid cannibalization? Well, here are the top strategies to be employed when there's a need to stop cannibalization from harming your business:

Deal with the new item arranging so it won't affect the offers of the current item. For arranging purposes, the most ideal approach to address this by preparing it into a thorough guide process.

In case you wish to tweak a product, it's mandatory that you determine the specific markets each product fits into and prioritize these markets to figure out which of them is the best option to introduce the new products. This gives you a chance to comprehend what space your item as of now fills, who it serves, and what explicit issue it was intended to settle.

Estimating another item or administration can be troublesome. Advancement costs, creation expenses, and market powers should all be considered in touching base at a focused cost. The familiar saying of selling something at a lower edge and influencing it to up with volume possibly works if the higher volume is really accomplished.

Evaluate your opposition. To advertise your new item successfully, you have to play up your item's qualities in direct correlation with your rivals' shortcomings.

In other words, make sure you are doing something legitimately different. Just chopping your product’s price to win in a more price-sensitive market tier is not going to help you much. Your efforts need to expand beyond all this.

Cost Assessment

To precisely decide the achievement of another item it is vital to comprehend the disservice its deals are having to more seasoned items in an organization's line up. The peril is the new items are taking from old items made by the business as opposed to expanding a piece of the overall industry by taking shoppers from contending items made by various organizations. A model was made in 2012 to check the adjustment in deals. It is Sales change for central new model (at time t) = + change sought after for different models inside same brand and class + change popular for different brands inside classification + change sought after for different models inside same brand in different classifications + change sought after for different brands in different classes + essential interest (time is in weeks) (Van Heerde, Srinivasan, and Dekimpe, 2012).

Cannibalization Case Study

Here are two major cases of cannibalization that show how this phenomenon works:

Coca-Cola Co.

In the competition advertise between Coca-cola and Pepsi of the 1980s, pushed the Coca-cola brand to make an equation of eating routine coke, the organization's scientist found a crisp recipe whose invention was better and smoother than the exceptionally old recipe which had been known as Coke. It made a comparative Pepsi drink which was the primary opponent around then. On 1985, Coca-Cola Co. has presented new Coke by pulling the old coke recipe from the market. However, shockingly, this strong reverse discharges enthusiastically. Coca-Cola was overflowed by irate calls and letters, and Pepsi endured various shots on its offer. So accordingly, Coca-Cola Co. reintroduced the old recipe of coke marked as 'great', advanced as unmistakably greater than the old coke. What's more, as to make reference to the exemplary coke rapidly gobbled up the market of new coke, this is a viable case of Cannibalization.

Kit Kat

In the chocolate-bar advertise in Britain, for example, the decrease in Kit Kat's offer was captured by the dispatch of another, increasingly stout bar, which without a doubt ripped apart the market for the first. Its intrigue was to each one of those individuals who purchase chocolate bars, which incorporates the individuals who purchased the old Kit Kat.

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