Cannibalization (marketing)

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In marketing strategy, cannibalization refers to a reduction in sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer.

While this may seem inherently negative, in the context of a carefully planned strategy, it 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 iPad, this took sales away from the original Macintosh, but ultimately led to an expanded market for consumer computing hardware.

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 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.

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.

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.

Finally, 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.

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References[edit]

  1. ^ M.F., Goodchild (1984). "ILACS:A Location Allocation Model for Retail Site Selection.". Journal of Retailing (60): 84–100. doi:10.1111/j.1538-4632.1989.tb00900.x. 
  2. ^ Dimock, Matt (July 25, 2013). "The Keyword Cannibalization Survival Guide". Retrieved November 11, 2013.