In other words, when a company launches a new product that competes with its existing product and takes away market share from it, it is said to be cannibalizing its market.
An example of market cannibalization
If Burger King introduces a new type of burger that becomes popular, and customers begin to order that new burger instead of Burger King’s original burger, the new burger is said to be cannibalizing the sales of the original burger.
Types of market cannibalization
- Planned cannibalism: This is a deliberate strategy by a company to introduce a new product or service that competes with its existing offerings in the same market.
- Cannibalization through discounts: This occurs when a company offers discounts or promotions on a product or service that competes with its higher-priced offerings.
- Cannibalization through e-commerce: This is when a company’s online sales of a product or service begin to replace sales of the same product or service through traditional physical stores.
Benefits of market cannibalization
- Increased market share
- Enhanced product differentiation
- Improved profitability
- Higher customer loyalty
- Greater innovation
Risks of market cannibalization
- Loss of revenue
- Confused brand identity
- Cannibalization by competitors
- Increased marketing costs
- Inventory management challenges
How to avoid market cannibalization
1. Develop a clear product strategy: Companies should have a clear product strategy that outlines their objectives, target market, and positioning, and ensures that new products and services complement, rather than compete with, their existing offerings.
2. Differentiate products and services: By focusing on unique features, benefits, or target markets, companies can minimize the risk of cannibalization.
3. Segment the market: Segment the market and offer different products or services to different segments to avoid direct competition between product offerings.
4. Manage pricing and promotions: Companies can also manage pricing and promotions carefully to ensure that discounts or promotions do not cannibalize sales of higher-priced offerings.
5. Monitor and adjust: Companies should regularly monitor their sales data and adjust their product strategies as needed to ensure that they are achieving their goals and minimizing the risks of cannibalization.
Key point
Market cannibalization is when a company launches a new product that competes with its existing product and takes away market share from it.
While introducing new products can help a company expand its offerings and potentially attract new customers, market cannibalization can also have negative consequences. Therefore, companies must carefully consider the potential impact on their existing products before introducing new products that may cannibalize their market.
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