Product cannibalization refers to the situation in which the sales of one product within a company’s portfolio negatively impact the sales of a similar or related product. This can happen when a new product is introduced that directly competes with an existing product, or when an existing product is modified in a way that makes it more similar to another product within the same company.
Cannibalization can be a concern for businesses because it can lead to reduced overall sales and profits, as well as customer confusion and dissatisfaction. For example, if a company introduces a new product that is similar to an existing product but priced lower, customers may be more likely to purchase the new product instead of the more expensive one, leading to a decline in sales for the original product.
There are several strategies that companies can use to manage product cannibalization. One approach is to carefully segment the market and position products in a way that minimizes overlap and competition. Another strategy is to differentiate products through branding, pricing, or other marketing efforts to make them more distinct from one another. Additionally, companies can use targeted promotions or discounts to encourage customers to purchase one product over another.
Overall, product cannibalization can be a challenging issue for businesses to navigate, but with careful planning and strategy, it is possible to minimize its negative effects and maximize the benefits of a diverse product portfolio.
Here are some examples of product cannibalization:
- A food manufacturer introduces a new line of frozen dinners that directly competes with their existing line of microwaveable meals. The new frozen dinners are priced lower and have similar ingredients, leading to a decline in sales for the microwaveable meals.
- A smartphone manufacturer releases a new model that is similar to an existing model but has some upgraded features and a higher price point. The new model takes market share away from the existing model, leading to a decrease in sales.
- A cosmetics company releases a new line of skincare products that overlap with their existing line of makeup. Customers may be more likely to purchase the new skincare products instead of the makeup, leading to a decline in sales for the makeup products.
- A car manufacturer releases a new model that is similar to an existing model but has a more modern design and additional features. The new model takes market share away from the existing model, leading to a decrease in sales.