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:

1. 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.
2. 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.
3. 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.
4. 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.

Product requirements refer to the documented expectations and specifications that outline the desired characteristics and features of a product or service. These requirements serve as a guide for the development of new products and the improvement of existing ones, and are typically collected from various stakeholders such as business units, customers, operations, and subject matter experts. The following are examples of product requirements.

User Stories

Requirements that capture expectations for the product. Typically contributed by business units who own the product. Often phased as customer expectations. For example, “As a customer, I want the shirt to be free of tags that rub against the skin.”

Customer Requirements

Requirements contributed by a customer such as a lead user. For example, “I want to be able to choose from hundreds of bright colors.”

Business Rules

Business rules that define the operation of the product. Often stated as conditional statements such as “if ___ then ___.” For example, “If the user presses the power button then the device automatically saves work and shuts down without any further confirmations.”

Usability

Usability requirements that improve ease of use. For example, “this button works when users finger is slightly off target.”

Customer Experience

Requirements intended to improve the end-to-end customer experience such as “beeps and other feedback sounds are off by default.”

Brand

Brand related requirements such as a brand style guide that is to be used for packaging.

Functions

Specifications of goals that can be accomplished with the product. For example, “As a customer, I want to be able to effortlessly carry a bag of groceries with the bicycle.”

Features

Specifications of elements that achieve goals. For example, “the bicycle shall have a 9 liter basket securely mounted between the handle bars.”

Implementation Requirements

Placing constraints on how the product will be constructed. For example, “the basket will be constructed using recycled PET plastic.”

Performance

Performance targets for the product such as a figure of merit. For example, “the solar panels shall have a maximum conversion efficiency of at least 20%.”

Service Requirements

Requirements for services such as the requirement that a software service be available at least 99.99% of the time.

Technical Requirements

Requirements from subject matter experts such as an information security specialist or software architect.

Operations Requirements

Requirements from operations teams such as a requirement that the product be impossible to put together incorrectly.

Quality

Quality requirements in areas such as durability. For example, “the phone can be dropped from 1.5 meters height to a concrete surface 40 or more times without breaking.”

Risk

Risk related requirements such as a safety target for a bicycle. For example, “the bicycle’s brakes will have less than a 0.01% chance of failure for the first two years.”

A product is something that has value and can be sold on a market. In order for a product to be sold, it must be standardized and produced at a large enough scale to meet the demand of consumers. A product can be a tangible item, such as a car or a piece of clothing, or it can be a service, such as a massage or a haircut. The value of a product is determined by the market, which is the group of people or organizations who are willing to buy it. Products are an essential part of the economy, as they allow businesses to generate revenue and provide consumers with the goods and services they need. The following are illustrative examples.

Convenience Products

Convenience products are products that customers buy without much of a decision making process. These are mostly everyday inexpensive things. In this category, brand recognition is important as customers are likely to buy products they recognize.

• Beverages
• Candy
• Cosmetics
• Food
• Over-the-counter Medicine
• Small Household Items

Shopping Products

Products that often involve a relatively intensive decision making process on the part of the customer. In this category, there is some room for brands that customer’s don’t recognize simply because they are thinking more about the purchase.

• Appliances
• Clothing
• Electronics
• Hobby Supplies
• Home Improvement Goods
• Sporting Goods
• Tools
• Vehicles

Heterogeneous Products

Shopping products that are differentiated with functions, features and customer experience. This allows niche producers to compete if barriers to entry aren’t too high.

• Bicycles
• Drills
• Fishing Equipment
• Mobile Devices
• Speakers & Headphones
• Toys
• Vacuum Cleaners
• Video Games

Homogeneous Products

Products that don’t have meaningful differences in functions and features but are worth a decision making process due to quality, brand, price or style. Not to be confused with a commodity.

• Backpacks
• Cutlery
• Fashion
• Footwear
• Jewelry
• Sunglasses

Commodities

A commodity is a product that customers view as interchangeable and identical. In this case, consumers purchase on price alone such that producers have to accept a market price.

• Apples
• Chemicals
• Economy Flights
• Electricity
• Gold
• Low Tech
• Paper
• Wood

Premium Products

Products that offer greater quality than a standard item. This can include any type of product, including commodities whereby a producer tries to stand out from the crowd based on quality. Small firms can often compete using this strategy.

• Artisanal Food
• Fine Dining
• Handcrafted Items
• Healthy Food
• High Quality Tools
• Limited Edition Books

Luxury

Expensive products that target customers with little or no price sensitivity. This includes products that target the wealthy and product categories where people like to overspend such as weddings and fashion.

• Events
• Jewelry
• Luxury Cars
• Luxury Fashion
• Luxury Home Furnishings
• Luxury Travel
• Posh Restaurants
• Spas

Affordable Luxury

Successful luxury brands come to symbolize various types of social status, particularly wealth. It is common for such brands to leverage this status with somewhat less expensive versions of products that are sold on brand image alone, often with a minimum level of quality. Such brands are often careful to differentiate between the luxurious and affordable versions of their products so as to retain their luxurious image.

• Chocolates
• Compact Sized Cars From a Luxury Brand
• Cosmetics
• Fashions
• Handbags
• Jewelry
• Perfumes
• Tiny Rooms in a Posh Hotel

Inferior Goods

An inferior good is a product that people purchase less as their income rises. This indicates high price sensitivity, although inferior goods aren’t necessarily commodities.

• Convenience Foods
• Fast Food
• Payday Lending
• Secondhand Goods

Fast Moving Consumer Goods

Fast moving consumer goods are supplies that run out quickly such that customers purchase them frequently. This tends to be lucrative and therefore highly competitive such that large firms dominate.

• Bottled Water
• Bread
• Breakfast Cereal
• Cleaning Products
• Milk
• Shampoo
• Soft Drinks
• Toothpaste

Latent Need

A latent need is a customer need that customers don’t know they have until an innovative product arrives that represents a leap forward in some way. Discovering a latent need can create a large new market. The following are historical examples.

• Automobile
• Home Computer
• Internet Connectivity
• Microwave Oven
• Radio
• Smart Phone
• Streaming Media
• VCR

Unsought Goods

Unsought goods are products and services that are no fun to buy such that customers have low motivation and interest. This includes depressing things like your funeral and the replacement of expensive capital that consumers and businesses would prefer to defer until absolutely necessary.

• Airplanes
• Fire Extinguishers
• Funeral Services
• Infrastructure Maintenance
• Life Insurance
• New Pipes (Plumbing Renovation)
• Roofing Renovation
• Safety Equipment

Complementary Goods

Products and services that can be used together in some way such that their demand is related. This may allow small firms to benefit from the products of large firms. In many cases, large firms also benefit from this situation whereby small firms add variety and value to their products.

• Homes & Real Estate Agents
• Mobile Phones & Apps
• Movies & Merchandise
• Printers & Ink
• Razors & Blades
• Snowboards & Snowboard Cases
• Software & Consulting
• Streaming Music Apps & Music

Specialty Products

Specialty products, also known as niche products, target relatively obscure customer needs. This strategy may be adopted by small firms hoping to avoid direct competition with larger firms. Some large firms compete in this area by creating large numbers of product variations to serve different niches they refer to as segments.

• Alpine Snowboard
• Collectors Items
• Fashion Styles
• Gothic Jewelry
• High Performance Hammers
• Hobby Goods
• Traditional Foods

Electronic Products

Products that have no physical form. These can normally be scaled infinitely at close to zero cost such that they have extremely favorable economics. However, they can be expensive to develop and market.

• Ebooks
• Mobile Apps
• Music
• Software
• Video Games
• Virtual Items

Services

Services are products that mostly offer intangible value. For the past 50 years, advanced economies have been shifting towards a service economy whereby services produce more sales than products.

• Business Outsourcing
• Coaching
• Consulting
• Entertainment
• Events
• Financial Services
• Gyms & Spas
• Hospitality
• Insurance
• Leisure Services
• Media
• Mobile Subscriptions
• Night Economy
• Recreation Services
• Restaurants
• Social Media
• Software Services
• Streaming Media
• Telecom Services
• Training
• Transportation
• Travel Services