Market cannibalism process
A company has a product A which is well established within its market. The same company decides to market a product B, which happens to be somewhat similar to product A, therefore both belonging to the same market, attracting similar clients. This leads to both products being forced to share the market, reducing the market share of product A, as part of it is eaten up by product B. Suppose that pet-food manufacturers A, B and C offer one line of tinned cat food each, and that the customers cannot really distinguish between them, thereby giving them 33.33% share of the market, each. Suppose that manufacturer C then launches a new labelling of cat food called D. On the face of it, it cuts the market share of product C from 33.33% to 25%, but in reality the manufacturer of C now has 50% of the market share, as opposed to 25% each for its rival manufacturers. This example shows the complexity of the subject and the relationship of market or corporate cannibalism with market evolution.Cannibalisation strategy
Companies can seek to cannibalise their own market shares through market cannibalism (or corporate cannibalism in this particular case), for two predominant reasons: gaining an overall greater market share within a same category of products at the expense of losing a single well established product's market share, or simply because they believe the second product will sell better than the first. As well as perhaps selling better than the first product, the second product may also sell to a different type of customer, further emphasising the increase of global market share. A third possible reason for deliberate cannibalisation would be to increaseGaining global market share
Market cannibalism can also be used to the company's advantage, if the latter looks to increase its global market share, spread through multiple products. The company that best illustrates this process isIncreasing customer loyalty
This strategy also helps win the loyalty of customers, as they will move from one product marketed by a particular brand to another by the same brand. This is the case for Gillette Sensor razor's customers, two thirds of which are estimated to already being Gillette customers for another model of razors. The example confirms the two-sided impact of market cannibalism on a firm - although old razor models become obsolete and lose market share, customers move on to different models, marketed by the same company, therefore increasing customer loyalty - shoppers are inclined to buy products from a brand they already know.Increasing profit margin
If product B is more economical to manufacture than product A, by virtue of different materials being used or new technology allowing cheaper production, a company will evidently attempt to cannibalise product A's market share with the marketing of product B. This deliberate cannibalisation has the straightforward objective to increase the second product's market so much that product A's is surpassed by it. This is the case for the computer market over the past decade or so. Every year, computer based companies market machines that are more and more powerful, and cheaper to make thanks to technological advancements. Computer based companies attempt to promote their newer models every year because of this, as it allows them to further increase their profit margin. The price a buyer would have to pay for a personal computer has immensely decreased over the years, as the index dropped over 20% every year, from 1999-2003, and now decreasing by 11% to 12% annually.Importance of innovation
A hypothesis is that by better controlling innovation as a reason for market and corporate cannibalism, higher wages and better social standards can be achieved for the whole market and corporation than those that can be achieved without innovation control.Measuring cannibalisation
There is no such thing as a standard measurement of cannibalisation, as the definition of it will differ according to different people. However, a common, although not the only, way to measure it is to examine the sales lost by the first product once the second has been marketed. The rate then belongs between 0 and 100 - being closer to the latter translates to a higher cannibalisation rate, therefore a greater loss of sales of product A caused by the launch of product B.Buday (1989, p. 29) suggests that: "Excessive cannibalization is one of the common arguments against brand- extending.... Common branding implies a similarity: similarity invites replacement."
Cannibalisation rate
According to UPenn's Marketing Maths Essentials website, the cannibalisation rate corresponds to: "The percentage of ''New Product Unit Volume'' that are sales that would have gone to the ''Old Product'' had the ''New Product'' not been introduced". ''Cannibalisation rate = Product A buyers opting for product B / Total product B sales'' ''Example'': A bakery markets a single plain cookie for $2. However, they decide to introduce a new chocolate chip cookie for $3. The plain cookies made 100 sales a day before the chocolate chip cookie was launched. On the first month of launch, the chocolate chip cookie makes 50 sales a day. However the bakery should not expect to make $350, as what will most likely happen is that a portion of the people who bought the chocolate chip cookie will be plain cookie buyers who will have opted for the second product. Hypothesise that the cannibalisation rate is of 60%. ''Chocolate chip cookie sales: 50'' ''Cannibalisation rate: 60%'' ''Plain cookie sales lost: 30 (= 50 x 60 / 100)'' ''New plain cookie sales: 70 (= 100 - 30)'' The new total cookie sale has therefore increased from 100 initially, to 120 (= 70 + 50). The bakery has replaced 30 plain cookie sales with 30 chocolate chip cookie sales as well as 20 more chocolate chip cookie sales. This shows the positive aspect of market cannibalism on a business - although the first product's sales decreased, the overall contribution has increased due to the launching of a second product.References
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