Have you ever heard of the term “product cannibalization”? It may sound a bit strange, but it’s actually an important concept for businesses to understand.
In this blog, we’ll explore what product cannibalization means, and most importantly, how to avoid it altogether. We’ll look at the common causes of why it happens and the negative effects it can have on your business, like lower sales and less market share.
What is Product Cannibalization?
Product Cannibalization is a situation where the introduction of a new product ends up stealing customers or sales from the company’s own established products.
For example, imagine you have a business of smartphones, and you decide to launch a new, upgraded model.
However, instead of attracting new customers, the new model ends up drawing customers away from your older models, resulting in decreased sales for those older products.
Optimize Your Product Information Management today with Apimio PIM!
Create an account and start using Apimio PIM to manage your products effectively.
What are the Reasons Product Cannibalization occurs?
There are a number of things that can lead to product cannibalization, including:
1. Target audience overlap
Cannibalization occurs when two products with the same target audience are introduced at the same time.
This happens because customers are presented with multiple options that serve similar purposes or meet their needs, creating a dilemma in their purchasing decision. This can result in sales being split between the two.
2. Insufficient differentiation
When a new product is launched that fails to offer distinct features, design elements, or use cases compared to an existing product, it is more likely to attract the same set of customers.
Without clear differentiation, customers may see both products as interchangeable, leading to a splitting of sales between them.
3. Products at incorrect prices
Product cannibalization can also be caused by poor pricing strategies.
Customers may choose the cheaper option if a low-priced product is introduced without clear differentiation from higher-priced products, resulting in a negative impact on profits.
4. Inadequate product positioning and marketing strategies
Poorly product situating and promoting methodologies can contribute to cannibalization.
Customers may view the new and existing products as interchangeable if their messaging and positioning overlap, resulting in cannibalization.
Strategic Product Cannibalization
Strategic cannibalization isn’t always a negative phenomenon. In fact, many companies strategically use it to maintain competitiveness, prioritize customer needs, or expand their market share steadily.
One notable example is Coca-Cola’s introduction of Coke Zero in the UK back in 2006. Despite potentially diverting sales from its original Coca-Cola drink and the female-focused Diet Coke brand, the goal was to attract health-conscious male consumers.
Get Expert Consultation for Your Product Strategy
Schedule a demo today with Apimio’s expert team for personalized assistance and insights.
This strategic cannibalization ultimately led to increased overall sales by bringing back a significant number of 18-25 year old males to the cola market.
Leading organizations like Apple, Google, and Facebook additionally take part in proactive self-cannibalization as a way to upgrade their items and prevent potential threats from arising from new companies.
The famous line from Steve Jobs’ biography read, “If you don’t cannibalize yourself, someone else will.” Apple launched the iPhone while the iPod was still extremely popular because of this mindset.
Although iPod sales were affected, the move helped Apple maintain its market dominance and attracted new customers. Similarly, the release of new iPhone models renders older ones obsolete, yet Apple continues to thrive.
How to Calculate Cannibalization?
To calculate cannibalization, you can use the following formula:
Cannibalization Rate = Sales lost on existing product / Sales of new product x 100
To determine the sales lost on the existing product, subtract this year’s sales from last year’s sales. For example, if last year’s sales were 3000 units and this year’s sales were 2000 units, the sales lost would be 1000 units.
Monitoring the cannibalization rate allows you to assess how new products are affecting overall sales and profits. It helps identify if sales are shifting from one product to another.
Calculating the cannibalization rate for each existing product impacted by a new release provides valuable insights into the impact of new products on your product portfolio.
What are the Strategies to Avoid Product Cannibalization?
To ensure that the launch of your new products impacts competitors rather than your existing products, follow these steps to avoid product cannibalization;
1. Conduct Thorough Market Research
Before launching a new product, comprehensive market research is important. This involves looking at the competition and the demand in the market.
The objective is to learn about your product’s needs, preferences, and purchasing patterns among new target audiences.
The creation of buyer personas, which are fictional representations of your ideal customers, is one effective strategy.
Start by looking at the buyer personas for your current product and describing their demographics, values, problems, and goals using the data you have.
The next step is to create buyer personas for your new product’s intended audience. You can see if there is an overlap or similarity between the two groups by comparing these personas.
By understanding the unique characteristics and preferences of each target audience, you can customize your marketing efforts and product positioning to effectively reach and engage them.
2. Ensure Product Differentiation
It is essential to ensure that your new product stands out with distinctive features or offerings that appeal to a specific target audience in order to avoid product cannibalization.
Innovating and developing something completely different in comparison to the market’s current offerings is one strategy.
You can avoid direct competition with your current offerings and attract a previously untapped demographic by thinking outside the box and incorporating different technologies, functionalities, or designs.
Consider upgrades or enhancements that are tailored to a specific target audience’s requirements or preferences as yet another strategy.
You give customers a compelling reason to choose the new product over alternatives by adding new features or improvements.
This differentiation helps you attract a new customer base and keeps sales from shifting between your own products.
3. Position your Products
Customizing your marketing messages and content to specifically appeal to the characteristics, preferences, and requirements of the new audience is an important step.
You can build a strong connection with them and increase your chances of getting their attention and interest by effectively addressing their issues and gaining an understanding of their values.
Platforms such as Google Ads and social media advertising offer advanced targeting options, allowing you to focus your marketing efforts on specific audience segments based on demographics, interests, and online behavior.
You can ensure that your message reaches the right people who are most likely to be interested in your new product by using these platforms, thereby increasing its exposure and potential impact.
4. Ensure Testing before the Launch
Testing lets you see how your product, packaging, and marketing strategies affect your target audience.
Interviews give you a chance to talk one-on-one with members of your target audience. You can learn more about how they see your new product, what they need, and what they like by having these conversations.
Their qualitative feedback will help determine whether the product lives up to their expectations and if any changes are required.
You can get quantitative product data, such as features, pricing, packaging, and overall appeal by creating well-crafted online surveys or questionnaires.
You will be able to identify areas for improvement and address any potential concerns if you analyze the survey responses.
Also, have in-depth discussions with a group of people who are a part of your target audience by conducting focus groups.
By empowering open criticism and working with bunch cooperations, you can acquire extensive bits of knowledge into their viewpoints, responses, and ideas in regards to the item idea, plan, and promoting materials.
5. Measure and Monitor
Keep a close eye on how each product in your portfolio is selling. You will be able to quickly identify any unexpected effects that the introduction of a new product may have on sales of existing products if you monitor the performance of each product closely.
This permits you to proactively address any issues and make informed choices based on the sales data.
To determine the extent of cannibalization between your products, regularly calculate the cannibalization rate.
This involves comparing the sales of the new product to those of the old product, which the new product might be affecting.
You can determine the degree of cannibalization and take the necessary measures to lessen its effects by quantifying the rate of cannibalization. This helps you keep the products in your portfolio in good balance.
Finding the right balance between innovation and market demand is the key to successfully avoiding product cannibalization.
By understanding the interest group, directing complete statistical surveying, and adjusting products based on customer feedback, organizations can present new contributions that captivate buyers without adversely affecting existing deals.
Businesses can overcome the difficulties of product cannibalization and achieve sustainable growth in a competitive market with a strategic and customer-centric approach.
What to do next?
- Revolutionize your product information management strategy and skyrocket your online sales with Apimio PIM – Sign up now
- Also, if you want to know about Product Descriptions, you can head to our blog “Steps to Write Product Descriptions that Sell Faster”.
- Also, learn more about How PIM helps manage Product attributes.
- Read more about our Product Information related Guides here.
- Contact our support or comment your thoughts under the blog section if you have any further questions.
Frequently Asked Questions
In certain cases, deliberate product cannibalization can be beneficial. It can help companies stay competitive, attract new audiences, and prevent competitors or startups from gaining market share.
Product cannibalization can be measured by calculating the cannibalism rate, which is the number of sales lost on an existing product divided by the sales of the new product, multiplied by 100.
1. Launching new products within the same category
2. Overlapping target markets and customer segments
3. Lack of differentiation or unique selling points
4. Inadequate product positioning and marketing strategies