Companies face a real and ongoing challenge from competitors all the time and losing market share and business are realities in every industry. But, ironically, there are situations when its sales and revenue could be under threat due to competition from itself. That happens due to a strange phenomenon called market cannibalisation.
What is Market Cannibalisation?
Cannibalisation itself is not a new word or occurrence but then we associate that with animals or, rarely, with humans. Denoting the bizarre phenomenon where a species eats one’s own, a form of cannibalism does exist in business too. So, what exactly is market cannibalisation and what is the impact it can have on a company’s operations and bottom line?
In the world of business, cannibalisation takes on a different meaning. In the context of a company, the market share garnered is on account of the products and services it produces and offers to its customer base.
The competition relentlessly attempts to increase its market share and customers and does that even by eating into the company’s share. But there are situations when a company’s products are threatened by its own improved offerings and newer strategies.
When a company introduces a new product, it is usually conceived sizing up the market for that offering. A well-executed launch of a good product can help interest and appropriate a sizeable customer base. But if the product being introduced now has a similar offering or is a vastly improved version of the existing, this can result in the customer base getting confused. There are good chances that they may even stop buying the earlier product and probably start accepting the newer one. This is how a brand allows its own market to be cannibalised.
Forms of Market Cannibalisation
While the loss of market share is the simplest and most immediate result of market cannibalisation, this can happen through multiple means and with different results. Here are a few situations that can prompt a company effect cannibalisation – both planned and unplanned.
Some of these can have a positive impact and is the result of a planned attempt at cannibalising its own market share. Others still can be unplanned or undesired and result in negative outcomes.
Here are a few such scenarios from typical business situations.
First, here is a look at some cases of constructive cannibalism.
To carve out new markets
Companies often face the need to identify and carve out new markets in their bid to expand and grow. It is possible that a fresh idea or an improved product could be better accepted and become a bigger hit with customers. Of course, it is important to note here that the newer offering has a better chance at increasing the customer base, sales and revenues.
A good example here is the move by Procter & Gamble to introduce the concept of synthetic detergents in their line-up of soaps for the laundry market. This happened in the 1940s when their soap bars were doing well. With the launch of these synthetic detergent based offering, two things happened. While the soap bars saw a decline in sales and, in time, became history, the new detergents became a huge hit.
Stronger brand addiction
At times, it is important for a brand to accept the harsh truth that customers will not always be with them. In a cut throat competitive business environment where continuous innovation, aggressive pricing and high decibel marketing exist, companies need to offer better products in their own line-up.
This results in brands having to constantly reinvent themselves with better products that ensure more brand loyalty. In such situations, companies have to churn out offerings that significantly improve their own standards. Apple is a classic example of a company that is not afraid to raise its own bar and regularly update its last models. For instance, each iPhone launch is a promise of a better product and the invitation to own it. This helps build a stronger addiction and affinity to the brand.
Discounting & Price cuts
Here is an example of cannibalism that can hurt a company. Offering price cuts and discounts can be a smart way to pull in more sales and increase revenues and profits. But if this is overdone, it can harm future sales. Customers are just going to get used to a price point and refuse to consider a purchase at the initial price.
This can also be detrimental from a perceived image standpoint. It can put off initial buyers who could feel short-changed to have bought at a higher price. Future launches also might evoke a lukewarm response as customers would expect a price cut later on.
Existing products becoming unsaleable
The other danger of market cannibalisation is that the introduction of a new product, especially an improved and updated one, can render an existing one unsaleable. This can happen with otherwise good, relevant products that could lose their charm in the face of a more powerful version.
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Is it Always Bad?
Obviously, the initial reaction to the term cannibalisation is negative and disapproving. The implications of cannibalisation in a business environment do not augur well for any company. In the face of competition, it is an undeniable fact that growth and revenues suffer. But when the challenges emerge from within the organisation, it can raise eyebrows.
But successful brands like Apple have never shied away from innovating their own product lines that have caused cannibalisation.
✅ To safeguard the business
At times, changing times can put pressure on a company’s ability to attain their sales and revenue targets. Even otherwise well performing brands face this challenge when the shifting business landscape and customer behaviour forces a rethink on conventional methods.
Many companies have had to reinvent themselves from brick and mortar entities to online ones when the internet and the digital revolution took over. Bookstores, for one, have had to reduce the prices of their inventory in the face of cheaper pricing by online portals. Had such conventional brands not resorted to this and even shift their focus to the online space they may have even perished prematurely.
✅ Refresh the status quo
There are situations faced by businesses where the sales numbers get sluggish and just lowering the pricing fails to revive interest in a product. Even marketing efforts may not be able to boost the demand.
This is when a refresh of the product line would need to be undertaken. This can include having to kill off the existing offering completely by introducing a version that is radically different from the original. Even giving an overhaul of the existing product could help revive consumer interest. This has been seen in FMCG items like chocolate bars that have been reintroduced in new flavours or larger sizes.
✅ Support business goals, reinvent the brand and hold off competition
Adding more and varied products to the line-up have been done by businesses that have otherwise been single model brands or ones with a limited range. Coca Cola had to do this by extending beyond its regular line-up by introducing radical offerings like Coke Zero and flavoured drinks.
Such a move helps act as a catalyst to the ongoing business goals and also to reinvent the brand and take it to newer heights. The fact that existing products may temporarily see a reduced demand and sales can only help propel future overall sales and improve brand recall and acceptance.
When a business decides to take on the competition by enhancing its own scope of activities, there will be some cannibalisation of its own market share. But by deciding to take on the competition head on by introducing its own products and services, there can be an initial shift of focus from its primary niche.
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❌ Affects the sale of a product or franchisee
Market cannibalisation can have a negative effect when a new product or franchisee affects the sales of an existing product – who would want to compete with yourself and lose to your own brand.
For example, a new Domino's Pizza franchise can cannibalize sales from another franchise just two blocks away. When Clorox introduced a new laundry detergent with bleach, the sales of their bleach products suffered.
❌ Product extension could kill a product
Launching a product that has the same functions, but is cheaper, means customers will choose the less expensive option. Your earlier product will lose sales, and, on top of that, your overall profits will decline.
❌ Damage the brand
Market cannibalisation can have a negative impact on the brand. This often happens with high-end retailers when they launch low-priced versions that can confuse customers.
How to Balance Market Cannibalisation Decisions
So, while there may be certain situations where it may work, companies should be careful not to go overboard with market cannibalisation. It certainly should not be embraced as a convenient short-cut. Instead, it is important to consider the reasons why this strategy may be employed and find ways to avoid that situation.
This can be achieved with businesses stepping back and assessing their situation with regard to the market conditions and the competition.
Study the market and assess the ground reality with respect to how it favours or threatens attaining your goals. Spend time and effort and money researching the market and the competition to avoid having to make sudden and kneejerk reactions.
Revisit your product range to see how well your offering suits the market and customer’s needs, expectations and aspirations. If there are gaps, it is important to proactively adapt and reinvent to stay relevant and profitable.
Constantly test and measure your brand and product’s performances to assess if it stacks up against the benchmark set by the market and the competition. Doing this on time and regularly will help having to resort to dire steps like market cannibalisation.
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