Market Cannibalization: How Corporate Cannibalism Works

Market cannibalization is a sales phenomenon where a new product introduced by a company eats into the sales volume of another product the company already sells. Market cannibalization can be a thought-out strategy that seeks to increase total sales and eliminate competition, or an unintended consequence of not clearly distinguishing different products or anticipating consumer behavior. The cannibalization rate measures how many sales of the new product cannibalize sales of the existing product.

Market cannibalization, though risky, can be a successful strategy when it’s well-thought-out. To successfully execute a cannibalization marketing strategy (also known as corporate cannibalism), brands must analyze their inventory of old products and conduct market research. For example, a technology company may release new phones regularly. Although the latest phones may lead to diminished sales of the older models, they also bring in new customers, keep users engaged, and allow the brand to charge a premium on the new product lines while discounting older ones, which may be appealing to people on a lower budget.

Market cannibalization can also eliminate competition and increase overall market share. For example, if a chain store sets up a new location not too far from a longstanding one, the store sales at the original site may suffer as old customers flock to the new store. But if the new store puts other similar stores out of business and brings in their clients, the effort leads to a net gain.

Poorly executed or unplanned product cannibalization can lead to lost sales and a loss of net revenue for the company. If companies always discount their older products, cannibalization marketing may train customers to expect cheaper costs. Similarly, if customers expect lower prices on older products and those are no longer in stock, they may head elsewhere. Corporate cannibalism can also be dangerous in a saturated market full of similar products sold by numerous companies. When competition is stiff, cannibalizing your own product line can lead to depleted sales.

These examples illustrate how companies can use a market cannibalization business model to improve their bottom line.

1. 1. Limited-release flavors: A long-standing cookie company may occasionally release new, limited-edition flavors (think replacing their standard marshmallow filling with lemon). The new product generates buzz, and the limited availability of the new skew leads to heightened sales. Though this strategy depletes sales of the original cookie in the short term, it brings renewed attention to the brand, which translates into higher sales for the existing product when the new flavor is off the shelves.
2. 2. Competing food stores: Grocery stores often open up locations near one another in the hope that they attract new shoppers for whom the new site is more convenient, even though a second location also splits the customer base of the original store. Although the new store cannibalizes sales from the older one, it also takes away clients from other competitors. If the company doesn’t open a grocery store at that location, someone else will.
3. 3. New clothing items: Clothing companies often display new products at the entrance to their store while putting older ones on sales racks farther in the back. This optimization gives shoppers options: Customers looking for the latest styles will find what they’re looking for (and be willing to pay a higher price), as will those who prioritize lower prices. Executing this correctly depends on the store knowing that it has both kinds of customers coming in the door and a market for both product lines.

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