What is Cannibalization?

//What is Cannibalization?
What is Cannibalization? 2017-10-01T06:16:20+00:00

Definition: Cannibalization refers to the loss of a product’s sales due to the release of a newly created product. In other words, a newly introduced product line might take away market share from an existing product line instead of gaining overall market share for the company.

What Does Cannibalization Mean?

What is the definition of cannibalization? Product cannibalization is a phenomenon that can affect any business or organization regardless of the product. Even with a detailed and specific marketing plan, cannibalization can still occur. It all depends on the reaction of the consumer base and the actual reception of the product. Usually this occurs when two products are created too similar to each other or placate the same consumers. This is common with large conglomerates, as their abundance of pre-existing products can easily be impacted in unforeseen ways by any new developments.

Let’s look at an example.

Example

A large conglomerate, Stuff & Things Incorporated, currently manufactures two product lines: toy bunnies and Easter eggs. As of today, they earn $100,000 in revenue from the Easter eggs, and $400,000 from the toy bunnies. Due to the success of the toy bunnies, the new CEO decides to focus on toy animals. He commissions the manufacturing and marketing of toy koalas. The toy koalas are high quality and were a big hit with focus groups.

However, once in the market, an interesting phenomenon occurred: the Easter eggs still earned $100,000, but the toy bunnies only earned $300,000 while the koalas only sold $50,000 in the next year. Overall, the introduction of this new product line proved not only detrimental to overall revenues, but specifically detrimental to the toy bunny line.

This is an example of market cannibalization, where newly introduced product actually has a negative effect on current products. This is due to the fact that the two similar products fulfill roughly the same need of consumers, and thus doesn’t expand the firm’s profit base.

Summary Definition

Define Cannibalization: Cannibalizing products or markets means to produce a product that steals sales from another.