Every business wants to introduce new goods that will entice clients away from rivals. However, there are occasions when you wind up taking sales from yourself. Market cannibalization is a phenomenon that occurs when demand for a company’s initial product declines in favor of a new one.
When a firm undergoes cannibalization, it loses not only sales volume but also revenue and market share. As a result, some businesses resist launching new items because they don’t want their existing products’ market share to dwindle due to cannibalization.
Companies of all shapes and sizes are susceptible to market cannibalism. It’s happened to Kodak and Coca-Cola, and it’s been done on purpose by companies like Apple.
The main aim of creating a new product/ service is to attract a small number of existing consumers and a big number of new ones. When a new product is brought to the market, it frequently draws a substantial percentage of the existing consumer base. Cannibalism occurs when a company’s market base does not expand.
Consider the case of Company XYZ, which is famous for producing high-end watches. ABC chooses to develop a new range of items to expand its client base and, as a result, its income.
The new watch is popular with customers, and the company’s sales volume jumps significantly. However, it does not take long for the owners to notice that sales of their original watch have plummeted. What is the cause behind this? Customers who preferred the previous watch have ceased purchasing it in favor of the newer model.
Cannibalization, as seen in the case above, can cost a firm a substantial amount of money. It frequently occurs when a firm fails to conduct due diligence before releasing a new product.
In some situations, the new product may not only harm a company’s sales profitability and volume. The original product gets phased out of the market in the worst-case scenario.
A corporation, on the other hand, may intentionally cannibalize its old product with a new one. Why would a company launch a new product line knowing full well the problem it may cause? – As a means of developing and growing the company’s activities.
Steve Jobs is cited in his book as stating, “If you don’t cannibalize yourself, someone else will.” So, when the iPod’s popularity was still sky-high, Steve introduced the iPhone. While this affected iPod sales, it brought in new consumers and kept Apple ahead of the competition.
There are several instances where market cannibalism is unavoidable. For example, lots of stores provide an option of online marketing nowadays. Business owners are well aware of the danger that their internet sales may imperil those of their physical locations.
Amazon has done a fantastic job of dealing with cannibalization. It owns and operates an online retail business where customers may buy a variety of products. Amazon Go is a chain of stores managed by the company.
And no, the stores’ sales do not affect the online business. That’s because Amazon Go exclusively deals in items that are not available on the company’s website, such as freshly prepared meals.
Many a time, it is better to avoid market cannibalism. However, it is not necessary for business owners to quit producing their current items altogether. They can also utilize the following methods to prevent cannibalism:
1. Determine the target markets for each product.
In this approach, it’s simple to figure out what gap the present product covers and who the item’s target market is. All of this is information that entrepreneurs should be aware of before launching a similar or new product.
2. Determine whether there is a market for the proposed new product.
Determine how much net income the new product can generate in particular. This implies that the manufacturing expenses must be weighed against the advantages, which come from additional payment.
It’s crucial to remember that new items don’t necessarily equal more money. In the short term, they may increase the income, but they can prove to be fatal to the company’s revenue in the long run. So in this instance, a business would be better off sticking with its original offering.
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