Market cannibalization definition
/What is Market Cannibalization?
Market cannibalization occurs when a company’s existing sales decline due to the displacement of an older product by a newer one. Cannibalization is most likely when the new and old products share similar features and are used by the same customers. This situation results in no net increase in market share for the seller, because the company has not appealed to a new group of customers. Also, because it is now producing both the old and new products, its production process has become more complex, which probably reduces its profits.
Market cannibalization is usually unintentional, though a firm could use it to completely blanket a market niche, thereby also hurting the sales of competitors. For example, a drugstore chain could open stores everywhere within a city; these stores undoubtedly cannibalize each other, but also drive out other competitors. Nonetheless, this approach tends to harm overall profits, and so is generally avoided.
Market cannibalization also applies to distribution channels. The most common situation is where a company opens an Internet store, which then competes with its retail locations for sales. Total sales may increase, but the sales of the retail stores will probably decline.
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How to Avoid Market Cannibalization
A good way to avoid market cannibalization is to adopt a distinct brand image for each product. Doing so makes it easier for customers to differentiate between products. Another possibility is ensure that older products are removed from the market just as replacement products are being introduced. A third option is to ensure during the product design stage that products are sufficiently differentiated with different features and price points.