Marketing Minute 076: “What Is Product Cannibalization in Marketing?” (Marketing Strategy)
Product cannibalization can destroy your profits, but it can also save your company. Which one it does depends on how you manage it.
In simple terms, product cannibalization occurs when a company launches a new product that steals volume, sales revenue, and/or market share from one or more of their existing products.
This sounds like bad business, especially if the new product being offered has a lower contribution margin than the existing products. But there are two reasons why launching a cannibalizing product can actually be a good marketing strategy.
The first is customer retention. When your company offers a new, enhanced product, it provides customers with more value and keeps them buying your brand, rather than switching to your competitors’ brands as they improve their products and attempt to capture your market share.
The second reason is new customer acquisition. A new product developed for a new target market may cannibalize current customers from a seemingly distinct market. Even at a lower margin, if enough new customers buy your brand, the losses from cannibalization are overcome by the gains in building a larger customer base.
Fears of product cannibalization make marketing managers hesitant to launch, but these managers need to remember: when it comes to product cannibalization, it’s better to cannibalize sales from yourself than to let other companies steal those sales them from you.
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