Market Cannibalization

marketcannibalization

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Have you heard of the term Market Cannibalization? While it is uncommon within small companies, there are common cases of big brands market cannibalizing their own products in the process of new product launches. As the term “Cannibalization” suggests, Market Cannibalization happens when the introduction of a new product causes a decrease in the sales of another product within the same company.

Market Cannibalization as a Strategy
One classic example of Market Cannibalization is when Coca-Cola launched a differing soda product line that includes: regular coke, cherry coke, vanilla coke, coke zero, etc next to its signature drink, Coke. In the hope of acquiring a bigger market share, Coca-Cola introduced these alternative flavors to suit consumers’ different tastes. Coca-Cola believed that even though the new line may eat into its own market initially, in the long run it will allow them to get a overall larger share of the pie in the market. Did it worked? Well yes and no. Consumers were curious about the new flavors, which brought in new sales for Coca-Cola initially. But eventually, Coca-Cola realizes that loyal customers still preferred the original formula, which prompted them to react by revising their strategy to marketing the original formula as the “Classic Coke” and the rest of the flavors as either seasonal, or festive beverages.

Impact of Market Cannibalization
What are some of the impact of using Market Cannibalization as a marketing strategy? A popular belief to Market Cannibalization is that, the introduction of a similar product may force an existing product’s life to end prematurely because sales shifted to the new product, rather than tapping into a new market as intended by the company. However, one successful story on the contrary of the popular belief is when Apple introduced iPhone which include the features of iPod and thereafter started its semi-yearly product launches introducing iPhone 4S within a year of launching iPhone 4. According to Walter Isaacson’s interview of Steve Jobs, one of his business rules was to never be afraid of cannibalizing yourself. “If you don’t cannibalize yourself, someone else will,” he said. So even though an upgraded iPhone 4S might cannibalize the sales of an iPhone 4, that did not deter him.

Negative impact and Opportunity
On another note, there can also be a negative impact to implementing Market Cannibalization as strategy. Especially in the technology industry, when the offered service contradicts the nature of another. One such example is Google’s introduction of the Chrome Extension Google Quick Scroll. Google Quick Scroll is a browser search tool that allows users to execute a faster “find-on-page” query. Google’s Advertisement Platform is one of their most profitable business and Google Quick Scroll is jeopardizing Google’s advertising business model by allowing fast search, hence reducing the average time users spend on a web page. This Chrome Extension has since seen to be “abandoned and unmaintained” by Google. An alternative search tool to Google Quick Scroll according to alternativeto.net is Twinword Finder, which helps you to find and highlight what you need on a web page without having you to skim through all the text.

Advanced_Ctrl_F_Search__Research_Tool__Twinword_Finder

 

In Conclusion
There are both sides to practising Market Cannibalization as a marketing strategy. Here are some points to takeaway:

  • Do math. If cannibalizing your own products allows a overall increase in profit, do it.
  • Be flexible and adaptable. Learn from Coca-Cola’s story.
  • Segment the existing target market: Coca-Cola’s Diet Coke (targeting female Coke drinkers) and Coke Zero (black and masculine packaging targeting male Coke drinkers). Singapore Airline (premium airline, direct flights) Scoot by Singapore Airline (targeting budget travellers, offering transit flights at a discounted price).
  • Leverage on existing loyal customers and upsell (high likelihood of iPod user to buy iPhone, iPad and MacBook etc).
  • Good strategy helping startups to move towards Merger and Acquisition (when big companies feel threatened by good products, as per Steve Jobs’s business rule).

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