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‘Companies don’t want replacement products to kill the profits of existing products prematurely. Yet they don’t want someone else to do it either.’ MARKET CANNIBALIZATION is the negative impact of a company's new product on the sales performance of its existing related products. Thus one product may take sales from another offering in a product line. In most cases this doesn’t make much sense unless it’s a defensive move to protect the product line from a competitor stealing market share because the current product line is insufficient. Case1- Coca-Cola This is best illustrated by the "Cola Wars" - the marketing fight between Pepsi and Coca-Cola, which lasted most of the 1970s and 1980s. The soft drink rivalry pushed Coca-Cola Co. to make one of the most famous marketing blunders in financial history. In the process of creating Diet Coke, the company's chemists discovered a new formulation for Coke. The new concoction was sweeter and smoother than the century-old formula upon which Coke had been built. In fact, it was similar to Pepsi - the drink that was eating away at Coke's domestic market share. On April 23, 1985, Coca-Cola Co. announced that New Coke was on its way. Because of a strong preference for New Coke in consumer taste tests, Coca-Cola decided to pull the old Coke formula from the shelves. Essentially, the company was throwing away a century of branding by favoring the new, relatively unknown formula over the one that consumers had grown up with. For Coca-Cola executives, this made sense. Much like with software companies that pull old versions from the shelf when a new one is released, they didn't want their old product line to keep consumers from buying their new one. Unfortunately, this bold move backfired horribly. Consumers rebelled and flooded Coca-Cola with angry letters and phone calls. Coke's stock and market share took multiple hits and Pepsi even proclaimed victory in the Cola Wars now that Coca-Cola had copied its taste. The influx of complaints led to a "We've heard you" marketing reverse. On July 11, 1985, mere months after its sudden exit, the old formula was re-
The company receives lower revenues compared to a situation then all product items are sold separately. the pack will be bought rather than the separate items. and that Lakme’s Winter Care Lotion was “cold cream + moisturizer in one” and was “so much more than cold cream”.probably better than "Old Coke". Multi-product pack cannibalization – multiple products are marketed as one but could also be sold separately. The first appearance of Lakme’s Winter Care Lotion ad came as a rude shock. combining different goods and/or services in a package stimulates the total sales of all products included in it.introduced with "Classic" added to the title . Intra-product cannibalization occurs as a result of a competition between different products with same or similar functional characteristics and same target market.Ponds Pond’s Cold Cream’s comfortable position was suddenly challenged by a brand from another product class altogether of HUL. Coca-Cola Classic quickly ate up the sales of New Coke in a textbook case of market cannibalization 3 TYPES OF PRODUCT CANNIBALIZATION: Cannibalization is a key consideration in product portfolio analysis. The total price for the product pack is usually lower than the sum of the prices of the individual items. Although some product cannibalization may occur (the sales of the individual items may decrease).being described as a ‘greasy cold cream’ by Lakme. Case2. . and thus.
Very few companies understand the basic concepts of cannibalization. The replacement product kills the original product before its time. The competition between these products can cause cannibalization within the product line. . leads to drop in sales of one product. or similar. offered by the same company. quality standard. product development strategy can lead to a series of cannibalization traps. allocation of resources. selection of distribution channels. Companies make their strategic mistakes in not understanding when cannibalization should be avoided and when it’s appropriate. There’s good cannibalization and bad cannibalization. can cause a decrease in sales and profits as a result of the expected or unexpected selfcompetition. When the products are essentially the same in content. however the latter takes place when companies inadvertently consume their own profits. because it increases the customer choice and the probability that the seller will offer a product that suits customer’s needs. duration. price range and form one product line in a company’s portfolio. company’s resources. Inter-product cannibalization happens within the same product line. customers’ attention and memory. Cannibalization really occurs only when there is not an orderly or profitable transition. resulting from a competition of a substitute product. Furthermore. Companies shrink in righteous horror from the very concept of devouring others of their own kind. Cannibalization can reduce profits when the original product is still successful at the time the replacement product is launched and hence sales and profits start declining as sales are transferred to the replacement product FIG 1. When replacement products are introduced too early. In general such inter-product cannibalization is desirable. they can hurt overall sales and cannibalize profits. but also for managers’ and agents’ attention. The general idea behind cannibalization is that the marketing strategy of the company in launching new products. shelf space. Product development. sales force time. these same products will compete not only for customers’ money. Therefore.
Market cannibalization typically benefits the attacker rather than the defender. Companies can adopt offensive or defensive cannibalization strategies which they can use in different stages of product’s life cycle. In this case a company can cannibalize its position in the market with a failed product. CAUSES OF UNFAVOURABLE CANNIBALIZATION: 1.the new product may be profitable. Profit is lower because of the investment in that process and because of write-offs associated with closing or retooling current manufacturing plants. New product will contribute lower profits. 2. CANNIBALIZATION STRATEGIES: The cannibalization on company level is usually analyzed in relation with product or technology innovations which make existing products or technologies uncompetitive and obsolete. since the attacker has nothing to lose. New product would require significant retooling. .a new product could generate lower profit contribution than the product it cannibalizes.when the product requires a different manufacturing process. but it may introduce much higher risks. New product has greater technical risks. 3.
refused . since Sega would receive a much lower license fee for software distributed through cable. Cannibalize your own business before someone else does. In ’93 Sega formed a joint venture with Time Warner entertainment to offer Sega’s video games through cable TV networks. Self cannibalization may be necessary as a defensive strategy to keep an attacking competitor from being successful. not at the margins of the profits and the outputs of the existing firms. although the attacker cannibalizes its own products in the process. controlled cannibalization may be a necessary strategy to repel attackers. the dominant bookseller in the United States. However as a the market attacker Sega sought to increase its overall market share in both game players and software by redefining the market To be successful. The attacker hopes to compensate for its loss with increased market share in the redefined market. Changes and innovations are happening so fast and globally that they're striking.Borders In 1997.5 billion American video game market included a strategy to cannibalize its own video game software with a new form of software distribution. Case3. Borders. This strategy could have significantly cannibalized Sega’s own game software revenue. it would need higher volume to offset lower profit per unit. Defensive cannibalization strategy: For market leaders/ defenders. The attacker erodes the position of the dominant company. Cannibalize the market to attack the market leader: Cannibalizing an existing market is a successful strategy for attacking an entrenched market leader. Case4. The JV’s Sega channel provided Sega’s video games for a monthly fee of $20. but at their foundations and their very lives.Sega enterprises-Nintendo: Sega enterprises’ attack on Nintendo’s dominance of the $3. With this strategy a company chooses to cannibalize its own products rather than let a competitor do so. ‘Cannibalize yourself before competitors do’.
to sell books online because its leadership feared cannibalizing store sales for cheaper. The risk of cannibalization is a very real threat for many new product launches and that the risk becomes even more significant if the new product is launched under the same brand name as an existing product. innovations that improve. online sales. product line extensions or product repositioning. Such innovations have the potential for three important effects as they relate to existing markets: a) market expansion b) cannibalization and c) destabilization. whereby innovations take away sales from the firm’s existing products in the category. Borders market share was swallowed by Amazon.e. Case5. INNOVATION AND CANNIBALIZATION: The effects of radical product innovations are not uniformly positive or straightforward. they may also decide to replace them by introducing incremental product innovations. Firms with higher levels of market dependence are most likely to introduce a radical product innovation if they expect enough market expansion to compensate for the cannibalization of existing products. Eleven years later. WHEN DOES CANNIBALIZATION AFFECT PRODUCT LINE DESIGN? . Innovating firms have to incorporate the potential for cannibalization in their decision-making leading up to the introduction of an innovation. Another element is the cannibalization of specialized investments. Cannibalization of sales does not have to lead to radical innovation. adapt or extend the currently available product. such as product modifications.com. Borders was cannibalized.Le-Sancy Lux’s market standing was being threatened by the soon to be launched Camay from the house of Godrej to be marketed by P&G. In such a case of cannibalization the element is sales cannibalization. but not by its online sales. HUL then launched LeSancy to counter Camay’s attack. i. While organizations may decide to replace sales from an existing product by sales from radical innovation. whereby innovations reduce the value of investments that are tied to existing products.
Extending a product line may cause cannibalization not only through selfcompetition for market share but also for the limited resources of the company itself. Cannibalization is not always bad. Cannibalization may also lead to the ineffective and inefficient use of company’s resources and personnel.Maruti Zen In 2006 Maruti Zen’s market had gradually started disappearing. All other segments get qualities lower than their preferred (efficient) qualities. deliberate cannibalization can be a key element of product strategy. That is. multi-product firms have to carefully consider the cannibalization problem in designing their product lines. higher-valuation consumers may find it beneficial to buy lower-quality products rather than the higher-quality products targeted to them. When the cannibalization problem is very severe. Zen was getting out-dated.Products within a product line are partial substitutes. If lower-quality products are sufficiently attractive. are making Maruti to consider stopping production of their once best seller B segment car. the technology exists to release two products simultaneously. Case6. CANNIBALIZATION AND THE TIMING OF PRODUCT INTRODUCTIONS: A seller who faces two customer segments with differing valuations of quality of a durable product whose demand is stationary and known. In other words consumers might have switched to a competing brand instead of the line extension if the extension hadn’t been introduced. Being one of the older cars on the road. The cannibalization problem forces the firm to provide only the highest-valuation segment with its preferred (efficient) quality. lower-quality products can potentially cannibalize higher-quality products. and consumers can selfselect the products they want to purchase. Cannibalization starts as soon as the consumer exhibits brand switching behaviour. This may not come as a surprise to most. Intra-brand shifts may not necessarily be undesirable if they’re a form of preemptive cannibalization. and the seller can commit in advance to subsequent prices and qualities. Its falling sales. and the newer models of Maruti cannibalized the sales of Zen. He needs to decide whether to . or even before that. Alto and the Wagon-R. the firm may not serve some of the lowest-valuation segments. It was spruced up to a new look in the year end 2003. which were cannibalized by Maruti's newer models like the Swift. but that was not sufficient.
would mean that the profits from the low-end model arrive later. but delay its release. reliable and unique in order to extend the product life cycle. when the seller cannot pre-commit. Under the simultaneous strategy. Firms need to recognize that cannibalization is not always avoidable. he could increase the quality of the low-end model. including the A380. Sequential introduction. However. Make your old products popular by making it cheap. the lower quality would cannibalize demand for the higher quality. To reduce cannibalization. You can definitely create your own little product niche from older products to counter cannibalization. Counter cannibalization by making your older products special again. there is little to no cannibalization because your old products are capturing a new market. After all. You can reduce the old products price tremendously to tap a new market or make them unique again. . competing companies might have entered the market with a similar product and taken these sales anyway. We show that sequential introduction is better than simultaneous introduction when cannibalization is a problem and customers are relatively more impatient than the seller.Airbus The entry of the Airbus A380 in 2005 was expected to toughen the price competition and reduce the Boeing 747’s market share. Many companies cannibalize their own products at some time in the future. the seller would have to lower the quality of the low-end model and reduce the price of the high-end. Your older products can be reduced tremendously in price to make it cheap and affordable. sequential selling is much less attractive because then he cannot use his product designs to alleviate cannibalization. increased). This way your old products can capture the low income consumers while the latest products can capture the high income consumers. Businesses still view cannibalization as the most dreaded issue but there is a counter to it. Many businesses believe they must cannibalize their own products or the competition will do it for them. but the cannibalization of the A330 and the A340 was even greater (although Airbus’ aggregate share. You can counter cannibalization by making your older products unique and desirable to extend their product life cycle. Alternatively. even if the new product had not been introduced. If you can do it. however. Case7.introduce two differentiated products at once or one at a time.
Old products can tap a new market with just a little innovation. P&G had to come up with a new strategy through which Tide aimed to capture the safedi segment while Ariel would fight Surf in the Color segment. P&G had a serious problem because there was a chance of cannibalizing between Ariel and Tide because there was no significant differentiation between the two brands.Make new products niche from original products to counter cannibalization. Hence. BIBLIOGRAPHY Books: . in conclusion it can be said that market cannibalization can well be a new product strategy wherein old products aren’t doing very well and sales and profits of the old product are declining or being threatened by another player in the market. Tide was launched as a premium brand. It is a more effective attacker strategy and is not advisable for a market leader under normal circumstances when its products are still doing well. Case8.TIDE Tide was launched with much fanfare in 2000.
hbs. http://mktsci. http://www.co.pdf . http://www.emeraldinsight.google.informs.in/books? id=p1xvYvtUJmQC&dq=product+strategy+for+high+technology+com panies&printsec=frontcover&source=bl&ots=hcpkXJ6Cwx&sig=NmEM QWuG0UXiSpj_2N5pFa8Bk0&hl=en&sa=X&oi=book_result&resnum=3&ct=result #PPA258.org/cgi/content/abstract/38/3/345 2.investopedia.com/Insight/viewContentItem. http://marketingdeviant.edu/besty/Esty_Airbus_Boeing.M1 2.do? contentType=Article&hdAction=lnkpdf&contentId=857620 5. http://mansci.1.asp 3. http://books. http://www.people.journal.com/ask/answers/08/market-cannibalizationcoke-cola-wars.org/cgi/ 6.com/ 4.informs.journal. Marketing Management -Philip Kotler Internet: 1.