The sales cannibalization is the marketing phenomenon that occurs when a product nibbles away at the market share of another product from the same brand.
Why does sales cannibalization occur and what are its characteristics?
Some factors that lead to an increased likelihood of sales cannibalization include:
- An increase in the number of products distributed by the brand in question and an overall reduction in prices.
- Brand extension actions that unbalance sales by tipping them in favor of the new, more accessible product.
The term cannibalization is quite fitting. Indeed, often, the final solution is to stop production of the old item and promote sales of the new one.
Often, unfortunately for companies, however, cannibalization leads to a substantial decrease in turnover, as the product that sells more is usually marginally lower in price compared to the historic one (which had a higher price).
To make a good brand extension, for example, it is increasingly essential to theorize a percentage of cannibalization, that is, a value representing the likelihood that the new product will take sales away from the older one.
An acceptable value is one that is included and does not exceed the Break Even Cannibalization Rate (BECR), which represents the margin of sales shares eroded by the new product, divided by that of the product already on the market.
Therefore, cannibalization of sales (and profit) should be avoided to maintain a balanced production line.
Example of Sales Cannibalization
In marketing, there are many examples of cannibalization. One that has affected numerous companies is the rapid development of music support technologies.
First CDs, then in a very short time mp3s, and subsequently streaming platforms like Spotify.
Cannibalization, at times, is a necessary evil to bring competitive advantages to the company and to enter new markets.
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