Market Cannibalization
Candlefocus EditorThe pressure to create innovative new products leads to companies tackling previously untouched markets, which can become risky for existing product sales. The new product may share features and cost a similar price as an existing product, but offer a better value. With this new product, customers can be tempted to switch from the existing product to the new one. When this happens, the company's total market share declines, resulting in a decrease in sales of the existing product.
The degree to which companies are likely to cannibalize their own products depends on the similarity of the products and the degree of competition within the market. Companies must be aware of the tradeoffs that are part of market cannibalization before making decisions to launch new products. A thorough market research and testing is a must to evaluate the impact of introducing a new product that risks cannibalizing existing products. Companies must use innovative ways to market the new product without sacrificing the existing product.
An effective market cannibalization strategy can include developing numerous products to cover different segments, or launching a low cost version of an existing product to tap into the lower end of the market. Companies can also create promotional campaigns to emphasize the unique features of each product and drive customers to the product that is the best fit for their individual needs.
The ability to identify the potential for market cannibalization, analyze the tradeoffs, and develop strategies to manage it, is essential for companies to discover new markets and create beneficial business outcomes. Understanding the customer needs and developing innovative strategies that exceed customer expectations will enable companies to make informed decisions when introducing new products, and avoid market cannibalization.