Market cannibalization is taking markets away from a company's existing products by introducing new products. It occurs when a company explores new segments and introduces products with similar features in the same pricing range as existing products, thereby creating conflicts between two similar products. Market cannibalization occurs when the company shifts part of the demand for its existing products to the new product, resulting in a decrease in the sales of existing products. The new product competes with the existing one, thereby reducing the total market demand.

The 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.