Companies dont ant !ep"a#ement p!od$#ts to %i"" t&e p!o'its o'
e(istin) p!od$#ts p!emat$!e"*+ Yet t&e* dont ant someone e"se to do it eit&e!+ MARKET CANNIBALIZATION is the negative impact of a company's new product on the sales performance of its existing related products. Thus one product may take sales from another offering in a product line. In most cases this doesnt make much sense unless its a defensive move to protect the product line from a competitor stealing market share because the current product line is insufficient. Case,- Co#a-Co"a This is best illustrated by the "Cola Wars" - the marketing fight between epsi and Coca-Cola! which lasted most of the "#$%s and "#&%s. The soft drink rivalry pushed Coca-Cola Co. to make one of the most famous marketing blunders in financial history. 'n the process of creating (iet 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. 'n fact! it was similar to epsi - the drink that was eating away at Coke's domestic market share. )n *pril +,! "#&-! Coca-Cola Co. announced that .ew Coke was on its way. /ecause of a strong preference for .ew Coke in consumer taste tests! Coca-Cola decided to pull the old Coke formula from the shelves. 0ssentially! 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. 1or Coca-Cola executives! this made sense. 2uch 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. 3nfortunately! 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 epsi 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. )n 4uly ""! "#&-! mere months after its sudden exit! the old formula was re- introduced with "Classic" added to the title - probably better than ")ld Coke". Coca-Cola Classic 5uickly ate up the sales of .ew Coke in a textbook case of market cannibali6ation 3 TYPES O P!O"#$T $%&&I'%(I)%TIO&* $annibali+ation is a ke, consideration in product portfolio anal,sis. 2ulti-product pack cannibali6ation - multiple products are marketed as one but could also be sold separatel,. The total price for the product pack is usuall, lo.er than the sum of the prices of the individual items/ and thus/ the pack .ill be bought rather than the separate items. The compan, receives lo.er revenues compared to a situation then all product items are sold separatel,. %lthough some product cannibali+ation ma, occur 0the sales of the individual items ma, decrease1/ combining different goods and2or services in a package stimulates the total sales of all products included in it. 'ntra-product cannibali6ation occurs as a result of a competition bet.een different products .ith same or similar functional characteristics and same target market. Case-- Ponds Ponds $old $reams comfortable position .as suddenl, challenged b, a brand from another product class altogether of 3#(. The first appearance of (akmes 4inter $are (otion ad came as a rude shock5 being described as a 6greas, cold cream b, (akme/ and that (akmes 4inter $are (otion .as 7cold cream 8 moisturi+er in one9 and .as 7so much more than cold cream9. 'nter-product cannibali6ation happens .ithin the same product line. 4hen the products are essentiall, the same in content/ :ualit, standard/ duration/ price range and form one product line in a compan,s portfolio. The competition bet.een these products can cause cannibali+ation .ithin the product line. In general such inter5product cannibali+ation is desirable/ because it increases the customer choice and the probabilit, that the seller .ill offer a product that suits customers needs. $ompanies shrink in righteous horror from the ver, concept of devouring others of their o.n kind. Product development/ leads to drop in sales of one product/ resulting from a competition of a substitute product/ offered b, the same compan,. urthermore/ these same products .ill compete not onl, for customers mone,/ but also for managers and agents attention/ sales force time/ compan,s resources/ shelf space/ customers attention and memor,. Therefore/ product development strateg, can lead to a series of cannibali+ation traps. The general idea behind cannibali+ation is that the marketing strateg, of the compan, in launching ne. products/ allocation of resources/ selection of distribution channels/ or similar/ can cause a decrease in sales and profits as a result of the e;pected or une;pected self5 competition. Theres good cannibali+ation and bad cannibali+ation/ ho.ever the latter takes place .hen companies inadvertentl, consume their o.n profits. <er, fe. companies understand the basic concepts of cannibali+ation. $annibali+ation reall, occurs onl, .hen there is not an orderl, or profitable transition. The replacement product kills the original product before its time. $ompanies make their strategic mistakes in not understanding .hen cannibali+ation should be avoided and .hen its appropriate. $annibali+ation can reduce profits .hen 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 1'7 ". When replacement products are introduced too early! they can hurt overall sales and cannibali6e profits. =arket cannibali+ation t,picall, benefits the attacker rather than the defender/ since the attacker has nothing to lose. CAUSES O. UN.A/OURABLE CANNIBALIZATION0 1. .ew product will contribute lower profits5 a ne. product could generate lo.er profit contribution than the product it cannibali+es. 2. .ew product would re5uire significant retooling5 .hen the product re:uires a different manufacturing process. Profit is lo.er because of the investment in that process and because of .rite5offs associated .ith closing or retooling current manufacturing plants. 3. .ew product has greater technical risks5 the ne. product ma, be profitable/ but it ma, introduce much higher risks. In this case a compan, can cannibali+e its position in the market .ith a failed product. CANNIBALIZATION STRATEGIES0 The cannibali+ation on compan, level is usuall, anal,+ed in relation .ith product or technolog, innovations .hich make e;isting products or technologies uncompetitive and obsolete. $ompanies can adopt offensive or defensive cannibali+ation strategies .hich the, can use in different stages of products life c,cle. Canni1a"i2e t&e ma!%et to atta#% t&e ma!%et "eade!0 $annibali+ing an e;isting market is a successful strateg, for attacking an entrenched market leader. The attacker erodes the position of the dominant compan,/ although the attacker cannibali+es its o.n products in the process. The attacker hopes to compensate for its loss .ith increased market share in the redefined market. Case3- Se)a ente!p!ises-Nintendo0 8ega enterprises9 attack on .intendo9s dominance of the :,.- billion *merican video game market included a strategy to cannibali6e its own video game software with a new form of software distribution. 'n 9#, 8ega formed a ;oint venture with Time Warner entertainment to offer 8ega9s video games through cable T< networks. The 4<9s 8ega channel provided 8ega9s video games for a monthly fee of :+%. This strategy could have significantly cannibali6ed 8ega9s own game software revenue! since 8ega would receive a much lower license fee for software distributed through cable. =owever as a the market attacker 8ega sought to increase its overall market share in both game players and software by redefining the market To be successful! it would need higher volume to offset lower profit per unit. De'ensi4e #anni1a"i2ation st!ate)*0 or market leaders2 defenders/ controlled cannibali+ation ma, be a necessar, strateg, to repel attackers. >Cannibali6e yourself before competitors do9. Self cannibali+ation ma, be necessar, as a defensive strateg, to keep an attacking competitor from being successful. 4ith this strateg, a compan, chooses to cannibali+e its o.n products rather than let a competitor do so. $annibali+e ,our o.n business before someone else does. $hanges and innovations are happening so fast and globall, that the,>re striking/ not at the margins of the profits and the outputs of the e;isting firms/ but at their foundations and their ver, lives. Case5- Bo!de!s 'n "##$! /orders! the dominant bookseller in the 3nited 8tates! refused to sell books online because its leadership feared cannibali6ing store sales for cheaper! online sales. 0leven years later! /orders was cannibali6ed! but not by its online sales? /orders market share was swallowed by *ma6on.com. Case6- Le-San#* @ux9s market standing was being threatened by the soon to be launched Camay from the house of 7odre; to be marketed by A7. =3@ then launched @e- 8ancy to counter Camay9s attack. INNO/ATION AND CANNIBALIZATION0 The effects of radical product innovations are not uniforml, positive or straightfor.ard. Such innovations have the potential for three important effects as the, relate to e;isting markets* a1 market e;pansion b1 cannibali+ation and c1 destabili+ation. In such a case of cannibali+ation the element is sales cannibali+ation/ .hereb, innovations take a.a, sales from the firms e;isting products in the categor,. %nother element is the cannibali+ation of speciali+ed investments/ .hereb, innovations reduce the value of investments that are tied to e;isting products. Innovating firms have to incorporate the potential for cannibali+ation in their decision5making leading up to the introduction of an innovation. irms .ith higher levels of market dependence are most likel, to introduce a radical product innovation if the, e;pect enough market e;pansion to compensate for the cannibali+ation of e;isting products. $annibali+ation of sales does not have to lead to radical innovation. 4hile organi+ations ma, decide to replace sales from an e;isting product b, sales from radical innovation/ the, ma, also decide to replace them b, introducing incremental product innovations/ i.e. innovations that improve/ adapt or e;tend the currentl, available product/ such as product modifications/ product line e;tensions or product repositioning. The risk of cannibali+ation is a ver, real threat for man, ne. product launches and that the risk becomes even more significant if the ne. product is launched under the same brand name as an e;isting product. 78EN DOES CANNIBALIZATION A..ECT PRODUCT LINE DESIGN9 Products
.ithin a product line are partial substitutes/ and consumers
can self5 select the products the, .ant to purchase/ multi5product
firms have to carefull, consider the cannibali+ation problem
in designing their product lines. If lo.er5:ualit, products
are sufficientl, attractive/ higher5valuation consumers ma,
find it beneficial to bu, lo.er5:ualit, products rather than the higher5:ualit, products targeted to them. That is/ lo.er5:ualit,
products can potentiall, cannibali+e higher5:ualit, products.
The cannibali+ation problem forces the firm to provide onl,
the highest5valuation segment .ith its preferred 0efficient1
:ualit,. %ll other segments get :ualities lo.er than their preferred
0efficient1 :ualities. 4hen the cannibali+ation problem is ver, severe/ the firm ma, not serve some of the lo.est5valuation
segments.
$annibali+ation is not al.a,s bad/ deliberate cannibali+ation can be a ke, element of product strateg,. Intra5brand shifts ma, not necessaril, be undesirable if the,re a form of preemptive cannibali+ation. In other .ords consumers might have s.itched to a competing brand instead of the line e;tension if the e;tension hadnt been introduced. E;tending a product line ma, cause cannibali+ation not onl, through self5 competition for market share but also for the limited resources of the compan, itself. $annibali+ation ma, also lead to the ineffective and inefficient use of compan,s resources and personnel. $annibali+ation starts as soon as the consumer e;hibits brand s.itching behaviour/ or even before that. Case:- ;a!$ti Zen 'n +%%B 2aruti Cen9s market had gradually started disappearing. 'ts falling sales! which were cannibali6ed by 2aruti's newer models like the 8wift! *lto and the Wagon-D! are making 2aruti to consider stopping production of their once best seller / segment car. This may not come as a surprise to most. /eing one of the older cars on the road! Cen was getting out-dated! and the newer models of 2aruti cannibali6ed the sales of Cen. 't was spruced up to a new look in the year end +%%,! but that was not sufficient. CANNIBALIZATION AND T8E TI;ING O. PRODUCT INTRODUCTIONS0 % seller .ho faces t.o customer segments .ith differing
valuations of :ualit, of a durable product .hose demand is stationar,
and kno.n/ the technolog, e;ists to release t.o products simultaneousl,/
and the seller can commit in advance to subse:uent prices and
:ualities. 3e needs to decide .hether to introduce t.o differentiated products at
once or one at a time. #nder the simultaneous strateg,/ the
lo.er :ualit, .ould cannibali+e demand for the higher :ualit,.
To reduce cannibali+ation/ the seller .ould have to lo.er the :ualit,
of the lo.5end model and reduce the price of the high5end. %lternativel,/
he could increase the :ualit, of the lo.5end model/ but dela, its release. Se:uential introduction/ ho.ever/ .ould mean that
the profits from the lo.5end model arrive later. 4e sho. that
se:uential introduction is better than simultaneous introduction
.hen cannibali+ation is a problem and customers are relativel,
more impatient than the seller. 3o.ever/ .hen the seller cannot
pre5commit/ se:uential selling is much less attractive because then he cannot use his product designs to alleviate cannibali+ation. irms need to recogni+e that cannibali+ation is not al.a,s avoidable. %fter all/ competing companies might have entered the market .ith a similar product and taken these sales an,.a,/ even if the ne. product had not been introduced. Case<- Ai!1$s The entry of the *irbus *,&% in +%%- was expected to toughen the price competition and reduce the /oeing $E$9s market share! but the cannibali6ation of the *,,% and the *,E% was even greater Falthough *irbus9 aggregate share! including the *,&%! increasedG. 'usinesses still vie. cannibali+ation as the most dreaded issue but there is a counter to it. =an, businesses believe the, must cannibali+e their o.n products or the competition .ill do it for them. You can counter cannibali+ation b, making ,our older products uni:ue and desirable to e;tend their product life c,cle. =an, companies cannibali+e their o.n products at some time in the future. You can definitel, create ,our o.n little product niche from older products to counter cannibali+ation. Your older products can be reduced tremendousl, in price to make it cheap and affordable. This .a, ,our old products can capture the lo. income consumers .hile the latest products can capture the high income consumers. $ounter cannibali+ation b, making ,our older products special again. You can reduce the old products price tremendousl, to tap a ne. market or make them uni:ue again. =ake ,our old products popular b, making it cheap/ reliable and uni:ue in order to e;tend the product life c,cle. If ,ou can do it/ there is little to no cannibali+ation because ,our old products are capturing a ne. market. =ake ne. products niche from original products to counter cannibali+ation. Old products can tap a ne. market .ith ?ust a little innovation. Case=- TIDE Tide .as launched .ith much fanfare in @AAA. Tide .as launched as a premium brand. PBC had a serious problem because there .as a chance of cannibali+ing bet.een %riel and Tide because there .as no significant differentiation bet.een the t.o brands. PBC had to come up .ith a ne. strateg, through .hich Tide aimed to capture the safedi segment .hile %riel .ould fight Surf in the $olor segment. 3ence/ in conclusion it can be said that market cannibali+ation can .ell be a ne. product strateg, .herein old products arent doing ver, .ell and sales and profits of the old product are declining or being threatened b, another pla,er in the market. It is a more effective attacker strateg, and is not advisable for a market leader under normal circumstances .hen its products are still doing .ell. BIBLIOGRAP8Y Books: D. =arketing =anagement 5Philip Eotler Internet: 1. http*22books.google.co.in2booksF idGpD;vYvt#HmI$Bd:Gproduct8strateg,8for8high8technolog,8com paniesBprintsecGfrontcoverBsourceGblBotsGhcpkJHK$.;BsigG&mE= I4uCA#J5 iSp?L@&MpaN'kABhlGenBsaGJBoiGbookLresultBresnumG3BctGresult OPP%@MN/=D 2. http*22mansci.?ournal.informs.org2cgi2content2abstract23N2323PM 2. http*22....investopedia.com2ask2ans.ers2AN2market5cannibali+ation5 coke5cola5.ars.asp 3. http*22marketingdeviant.com2 4. http*22....emeraldinsight.com2Insight2vie.$ontentItem.doF contentT,peG%rticleBhd%ctionGlnkpdfBcontentIdGNMQK@A 5. http*22mktsci.?ournal.informs.org2cgi2 6. http*22....people.hbs.edu2best,2Est,L%irbusL'oeing.pdf
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