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CANNIBALIZATION-PRODUCT STRATEGY

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 $olor segment.
3ence/ in conclusion it can be said that market cannibali+ation can .ell be a
ne. product strateg, .herein old products arent doing ver, .ell and sales
and profits of the old product are declining or being threatened b, another
pla,er in the market. It is a more effective attacker strateg, and is not
advisable for a market leader under normal circumstances .hen its products
are still doing .ell.
BIBLIOGRAP8Y
Books:
D. =arketing =anagement 5Philip Eotler
Internet:
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idGpD;vYvt#HmI$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