Cannibalisation

What is it?

Cannibalisation is the term used when one product or service competes with another within the same company.
Cannibalisation will destroy value if the products or services compete directly head-to-head. However, a limited degree of overlap can be a deliberate strategy – there is a well-used saying “better to cannibalise yourself than let someone else do it”. P&G adopted the famous “fighting brands” model in the 1930, with brands like Tide and Cheer. They have separate brand positionings, but at the margin cannibalise each other. P&G accepts this small degree of cannibalisation in order to minimize the space for competitors in the market and not put its brand managers in too tight a strait-jacket.

When is it useful?

You need to consider cannibalisation whenever you launch a new product range

At a strategic level, it is often wise to ignore cannibalisation. If there is an economic hole in the market, it will be filled, the only question is when and by whom. This become less true when the products will compete for bottleneck internal resources – e.g. the time and attention from the same salesforce.

When making a new product launch, cannibalisation can be minimised by:

  • Targeting different segments of customers
  • Have products with very different positioning and value proposition
  • Using a different brand
  • Using different routes to market

An Example?

When Apple launches a new iPhone, it cannibalises the old model even before it launches as customer hold back purchases in expectation of the new launch.

How do you do the analysis?

Cannibalisation can be estimated in tactical decision-making, for example in evaluating whether to a promotion in a specific retailer, you can estimate how much of the uplift in sales will be cannibalised from:

  • Other similar products in the range
  • The same product that would have been bought in other retailers
  • Future sales of that product in that retailer
The numbers will always work if the new product has higher margins than the old model. The pushback will come when the new model is at lower margins. This is one of the reasons it is much easier for a company to move upmarket than downmarket

I want to know more

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