What Is Market Cannibalisation – And How Should You Deal With It?
When you run a business, one of the most important things to think about is your competition. Regardless of how unique one’s business model may be, there will always be other companies going in the same direction as yours.
So, basically, it’s hard enough to do business with others, even without competing against yourself! Nevertheless, many businesses are doing just that. This is market cannibalisation.
What Is Market Cannibalisation?
Market cannibalisation is when introducing a new product into the range of products in business leads to loss of sales of previously manufactured or distributed items. The fact that such a phenomenon occurs simply because the features of this new item are common with those for an existing product – or more than one – and it is also bound to excite interest from old buyers.
In like manner, can market cannibalization take place when there are several brands belonging to the same chain which operate within close proximity? Normally this is because growth in sales figures happens on account of these products while company’s bottom line does not grow and its market share remains unchanged.
How Bad Can It Be?
However, market cannibalization doesn’t only affect one company’s bottom line but also has an impact on other firms – notice the word ‘market’ before ‘cannibalization’. For instance car dealerships (which are among the biggest culprits for cannibalizing) can cause a problem for every firm in that area including distributorships who rely on dealer incentives as part of their own profitability improvement strategy.
How Should You Deal With Market Cannibalisation?
If you have concerns regarding market cannibalisation; then there are various things which you can do so as to avoid it. To begin with, if you plan to launch a new product you must focus heavily on branding. As an example if you release a product that looks similar to an old product; which is at the highest risk of cannibalization – this is seen through placement and pricing.
Also, use dealerships and channel partners when you are working as you can place your products in more than one spot. Another critical thing to do is arrange face-to-face meetings with channel partners and dealerships so that you get a sense of how things are going with the products and develop a well-calculated plan for avoiding any disruptions.
How Should You React If You Are Cannibalised?
Market cannibalisation actually has some upsides, for those businesses such as Apple or Samsung that actively seek to cannibalise their own products. As Steve Jobs rightly observed, “if you don’t cannibalize yourself then someone else will”, underlining the significance of change and rejuvenation for businesses who want to remain relevant in their industry. Nonetheless, it does not end up well for most companies engaged in cannibalization; thus it remains important that managers are mindful of this issue and strive as much as they can either to keep it in check or eliminate it entirely.
