What Is Market Cannibalisation – And How Should You Deal With It?
One of the most important things to consider when you’re running a business is your competition. No matter how unique your business model is, there will always be a number of other companies who are going down the same route as you.
In other words, business is hard enough competing against others, without having to compete against yourself! But for many businesses, this is what they are having to do, and it all boils down to market cannibalisation.
What Is Market Cannibalisation?
For those unaware, market cannibalisation happens when a business introduces a new product into its range, and the new product results in the loss of sales for their previous products. This happens when the new product shares similar traits to the existing product – or products – and is bound to share the same interest from existing customers.
Similarly, market cannibalisation can happen when a chain business loses its clients due to a similar brand that begins to operate in the same area. Typically, both cases are capitalised by the new products experiencing sales growth, while there is no increase to the company’s bottom line or market share.
How Bad Can It Be?
As well as a single company’s stagnant bottom line, market cannibalisation can also have a knock-on effect on other businesses – note the term market cannibalisation. For car dealerships – which are one of the main markets to fall foul of cannibalisation – it can cause issues for every business in the area, as well as distributing companies that depend on dealer incentives to improve their own bottom line.
How Should You Deal With Market Cannibalisation?
If you are concerned about the impact of market cannibalisation, there are certain things you can do to avoid it. For starters, if you are releasing a new product, you need to spend a large amount of time focusing on the branding. For example, if you release a product that is similar to an existing product, it is the placement and the pricing that will prove the highest risk for cannibalisation.
As well as this, if you’re working through dealerships and channel partners, you need to make sure you spread the net and place your products into several areas, rather than just one. Meeting channel partners and dealerships face to face is also crucial, as you can get a feel for how products are performing, and can work out a careful plan to avoid any disruption.
How Should You React If You Are Cannibalised?
It’s important to note that market cannibalisation is not always a bad thing, with some businesses like Apple and Samsung actively working to cannibalise their products. In the words of the late Steve Jobs, “if you don’t cannibalise yourself then someone else will”, echoing the importance of change and renewal for businesses looking to stay relevant in their own market. That being said, cannibalisation doesn’t work out well for a lot of businesses, so it is crucial that you remain aware of the problem, and you do what you can to control or completely prevent it.
