Market cannibalization is a phenomenon observed in companies where a new product or service encroaches on the sales and revenue of an existing product or service. The term is often used to describe a situation where resources, particularly customers and revenue, are redirected from one product to another within the same company.
The concept of market cannibalization is often found in highly competitive markets, where the battle for share is intense. In this case, a company may launch a new product with features similar to those of its existing products, with the aim of outperforming competitors. This can lead to a division of the market between the two products of the same company.
The conversion rate is then affected by market cannibalization. If a promotion on one product attracts a lot of customers, but diverts them from another, more profitable product, the conversion rate for the latter may decrease.
That said, market cannibalization isn't always negative. In some cases, it can be a deliberate strategy to eliminate an old product or to dominate a market segment by saturating the offer.
For example, in the field of technology, a company may launch a new version of a smartphone, knowing full well that this will affect sales of the old model. The objective here might be to stay at the cutting edge of innovation and respond to changing consumer demands.
The strategy is the same whether on ecommerce pages or directly in store: in the context of point-of-sale (POS) marketing, cannibalization can also occur with the help of advertising resources and visually appealing ads. If the company uses POS marketing techniques in catchment areas to promote a low-cost model, customers may be tempted to choose this model with lower pricing located in the same area as other, more expensive models, which could lead to a drop in sales of the latest top-of-the-range model.
Managing market cannibalization is complex and requires analysis of sales data, consumer behavior, and market trends. Comprehensive market research, predictive models, and scenario analysis can help to understand the long-term consequences of cannibalization on company profitability. Companies can consider various strategies, price adjustments, or targeted marketing campaigns to minimize the effects of cannibalization.
