Market cannibalism has often been put into the spotlight because of the huge risks involved. However, it has proven to be quite effective for a lot of big brands, which probably makes you wonder whether the risks are actually worth it.
Basically, market cannibalism involves either cutting product prices drastically, or pushing a new product that will not only eat up a new market sector, but possibly, the market share of the same brand’s current products. In other words, it’s like competing with your own products.
This is where the debate starts. Is market cannibalism a good approach, or a bad one?
One of the biggest advantages of market cannibalism is the fact that you are risking taking away the existing following of one of your older products. Clorox is a great example of this, as sales for their original product dramatically decreased the moment they introduced their line of laundry detergents. And who wouldn’t make the switch? Their laundry detergents already had bleach in them, making it a more practical choice. Of course, anytime your share of the market is taken away, that would be counted as a loss on your part.
Path to Growth?
Would you believe me if I told you that this loss in market share could still result to something good? This is where the huge advantage of market cannibalism steps in.
Let’s run a few numbers.
Let’s say Product A has been giving you $50 in profit for every product sold. Sell 10,000and that’s an automatic profit of $500,000. When you introduced Product B to the market, you sold 5,000 units right away, with each of them giving you $100 in profit a piece. That’s an additional $500,000!
Here’s the problem, though. When you introduced Product B, sales for Product A immediately declined. Where you used to sell 10,000 units on a monthly basis, now, you only sold 5,000 units. That’s half of what you used to sell!
But if you look at the bigger picture, this is not a loss of $250,000. Remember that you gained new customers through Product B. Now, you have $750,000 in total profit, a clear increase of $250,000.
This basically explains the biggest advantage of market cannibalism. You may have released products that competed with your own existing products. But by doing so, you do not just sell to your existing market, you also cover a much larger one that your old product may not have captured.
Tried, Tested and Proven
A lot of brands have tried it, and they have proven that market cannibalism really works.
One great example is Coca-Cola. Back in the 80’s, the soda giant decided to create Diet Coke, which is, in itself, a form of market cannibalism. After all, not only will they be offering a healthier option for those who never really patronized Coke before because of health concerns, they are also threatening to take away a percentage of the existing Coke drinkers.
But all’s well that ends well. Today, Coke continues the practice of cannibalism by introducing new flavors to their customers – Vanilla Coke, Cherry Coke, and a lot more. Though they may be diverting attention from their existing products to their new ones, they are also gaining new customers in the process.
KitKat is another example of a brand that has profited greatly from market cannibalism. Sure, there was a strong market for the original KitKat. However, they have yet to capture the heart of those who preferred thicker chocolate bars, which offered a lot more chocolate. What did KitKat do? They created a chunkier option, which caused in a decline in sales for their original KitKat. What’s interesting is the fact that these people merely switched to the newer version of the KitKat, adding to the new market that they conquered – those who preferred traditional chocolate bars over the thin chocolate-covered wafers. So all in all, KitKat still emerged as a winner.
What do all these tell us? Well, market cannibalism can definitely be very damaging to a business. It has the capacity to wreck any business in a snap. However, just like any other marketing approach, it can work to your advantage if the planning and execution are done seamlessly.