product cannibalization case study

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Detection and Analysis of Factors Impacting Product Cannibalization

Written By: Sudeshna Ghosh

In the fast-paced world of business, understanding the dynamics of product cannibalization is imperative for sustained success. With consumer preferences constantly shifting and product portfolios expanding, businesses face the challenge of optimizing their offerings without inadvertently cannibalizing sales of existing products.  

In response to this challenge, Quantzig, a pioneering analytics firm, presents a groundbreaking approach to detecting and analyzing factors impacting product cannibalization through its Time Series Cannibalization Modeling methodology. By illuminating the dynamics of product cannibalization and providing actionable insights, our analytics experts equip B2B clients with the tools necessary to navigate this complex landscape, make informed decisions, and sustain market competitiveness. Through this case study, we aim to unravel the in-depth knowledge of product cannibalization and showcase Quantzig’s unparalleled expertise in addressing this critical aspect of modern business strategy. 

We offer Product Cannibalization Analytics Dashboard Solutions, an advanced and comprehensive platform for businesses seeking to navigate the complexities of product cannibalization. Leveraging cutting-edge analytical techniques and robust data management frameworks, our solutions provide actionable insights into the phenomenon of product cannibalization within a company’s portfolio. 

Book a demo to experience the meaningful insights we derive from data through our product cannibalization analytical tools and platform capabilities. Schedule a demo today!    

What is Cannibalization Analysis and How Can Businesses Leverage It?

Cannibalization analysis involves evaluating the impact of a new establishment or location on nearby existing businesses. Its primary objective is to assess whether the introduction of the new entity will draw customers away from the existing ones, potentially resulting in a decrease in revenue. This type of analysis holds particular significance for businesses operating multiple locations, as it facilitates informed decision-making regarding expansion, relocation, or closure. By leveraging insights gained from cannibalization analysis, businesses can efficiently allocate resources and maintain a competitive edge over rivals. Incorporating terms such as overstocks, markdowns, product mix, and sales strategy into this analysis can enhance its effectiveness. Moreover, utilizing predictive analytics, AI-powered analytics solutions, and advanced analytics solutions can provide deeper insights into market dynamics and assist in optimizing pricing strategy, assortment strategy, and inventory management. Establishing functions like Cannibalization Data function and Cannibalization Overlap function can streamline data collection and analysis processes, further aiding decision-making. Additionally, integrating market share analysis and omnichannel strategy into cannibalization analysis can ensure a comprehensive understanding of the competitive landscape and customer behavior across various channels.

1. Spatial Dynamics and New Locations:

The advent of 5G technology has revolutionized spatial dynamics, enabling businesses to explore new locations seamlessly. When considering the establishment of new points of sale (POS) or expanding existing ones, businesses must carefully analyze their geographic footprint and catchment area. Utilizing advanced spatial analysis tools can help in preprocessing data related to population density, urbanity levels, and existing competitors. By assessing these factors, businesses can strategically position themselves to avoid cannibalization and identify areas with untapped potential.

2. Retail Module and Data Function:

Implementing a robust retail module that incorporates a data function is essential for effective decision-making. Input datasets, including market share analysis and One Stop Shopping trends, should be integrated into the system. The overlap function can then be utilized to identify potential conflicts among existing merchants. Blue lines and category widgets can visually represent these overlaps, aiding businesses in crafting an omnichannel strategy that minimizes cannibalization and optimizes market share.

3. Market Research and Customer Base Analysis:

In-depth market research is pivotal in understanding customer behavior, preferences, and the competitive landscape. Businesses should focus on analyzing their customer base, chain store performance, and the impact of fast-food outlets and competitors. The cannibalization rate, a key metric in this analysis, helps in quantifying the extent to which a new service or location may draw from existing sales. By conducting comprehensive testing and gathering data on market share, businesses can tailor their marketing and advertising campaigns to attract a broader audience without compromising the bottom line.

Strategic Approach for Product Cannibalization Success

In today’s rapidly evolving market environment, where innovation is constant and consumer preferences evolve swiftly, mastering strategies to address product cannibalization is imperative for sustaining growth. Successfully managing cannibalization requires a nuanced approach that balances innovation with market cannibalization to ensure long-term success and market dominance.

• Omnichannel Strategy: Embrace an omnichannel strategy that seamlessly integrates online and offline retail channels, offering customers a cohesive shopping experience. This approach mitigates the risk of cannibalization by leveraging the strengths of each channel.
• Corporate Cannibalism Awareness: Businesses should be vigilant about corporate cannibalism, where products within the same brand portfolio compete with each other. Strategic positioning and differentiation can help minimize internal competition and optimize overall sales.
• Investor Communication: Stock analysts and investors play a crucial role in the success of retail businesses. Providing transparent insights into short-term profits, marketing strategies, and efforts to mitigate cannibalization helps build investor confidence and support.

Incorporating terms such as overstocks, markdowns, product mix, and sales strategy into cannibalization analysis can enhance its effectiveness. Moreover, leveraging predictive analytics, AI-powered analytics solutions, and advanced analytics solutions can provide deeper insights into market dynamics and assist in optimizing pricing strategy, assortment strategy, and inventory management.

Establishing functions like Cannibalization Data function and Cannibalization Overlap function can streamline data collection and analysis processes, aiding decision-making. Additionally, integrating market share analysis and omnichannel strategy into cannibalization analysis ensures a comprehensive understanding of the competitive landscape and customer behavior across various channels.

Quantzig Case Study

Working with a major  FMCG retailer  based out of the United States, Quantzig was able to rapidly deliver a measurement framework for analyzing the promotions and discounting strategies that impact the sales of existing products.

The retail cannibalization analysis framework not just empowered them to gauge the promotions and the ROI generated from various categories but offered a unified view of its impact, thereby offering deeper insights into customer buying patterns and cross-product cannibalization. The new framework also improved data capture, data preprocessing, created geographic footprint, and offered significant benefits by driving sales and aiding product launch benchmarking.

The FMCG industry is a competitive one and in the modern retail environment the effective exploitation of data is turning out to be crucial for the success of a product launch. Although FMCG retailers or grocery merchants have pioneered the concept of capturing and analyzing data, information from several key areas within the FMCG industry remain unanalyzed as it extends beyond the control and capabilities of FMCG retailers. Another factor that determines success within the FMCG space revolves around analyzing promotions and discounts. As factors such as social media and digitization alter the way consumers spend, FMCG retailers are now looking for ways to drive outcomes by analyzing the impact of their marketing efforts using advanced statistical techniques.

However, the practices known to FMCG retailers lag behind when it comes to identifying information sources that can bring in a huge impact. Also, it has been observed that the next generation of FMCG retailers will be those who can leverage FMCG analytics to bring about a huge impact on their overall business operations.

Experience the advantages firsthand by testing a customized complimentary pilot designed to address your specific requirements. Pilot studies are non-committal in nature. 

The Business Challenge

In the fiercely competitive landscape of Fast-Moving Consumer Goods (FMCG), our client, a prominent retailer in the United States, grappled with a daunting sales decline attributed to cannibalization. The intricacies of their challenges became apparent through a meticulous analysis, exposing inaccuracies in categorization and the absence of a robust retail cannibalization analysis framework. Recognizing the urgency to mitigate these issues, the client turned to Quantzig, inspired by insights gained from our experts’ illuminating webinar.

Key Challenges:

• Sharp decline in sales linked to cannibalization: The client encountered a significant decrease in sales, directly attributed to product cannibalization within their portfolio. This phenomenon occurs when the introduction of a new product negatively impacts the sales of an existing one within the same category. 
• Inaccurate categorization contributing to sales challenges: The client faced difficulties stemming from inaccurate categorization of products, which exacerbated sales challenges. Incorrect classification hindered effective analysis and decision-making, leading to suboptimal outcomes. 
• Lack of a robust analysis framework: The absence of a robust analysis framework hampered the client’s ability to discern the underlying factors driving sales declines and to formulate targeted strategies to address them. 

Quantzig’s Approach:

In today’s fast-paced consumer goods industry, staying ahead of the curve is paramount. With ever-evolving consumer behaviors and market dynamics, businesses must leverage advanced analytics to gain precise insights and drive informed decisions. This is where Quantzig, a leading analytics firm, shines with its innovative approach to Fast-Moving Consumer Goods (FMCG) analytics. 

• Leveraging FMCG Analytics for Precise Demand Insights: Our innovative approach begins with harnessing the power of FMCG analytics to gain in-depth insights into demand transference dynamics. By thoroughly analyzing consumer behaviors and preferences, Quantzig’s team uncovers patterns of product substitution and cannibalization. Armed with these insights, clients can make informed decisions, ensuring their offerings align seamlessly with market demand. 
• Developing a Comprehensive Analysis Framework: At the heart of our success lies its ability to develop tailored analysis frameworks. These frameworks are not one-size-fits-all but are instead crafted to meet each client’s specific needs. By integrating advanced statistical methodologies and cutting-edge data visualization and data preprocessing techniques, our experts facilitate in-depth exploration of sales trends, product relationships, and market dynamics, empowering clients with actionable intelligence. 
• Mitigating Challenges and Optimizing ROI: One of the key challenges faced by FMCG businesses is managing out-of-stock issues while maximizing return on investment across product portfolios. We address this challenge head-on by implementing strategies derived from insightful analysis. By aligning inventory levels with demand patterns and refining product positioning strategies, Quantzig helps clients enhance sales performance and gain a competitive edge in the market. 

Client Impact:

• Significant reduction in sales cannibalization.
• Enhanced accuracy in categorization.
• Proactive management of out-of-stock issues.
• Improved ROI across diverse portfolios.

By aligning with Quantzig, the client not only addressed their immediate sales challenges but also gained a strategic edge over competitors in the FMCG sector. Our tailored approach to retail cannibalization analysis proved instrumental in revitalizing their sales strategies and fostering sustainable growth.

Get started with your complimentary trial today and delve into our platform without any obligations. Explore our wide range of customized, consumption-driven analytical solutions services built across the analytical maturity levels. 

Solution Offered by Quantzig:

Challenges breakdown:.

Quantzig’s FMCG analytics experts employ a systematic approach to address complex challenges, breaking them down into three distinct components and interconnecting them through a streamlined yet robust coordination layer. This breakdown enables the development of a comprehensive framework tailored to the client’s needs, empowering them to effectively assess demand transference and their direct implications on overall ROI. By dissecting challenges and establishing connections between them, we ensure that clients gain actionable insights and make informed decisions to drive sustainable growth and success in the dynamic FMCG market. 

Enhancing Sales Execution Levers:

Enhancing sales execution levers is crucial for maximizing profitability and staying ahead in the competitive FMCG landscape. Quantzig’s approach begins with pricing optimization, where in-depth analysis is conducted to fine-tune pricing strategies, ensuring maximum return on investment. Through strategic adjustments to promotional activities, our team enables clients to target the right audience at the right time, driving sales and brand visibility. Furthermore, distribution optimization plays a pivotal role, as we help enhance distribution strategies to optimize portfolio ROI, ensuring products reach customers efficiently and effectively.

Time Series Cannibalization Modeling:

Time Series Cannibalization Modeling is a cornerstone of Quantzig’s analytics strategy, enabling businesses to navigate complex market dynamics with precision. Through an exhaustive Historical Data Dive, our analytics experts conduct in-depth analysis of historic sales data sets, uncovering invaluable insights into market trends and consumer preferences. Leveraging advanced Pattern Recognition techniques, we identify recurring sales patterns, allowing businesses to anticipate market fluctuations and adapt strategies accordingly. Moreover, through rigorous Customer Behavior Analysis, we provide deeper insights into customer buying behavior across categories, facilitating targeted marketing efforts and product positioning. Finally, our accurate Bounce-Back Rate Assessment enables businesses to gauge the implications of product launches on marketing efforts, empowering informed decision-making and ensuring sustained growth in the competitive FMCG sector. 

Quantzig’s Proprietary Solutions:

Our proprietary solutions offer unparalleled depth and precision in addressing key challenges faced by FMCG businesses. Through Advanced Time-Series Models, our team leverages proprietary techniques to provide comprehensive analysis of product cannibalization dynamics, enabling clients to make data-driven decisions with confidence. Historical Pattern Identification uncovers recurring trends and behaviors within historic sales data, offering valuable insights for strategic planning and forecasting. Moreover, our expertise in Customer Behavior Insights allows for a nuanced understanding of consumer preferences and purchasing patterns, informing targeted marketing strategies and product development initiatives. Additionally, with Bounce-Back Precision, our experts accurately assess the impact of product launches on marketing efforts, facilitating agile adjustments and maximizing ROI. Together, these proprietary solutions empower clients to navigate the complexities of the FMCG landscape and achieve sustainable growth and success. 

Strategic Tweaks for Maximized ROI:

Our strategic tweaks for maximizing ROI encompass a holistic approach to optimizing various facets of FMCG operations. Through optimized pricing strategies, we fine-tune pricing mechanisms to align with market demand, driving enhanced portfolio ROI. Strategic promotional adjustments ensure promotional activities are finely tuned to resonate with target audiences, amplifying their impact and bolstering ROI. Furthermore, distribution optimization involves refining distribution strategies to ensure products reach consumers efficiently, thereby maximizing overall ROI. By implementing these strategic tweaks, we empower businesses to navigate the complexities of the FMCG landscape with precision, driving sustainable growth and profitability. 

Quantzig’s holistic approach empowered the client to not only comprehend the complexities of market cannibalization but also strategically tweak sales execution levers for maximum ROI and POS (points of sale). By leveraging advanced time-series modeling, recurring patterns were identified, providing deeper insights into customer behavior and bounce-back rates post-product launches. This comprehensive omnichannel strategy enabled the FMCG retailer to make informed, data-driven decisions, maximize the impact of their marketing efforts, and stand out from their competitors.

Value Delivered

The devised cannibalization framework empowered the FMCG retailer to:

• Devise a roadmap to gauge demand transference within product portfolios
• Estimate sales impact results with bounce-back rates
• Design data-driven pricing and promotional strategies to drive sales
• Leverage time-series cannibalization modeling to gauge the real dollar impact of new product launches on the existing products
• Accurately model the short- and long-term implications of new launches on the generated ROI

In conclusion, effectively navigating the dynamic landscape of product cannibalization demands a thorough grasp of spatial dynamics, retail modules, and market research. Quantzig’s product cannibalization analytics provide B2B clients with a transformative solution to tackle the intricacies of modern markets. Through the utilization of advanced methodologies like Time Series Cannibalization Modeling, our analytics experts deliver invaluable insights to optimize strategies and maintain competitiveness. By prioritizing the understanding and mitigation of product cannibalization impacts, businesses empower themselves to make informed decisions that fuel growth and profitability.

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• Demand planning

Product Cannibalization: Definition, Examples & How to Avoid It

Product cannibalization isn’t always scary. In fact, some retailers intentionally cannibalize their products to stay competitive. Here’s how.

Every direct-to-consumer (DTC) brand wants to launch new products that’ll take customers away from the competition. But as great as that sounds in theory, the reality is that sometimes DTC brands steal sales from themselves — otherwise known as product cannibalization.

What is product cannibalization?

Product cannibalization is the loss of sales caused by a new product pulling demand away from an existing one.

But here’s the thing: Every time you launch a new product , that new product will likely displace your existing products to some degree. (The only exception is if you introduce a totally new product line.)

Many times, this hurts your company’s cash flow. That’s because sales for your older SKUs disappear. But, any remaining units of that SKU continue tying up capital until they’re sold. And if left unattended, that leftover inventory can easily turn into expensive dead stock .

Some retailers get around this pitfall by intentionally using product cannibalization to stay competitive. But to do this, these brands adjust their inventory levels accordingly, so they’re not stuck stocking an item people no longer want (more on this in a bit).

Examples of product cannibalization

Product cannibalization happens all the time in the world of retail. Sometimes it’s deliberate (like when Apple and Coca-Cola introduce new products), and sometimes it’s not (Kodak is notorious for this).

Apple is the case study in product cannibalization. For decades, it’s proactively self-cannibalized to improve its products and prevent other tech companies from dethroning the brand.

You might even remember when Steve Jobs said :

“ "If you don't cannibalize yourself, someone else will." 

Because of this philosophy, smart self-cannibalization has always been at the heart of Apple’s business model. After all, remember when Apple released the first iPhone?

It was back in 2007, at the height of the iPod’s popularity. Still, Apple released the iPhone, knowing full well that it would render the iPod useless.

But while sales of the predecessor diminished, the new iPhone attracted tons of new customers (at a much higher price point). This kept Apple way ahead of its competitors.

To this day, the latest iPhone models continually make older iPhones obsolete. And yet, Apple annually releases another new version, selling millions of iPhones every year and remaining a market leader.

In 2021, for example, Apple generated over $365B in revenue – $191.9B (52%) came from iPhone sales alone.

Back in 2006, Coca-Cola rolled out a new product to the UK market: Coke Zero.

This Diet Coke alternative aimed to attract male consumers concerned about obesity. (This drink was even nicknamed “Bloke Coke” because of its bid to the British male demographic.)

Coca-Cola knew Coke Zero would take sales away from its female-focused Diet Coke. But in exchange, it would draw in a new demographic: health-conscious male shoppers ages 18-25.

The net effect? Lots of sales growth. Coke Zero became Coca-Cola’s biggest UK launch since Diet Coke was introduced more than 20 years prior. In its first 16 weeks on the market, the soda giant recorded “an increase in sales in excess of £24 million.”

Since then, Coca-Cola has continued to cannibalize its signature products with new flavors like Coca-Cola Cherry and Coca-Cola Vanilla. All of which have taken sales away from other product offerings.

Still, Coca-Cola is continuing to grow. In 2021, it raked in $38B in net operating revenue worldwide. The brand raked in $5B more than the previous year (2020).

Unlike Apple and Coca-Cola, Kodak’s market cannibalization wasn’t intentional.

In 1994, Kodak introduced its 1st economy-brand camera, Kodak Funtime, to compete against other low-cost rivals.

The camera was successful at the expense of the brand’s more profitable film offerings. So, the worried brand decided to limit Funtime film availability to the spring and fall (making it unavailable during the peak summer and holiday buying seasons).

This strategy, of course, backfired. Kodak customers started substituting their Gold Plus film purchases with cheaper products (even if it meant switching to a competitor).

And long story short, Kodak eventually canceled its Funtime film to protect its core product line. But the damage was already done.

Kodak Funtime is a good lesson in what happens when you don’t properly prepare for cannibalization, leading new products to cost the company revenue rather than increase sales.

Unfortunately, Kodak didn’t learn from this mistake. The brand would continue to make poor business decisions, allowing competitors to come in and cannibalize its products. (Kodak filed for bankruptcy in 2012 as a result.)

🤿 Dive deeper: Why Kodak is seeing a comeback despite years of market cannibalization.

The 4 most common causes of product cannibalization

No matter what you sell or who you’re selling it to, you need to be aware of potential triggers that can lead to the cannibalization of your product catalog. This includes launching similar SKUs and targeting the same audience.

1. Launching similar new products

Say your newest product looks a lot like your older ones ( and has similar functionalities). Then, there’s a chance you’ll attract the same customers, creating cannibalization.

That’s because, without obvious new features or a reimagined aesthetic, you don’t have a product assortment. You have multiple versions of the same products.

When this happens, you’re splitting demand between 2 seemingly viable (and comparable) options. So, most customers will adopt the “new is always better” psychology, where they perceive new products as superior or more valuable.

As a result, they’ll opt for the latest version, pulling sales away from your existing products — rather than buy both.

2. Targeting the same audience

Just like launching similar products is a recipe for product cannibalization, so is targeting the same audience.

When you gear a new SKU toward the same customer base as an existing one, you’ll ultimately divide customer demand.

That’s because most customers are working with a limited discretionary fund. So, they likely can’t afford to buy all the products you’re marketing to them.

Meaning, rather than buying your new product and your older inventory (like you might expect), customers will choose whichever one they like best. If everyone shares a similar opinion, a few SKUs might be cannibalized.

3. Lower prices of comparable products

Careful: Lower-priced products can quickly steal sales from your higher-priced offerings. Particularly if there’s not much difference in features, functionality, or quality.

For instance, say you sell water bottles. You recently increased the prices of your higher-quality stainless steel bottles.

As a result, your aluminum bottles are now remarkably cheaper, despite holding similar volumes and looking virtually the same. In that case, you can bet customers will opt for the aluminum version. And as you can imagine, this can seriously hurt your profits longterm.

This type of cannibalization is especially common for products that people tend to lose or often replace (like sunglasses). The more frequently customers purchase this item, the more likely they will opt for a cheaper and cheaper replacement. Meaning, you’ll miss out on more revenue every time they restock.

4. Intentional cannibalization strategy

In most cases, market cannibalization is unintentional – but not always. Intentional cannibalization is a sales strategy where a new offering is positioned to replace an existing one.

When well executed, this type of cannibalization can actually maximize sales by redirecting existing consumer interest where you want it. (You might even increase demand if you can re-engage churned customers or current customers who already have all your products.)

Apple introducing newer (and typically more expensive) iPhones is a solid example.

How does the tech mogul pull this strategy off? Immediately following the launch of a new model, Apple drops the price of their older iPhones. By doing so, the brand clears out excess inventory . That way, it can sunset the older model without needing massive inventory write-offs.

How to calculate product cannibalization

To calculate product cannibalization and monitor potential risks posed by new offerings, use the following formula:

cannibalization rate = (lost sales on old product) ÷ (sales of new product) x 100

To determine the lost sales on an old product, you’ll want to subtract this year’s sales from last year’s sales. So, if an existing product sold 10,000 units last year but only 7,000 units this year, its lost sales would total 3,000.

Now, say you moved 5,000 units of the new product in that same period. You can take this information and quickly plug it into the cannibalization formula.

cannibalization rate = 3,000 ÷ 5,000 x 100 = 60% 

This means nearly the new product may have taken roughly two-thirds of the existing product’s sales.

📝 Note: This equation is just an estimate, and other factors might be at play. For instance, these sales may have fallen due to changes in consumer trends, a reduction in marketing activities, or approaching your market cap instead.

Product cannibalization & market share

As we touched on a bit earlier, product cannibalization usually happens in 1 of 2 ways: accidental or deliberate. Although these are 2 sides of the same coin, they can have very different consequences for your brand.

Accidental product cannibalization

Accidental cannibalization is what happened with Kodak. A new product rollout (or, in the camera company’s case, a few) was poorly planned, harming the sales of existing items (that had better product margins).

🤿 Dive deeper: The right way to launch a new product.

This failure to accurately forecast demand and anticipate customer behavior led to a dramatic shift in sales. And as I already mentioned, repeated incidents of accidental cannibalization eventually drove Kodak to file for bankruptcy.

But the Kodak example illustrates another important point. When older products become obsolete in the eyes of your customers, you’re likely to accumulate a lot of dead stock for those SKUs.

Not only does dead stock rack up tons of extra holding costs , but it also creates a lot of costly waste at your warehouse. This is avoidable if you have a solid grasp of future customer demand.

That said, on rare occasions, accidental cannibalization might not be such a bad thing. When Procter & Gamble launched their first synthetic detergent (Dreft) in 1933, it unexpectedly impacted the sales of its bestselling soap products.

While Dreft (and later Tide) killed the demand for soap-based laundry products, they opened up a new $100B+ market . Plus, an entirely new revenue stream for P&G.

But, even though things worked out in P&G’s favor, this isn’t a strategy you can count on. Accidental cannibalization is simply too risky (and has too many unknowns) to be left to its own accord.

Deliberate product cannibalization

Deliberate cannibalization is the exact opposite of accidental cannibalization. With it, retailers consciously decide to overtake an older product’s sales with a new SKU.

The goal is typically two-fold:

• Phase out older inventory (assuming that an older SKU is being sunsetted to make space for this new one)
• Gain more market share (AKA, a larger percentage of overall sales in their industry)

Case in point: Apple has earned a huge market share in the mobile phone industry by continuously releasing new iPhones and limiting how long each model stays on the market.

As of April 2022, the iPhone 13 was the most popular smartphone sold in the US, representing 17% of total smartphone sales . Better yet, the leading iPhone models make up about 37% of all smartphone sales in the US to date.

Undoubtedly, Apple’s calculated approach to launching new products has worked in its favor. So much so that they’ve implemented similar cannibalization strategies to keep themselves at the forefront of their other categories (like computers and smartwatches).

How to avoid accidental product cannibalization

You now know how much accidental product cannibalization can hurt your bottom line. So, how do you stop this from happening to your brand?

Conduct detailed market research

Before introducing a new SKU to your product portfolio, start by conducting detailed market research.

Your market research can be broken down into 3 parts:

• Current market analysis
• Product demand analysis
• Competitive analysis

First, you need to understand the ins and outs of the current marketplace. This means diving deep into marketing analytics — like customer engagement and conversion rate — to uncover your target audience and their buying patterns.

Next, you’ll want to confirm that there’s actual demand for your new products. This can be tricky without historical sales data. But you can do this by looking at sales for any similar products you already offer. Alternatively, you can look at current data for your competitor’s comparable products.

The goal is to ensure there is enough demand for your new product. And that even if that demand takes away sales from your older inventory, your total revenue will increase overall.

Lastly, it’s always a good idea to assess the competitive landscape. This way, you can look for market gaps and learn from other retail brands’ mistakes. Essentially, you’re trying to capitalize on a weakness in a competitor’s offerings, so you cannibalize their sales rather than your own.

Offer complementary products

A complementary product is anything bought and used with another SKU in your catalog (think: a phone company offering SIMs cards). Because complementary products, well, complement this other product, they usually don’t have tons of value on their own.

The purpose of them is to increase demand for your existing hero products. Since these products are most valuable together, the newer item won’t cannibalize your older ones. Instead, customers will typically buy both items – increasing your total revenue.

Take Harry’s , for example. Though they’re primarily recognized for their razors, Harry’s sells other grooming products like shave gel and face wash.

These products complement their bestselling razors, leading to sales growth rather than stealing its spotlight. (In 2021, 43% of Harry’s revenue was generated from categories other than shaving.)

Create distinctive SKUs

Along those same lines, you want to be sure your products are distinctive.

Say there’s no clear differentiation between a new product from your existing one. Chances are good that you’ll just transfer demand from one of your products to the less expensive or newer one, depending. (All while leaving your competitors totally unaffected).

Here are a few ways you can innovate that won’t cause product cannibalization:

• Create a unique product that appeals to an all-new demographic
• Add new features or upgrades that will appeal to your target audience
• Offer premium products that appeal to folks who aren’t budget-conscious
• Launch limited edition products that appeal to a wider population

The steps you take to make your products distinctive will go a long way in reducing your cannibalization rate — and possibly even attract new customers to your brand.

Even better, you can differentiate similar products on your website using a “compare products” tab. Apple does this and gives its customers more confidence along the buyer journey. (With this tool, people sometimes even convince themselves to buy the more expensive option.)

Optimize pricing strategy

Pricing new products is tricky. But getting it right makes it easy to prevent cannibalization (and stay competitive in the market).

Similar to when you conduct market research, you can reference historical data for existing products in the same category or look at current data for comparable products in the marketplace. While this isn’t an exact science, it still gives you a pretty good gauge of what customers are willing to pay.

In any event, examining this data is better than pricing products at random. If you’re just guessing what new SKUs should cost, you might end up pricing them too low and cannibalizing your older product offerings. (Or too high, never giving that product a fighting chance.)

Once a product is on the market, you can always run price testing to determine the ideal price for your goods. Simply put, price testing shows you how actual customers respond to different pricing models. That way, you can better understand what they’re willing to pay for said products.

🤿 Dive deeper: How to experiment with product pricing to unlock growth.

Gather customer feedback

Like it or not, it’s impossible to know exactly how your target audience will react to a new product launch.

Despite your meticulous planning and research, your customers might throw you for a loop by showing up in droves for your release or not showing any interest. However, you can remove some of this unpredictability by gathering insights straight from the source: your customers.

Ahead of your launch day, email customer surveys or organize focus groups to discuss your product, its packaging , and any associated marketing messaging.

For instance, you might discover the wrong audience segments are attracted to your products. But with this information, you can push back your official rollout (if needed) and switch up your marketing strategy.

Monitor sales & regularly calculate cannibalization rate

While gathering feedback should always happen before your launch date, monitoring your sales comes after your product has been released into the wild.

Once launched, you’ll want to monitor the product’s individual sales — and the sales of any related or similar products — on an ongoing basis. This way, you can act fast if there’s been an unintended effect on your existing product sales.

Calculating your cannibalization rate on a monthly (or quarterly) basis is an easy way to do this.

But however you go about it, you’ll need to stay on top of your sales and observe the impact of your new products. That way, you get ahead of any potential product cannibalization before it wreaks havoc on your revenue.

Build strategic product plans with Cogsy

As you already know, every product launch will cannibalize your existing product to some degree.

But if you want to prevent that cannibalization from hurting your revenue, you need to accurately predict:

• To what degree each product will be cannibalized
• How that will impact your inventory needs

Luckily, Cogsy works as your crystal ball in this regard. The ops optimization tool takes your historical sales data and crafts a new product plan that is way more accurate than getting your palm read.

Using Cogsy’s new product planning feature , you can:

• Use products with similar characteristics to your new product to model how much you’ll need to order for a successful launch
• Map out your new product launch scenarios based on different related SKUs and prepare accordingly
• Factor in order lead times to purchase products at the right time (and keep your suppliers happy with you)

Best part? Cogsy will update your inventory strategy every time new data becomes available. So, you’ll know almost instantly if new products are cannibalizing old ones (and by how much). That way, you can get ahead of it.

revenue goals

Product cannibalization faqs.

Cannibalization in the supply chain is when manufacturers create a new version of a product that takes away sales from the original product (rather than taking away sales from a competitor). This cannibalization can happen intentionally or by accident.

Product cannibalization usually happens in 1 of 2 ways: accidental or deliberate. Accidental cannibalization is when a new product rollout is poorly planned. Therefore it harms the sales of existing inventory items. Meanwhile, deliberate cannibalization is when retailers consciously decide to overtake an older product to gain market share.

Depending on the situation, cannibalization can be good or bad for business. When cannibalization results from a poorly planned product launch, it’s likely to harm the sales of existing SKUs (bad). But when cannibalization is done intentionally, it can help to phase out the older inventory and acquire a greater market share (good).

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Product Cannibalization in Retail (Definition, Examples, Tips)

Why Should Retailers Care about Product Cannibalization?

Product cannibalization is often portrayed in a negative context within the retail environment – and for good reason.

In most cases, it results in lost sales, decreased revenue and even retail business closures.

What makes it unique is that even with all of these negative connotations, there have been cases where retail businesses have strategically used product cannibalization to their benefit.

So what exactly is product cannibalization, how can it be avoided and how could retailers use it to their advantage?

This article will answer those questions while also providing real-world examples and solutions retailers can use to control product cannibalization.

What is product cannibalization?

In the retail environment, product cannibalization can be referred to as a loss of sales and revenue when a newly introduced product pulls demand away from existing products within the same portfolio.

This creates internal competition between products instead of pulling customers, revenue and market share from the retail businesses’ external competitors.

Typically unexpected, this situation can be extremely detrimental for retailers and also has the potential to create additional issues such as:

• Inventory Imbalances

Fortunately, there are certain triggers that can lead to product cannibalism and if known and monitored in advance, can help prevent it.

Let’s dig a little deeper to find out what they are.

Reasons for product cannibalism

Cannibalization can be extremely damaging for a retailer – regardless of size or complexity.

Unfortunately, by the time retailers notice, there is an issue, it is already too late for damage control to be implemented.

This is why understanding and awareness of potential triggers are not only important but essential to retail success.

Here are the main causes of product cannibalism to watch out for:

Setting the wrong price for a new product can have immediate and costly consequences.

Customers determine the value of a product in the context of the price range. This means any changes in the price of one product will affect the sales demand of all other comparable inventory.

For example, say a retailer introduces a new brand of water bottle into the existing product mix. Its attributes are comparable to the inventory on the shelf (same material and volume). The only difference is a notably lower price point. Chances are that consumers will choose the cheaper product over a more expensive brand.

The water bottle’s price has triggered the cannibalization of existing product sales.

This results in a lower overall profit for the retailer since consumers are buying more of the cheaper products and less of the products they used to buy at a higher price point.

Product Mix

Setting the right price, however, is not enough to avoid potential cannibalization.

Changes in assortment also have a substantial effect on demand – creating the need for an effective product assortment strategy .

A new product can pull sales away from existing inventory simply by splitting consumer demand between viable options.

What’s more, customers may prefer to buy this year’s model over last year’s.

For example, fashion retailers often see products with trending styles and colours pull sales from last season’s top sellers.

Intentional cannibalization sales strategy

Cannibalization affects both revenue and profit.

The overstock of cannibalized products taking up shelf space forces retailers into unplanned promotions and end-of-season markdowns to clear the excess inventory.

Although in most cases product cannibalization is an unintentional and unexpected situation, it is possible to use the effect strategically.

Cannibalization sales strategies can be used to replace old inventory with a new selection or to expand a product line.

Carefully planned, this effect can maximize sales and profits by redirecting demand.

To better understand how this is accomplished, let’s look at some product cannibalization examples.

Product cannibalization examples

Intentional use: p&g expands a product line.

After a century of making soaps from animal fats and vegetable oils, Procter & Gamble began developing synthetic detergents in the 1930s. Then-chairman William Procter said of the decision, “This may ruin the soap business. But if anybody is going to ruin the soap business it had better be Procter & Gamble.”

He was right. When P&G launched Tide in 1946, the new product quickly cannibalized the company’s traditional soap brands. Tide took market share from competitors like Colgate and has been the top-selling laundry detergent ever since.

Intentional use: Apple replaces outdated product

Apple founder Steve Jobs famously said, “If we don’t cannibalize ourselves, someone else will.” The company’s current CEO, Tim Cook, has told Wall Street analysts that Jobs’ philosophy remains in place:

“We know iPad will cannibalize some Mac [sales], that doesn’t worry us.”

Intentional product cannibalism keeps customers in the Apple ecosystem where they will buy other Apple products and services. You see similar strategies in fashion and other industries that need to stay “fresh” in consumers’ eyes.

Unintentional use: Kodak launches a low-cost product

Eastman Kodak introduced its first economy-brand camera film, Kodak Funtime, in 1994 to combat low-cost rivals. However, the company worried that the success of the cheaper camera was cannibalizing its more profitable mainstream film brands.

So, Kodak decided it would only let people buy Funtime films in the spring and fall rather than during the peak summer and holiday buying seasons.

That didn’t work.

Kodak customers substituted their Gold Plus film purchases with cheaper products. Inevitably Kodak chose to cancel Funtime to protect its core product line.

Avoiding unintentional product cannibalization

Planning for cannibalization is easier said than done.

The unfortunate truth is, that predicting how products interact is extremely difficult.

Every pricing and inventory decision has an impact, but with billions of interconnected data points to consider, retailers are left asking questions like:

• How big will the impact be?
• Will the impact spread to complementary products?
• How will these impacts vary from store to store?

Existing sales databases are used to generate reports that can flag unexpected trends. But these reports are just snapshots of the past. They can only be used to solve issues that already exist — and are getting worse.

Fortunately, innovations in retail technology are enabling retailers to avoid product cannibalism.

Let’s take a look at the 4 most effective methods retailers are using.

1. Predictive analytics

Why is predictive analytics the most powerful tool retailers have to combat product cannibalism?

Predictive analytics avoids product cannibalism because it can actually identify and measure the true effect a product will have at a specific price point, within a specific assortment, and even in every unique store location.

So rather than reacting to cannibalization, modern retailers use AI-powered analytics solutions to proactively plan for it.

These tools use artificial intelligence to simultaneously evaluate the effect of the massive amounts of data points.

Enabling consideration of relevant factors such as:

• Geo-demographics and diversity.
• Promotional uplift.
• Price elasticity of demand.
• Seasonality.

These advanced analytics solutions generate a highly accurate demand forecast that has already accounted for product cannibalization.

Leading retailers leverage predictive analytics when introducing new products. In doing so, they are able to see how the new product will affect the existing inventory.

They are then able to bring in the right amount of new products and set an optimal price, leading to:

• Fewer out-of-stock and maximized revenue.
• Avoided overstocks and minimized markdowns.
• More predictable promotions and seasonal events.

2. Identifying an optimal pricing strategy

The right new product pricing strategy should maintain a competitive balance among competing products.

Setting a price for a new product is especially difficult because there is no sales history to work with.

With a powerful enough tool, retailers don’t need a sales history to set the optimal price for a new product. This is because, as we’ve already established, product price is not a siloed question.

The demand for a product is affected by a combination of factors.

Advanced analytics software is unified across all business channels, letting retailers optimize their pricing strategies holistically. Not only does this minimize cannibalization within the store assortment, but it also limits cannibalization between online and store operations.

3. Run pricing scenarios

Traditionally, experiments with product and pricing decisions had to happen in the real world.

For this reason, implementing a new pricing strategy, or introducing a new product has always been inherently an expensive risk.

Advanced analytics solutions have removed this expensive and time-consuming risk because they enable retailers to run virtual pricing and assortment scenarios.

Software is configured to the specific retailer’s business limitations and parameters, creating a true simulation of how a specific decision will impact demand. Retailers can run as many scenarios as they need with no risk.

In fact, a unified analytics solution enables retailers to run scenarios for pricing, assortment, and even allocation using their existing sales data to forecast demand.

These tools give retailers the power to select the optimal strategy before investing a year of resources and risking cannibalization, overstock, and lost sales.

You can control product cannibalization

Understanding product cannibalization lets retailers avoid the disruptions that promotions and new product introductions can cause within their inventory.

In fact, a well-thought-out cannibalization sales strategy can lower the cost of replacing outdated inventory or realigning assortments.

Of course, knowing how product cannibalization occurs isn’t enough.

To avoid unnecessary surprises, retailers need to arm themselves with the right tools.

Advanced analytics solutions open a window into the future, enabling retailers to see how their strategies will play out without risking major setbacks like product cannibalization.

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Please note you do not have access to teaching notes, identifying the effects of cannibalization on the product portfolio.

Marketing Intelligence & Planning

ISSN : 0263-4503

Article publication date: 1 June 2005

The need for studying the effects of cannibalization and its importance has been established in the literature, especially, since an assessment of the expected cannibalization effect of a new product can help in deciding on suitable times for new product introduction and promotions. However, quantitative measures that can be easily monitored and interpreted are not commonly available.

Design/methodology/approach

This study uses parametric measures to help identify and investigate the effects of cannibalization. It proposes a predictive framework that may be used to investigate the effects of cannibalization. A case study, with real data from a consumer beverage company, illustrates the practical applicability of the model.

The parametric measures developed helped to identify the level of product cannibalization at the product, product group, family and brand levels in the portfolio.

Originality/value

Marketing strategists who can identify the victims of cannibalization in the product portfolio will be better prepared for the effects of cannibalization.

• Product mix
• Product management
• Product development
• Market share

Raghavan Srinivasan, S. , Ramakrishnan, S. and Grasman, S.E. (2005), "Identifying the effects of cannibalization on the product portfolio", Marketing Intelligence & Planning , Vol. 23 No. 4, pp. 359-371. https://doi.org/10.1108/02634500510603465

Emerald Group Publishing Limited

Copyright © 2005, Emerald Group Publishing Limited

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What is Product Cannibalization?

• by Matt Ellsworth
• May 5, 2020
• 5 minutes read

Launching a new product or version of an existing product is one of the most exciting parts of competing in retail. Creating something that excites consumers and takes market share away from competitors? That’s hard to beat.

Of course, there’s a lot that goes into bringing a product to market. Understanding the competitive landscape, determining how the new product fits into your portfolio, developing a pricing strategy—these are just a few of the key steps in a launch. And sometimes, it doesn’t always go to plan.

Sometimes, you find that instead of your new product stealing sales from competitors, you’re stealing from yourself. Why does this happen?

The answer is likely product cannibalization.

Product cannibalization refers to the loss in sales volume or revenue when a brand launches a new product or a new version/style of an existing product that takes sales away from existing products.

Typically, cannibalization refers to the loss in sales volume or revenue when a brand launches a new product or a new version/style of an existing product that takes sales away from existing products. When this happens, the new products are “cannibalizing” the existing ones. The brand’s product portfolio is essentially competing with itself rather than external competitors.

Cannibalization can happen when the new product or version is too similar in the segments it targets from a branding perspective. One of the more well-known examples here is Coca-Cola. With products like Coke Zero, Cherry Coke, and Vanilla Coke all competing for the many of the same customers, they end up taking sales and market share away from each other.

This may not be a bad thing, though: If these new products give Coca-Cola access to new markets and segments, it may be worth some degree of cannibalization in its existing markets.

Cannibalization can also happen when your pricing strategy doesn’t do enough to differentiate your offerings. There are a few scenarios where this can play out:

• Cannibalizing through discount pricing:  This happens when a retailer discounts a product without understanding if consumers would buy the product even without the discount. If so, the lower pricing is cannibalizing sales revenue by allowing consumers to get accustomed to those prices.
• Cannibalizing through “budget” product lines: Retailers that do not typically compete on price sometimes roll out lower-priced product lines. These “value” lines are sometimes not differentiated enough price-wise (pricing is a big part of branding too!), and they cannibalize the existing products’ sales.
• Cannibalizing through lower eCommerce prices:  If consumers realize they can get a better deal online than in brick-and-mortar locations, they will go where the price is lower. This can actually be a useful strategy if you know you will have overall gains in sales online. But if it’s not done intentionally and with a full understanding of your omnichannel pricing strategy , you can suffer the negative effects of lost sales.

How to Avoid Product Cannibalization

So, how do you launch new products or variations of existing products without cannibalizing? Here are some useful ways to go about it:

Test and Measure Your Promotions

Promotions are one of the main ways retailers and brands cannibalize their sales. By continually testing and measuring your promotions , you can identify warning signs of cannibalization in future promotions. For example, a metric like incremental sales lift vs cannibalization will give you a great idea if your past promotions led to cannibalization. This is where the lift is created by taking revenue away from elsewhere in your portfolio.

Additionally, you’ll want to be sure that customers aren’t just purchasing the lower-priced items and leaving your other products on the shelf. If all your promotions do is shift sales, they are not effective.

When we talk about cannibalization via pricing, it’s often in reference to a lower-priced item stealing sales volume or revenue away from a higher-priced item. One way to prevent this, then, is to consider how a premium product line could bolster your product portfolio.

By doing this, you open yourself up to new markets that may not be as price sensitive. Low prices generally signal efficiency and standardization. Higher prices appeal to consumers who are willing to pay more for differentiation. For example, Zappos, an online footwear retailer, has slightly higher prices because they know their customers care about service and quality. A premium offering is unlikely to poach sales from a low-price option, so you can avoid cannibalizing there.

Whenever you launch a new product or a new line of an existing one, you should analyze the market for the demand for the new offering.

Understand How New Products and Prices Add to Your Portfolio

Whenever you launch a new product or a new line of an existing one, you should analyze the market for the demand for the new offering. New products can capture a share of new markets, but you should be sure that you aren’t competing with yourself.

Two of the most important things to look for is a lack of differentiation in the product from existing items and price sensitivity in your market. New products that are insufficiently differentiated from the rest of your portfolio are cannibalization threats. New products that are not priced correctly, particularly if they are too low, can steal revenue as price-sensitive customers go for the cheaper option.

Assess the Competition

A price intelligence tool can give you the insight you need to understand the markets in which you want to launch. This will make it simple to collect data at scale, understand markets and individual competitors, and create benchmarks that help you understand where your new product will fit from a pricing perspective.

Converting pricing data into a metric like a market price index will give you a clear visualization of what competitors’ pricing strategies are, which can inform your own. You can identify where you have pricing power, which is crucial for positioning your product appropriately.

Cannibalization happens to even the most data-driven brands, but it doesn’t have to be an inevitability. Use pricing data effectively to understand what prices your market will bear, then test and iterate before launching new products, and look for weaknesses in the competitive landscape. By doing this, you can launch products more confident that you are taking sales from your competitors, not yourself.

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Unveiling the Dynamics of Product Cannibalization

• Guides , News
• November 26, 2023

In the ever-evolving landscape of business, the concept of product cannibalization has emerged as a crucial phenomenon. This article delves into the intricacies of product cannibalization, its root causes, and strategic approaches to navigate and mitigate its impact. Understanding your customers is essential in achieving customer success .

Understanding Product Cannibalization

Definition and Examples: Product cannibalization occurs when the introduction of a new product negatively influences the sales of an existing one. For instance, the launch of a newer version of a smartphone can cannibalize the sales of its predecessor.

Scenarios: Explore the situations where product cannibalization is likely to occur. This includes scenarios such as frequent product launches, changes in consumer preferences, and market trends.

Causes and Factors

n the complex landscape of product cannibalization, understanding the contributing factors is essential for businesses aiming to navigate this phenomenon effectively.

Market Segmentation:

Definition: Analyze how different segments within a market can overlap or compete, leading to the cannibalization of products.

Scenario: Explore instances where products intended for specific market segments might inadvertently target the same consumer base, causing internal competition.

Pricing Strategies:

Role in Cannibalization: Investigate how pricing decisions impact product cannibalization. This includes scenarios where pricing variations create an internal conflict among a company’s own products.

Competitive Pricing: Discuss the effects of competitive pricing in the market, exploring how a lower-priced product might draw demand away from a higher-priced one.

Consumer Behavior:

Changing Preferences: Delve into how shifts in consumer behavior, such as evolving preferences or changing shopping habits, can contribute to product cannibalization.

Brand Loyalty: Explore cases where strong brand loyalty might lead consumers to choose a newer product over an established one, impacting overall sales.

Market Dynamics:

Competitive Forces: Examine how the competitive landscape influences product cannibalization. Discuss scenarios where the introduction of a similar product by a competitor affects sales.

Industry Trends: Explore broader industry trends that might encourage or exacerbate product cannibalization, emphasizing the need for businesses to stay adaptable.

Understanding these causes and factors enables businesses to proactively identify potential areas of cannibalization and implement strategic measures to mitigate its impact. It also highlights the importance of market intelligence, consumer insights, and a forward-thinking approach in product management.

Consequences for Businesses

The ramifications of product cannibalization can extend far beyond immediate sales figures, influencing various aspects of a business. It’s crucial to delve into these consequences to comprehend the full spectrum of its impact.

Negative Impacts on Sales and Revenue:

Sales Erosion: Explore how product cannibalization can lead to a decline in sales for the affected products, as consumer attention is diverted to newer alternatives.

Revenue Dips: Analyze the direct correlation between sales reduction and subsequent drops in revenue, potentially affecting overall financial health.

Brand Positioning Challenges:

Brand Dilution: Discuss the risk of diluting a brand’s uniqueness when multiple products within the same brand portfolio cater to similar needs.

Customer Confusion: Explore how consumers might get confused or overwhelmed when presented with too many similar product choices, impacting brand perception.

Market Share Dynamics:

Competitive Disadvantage: Analyze how product cannibalization can put a business at a competitive disadvantage, especially if competitors effectively manage their product portfolios.

Market Share Erosion: Discuss the potential loss of market share as a consequence of customers shifting preferences within the product line.

Risks of Neglect and Mismanagement:

Innovation Stagnation: Highlight the risk of stifling innovation when businesses fail to address or adapt to product cannibalization.

Customer Dissatisfaction: Discuss how neglecting the issue can lead to customer dissatisfaction, affecting loyalty and long-term relationships.

Understanding these consequences is pivotal for businesses to proactively manage product cannibalization. It emphasizes the need for strategic planning, innovation, and a customer-centric approach to not only mitigate risks but also leverage the challenges as opportunities for growth and improvement.

Strategies to Mitigate Product Cannibalization

Mitigating the impacts of product cannibalization requires a proactive and strategic approach. Here are actionable insights that businesses can implement to address and navigate this complex challenge:

Innovative Pricing Strategies:

Dynamic Pricing Models: Explore the implementation of dynamic pricing models that respond to market changes and customer behavior, ensuring that prices are optimized for different segments.

Bundle Pricing: Consider bundling related products together to create value propositions, encouraging customers to purchase a package rather than individual items.

Effective Market Positioning:

Distinguish Product Offerings: Clearly differentiate products within a portfolio, highlighting unique features and benefits to avoid direct competition among them.

Segmentation and Targeting: Utilize precise market segmentation and targeting strategies to tailor products to specific customer segments, minimizing overlap.

Continuous Innovation:

Product Evolution: Encourage a culture of continuous innovation, ensuring that products evolve to meet changing customer needs and preferences.

Regular Product Assessments: Conduct regular assessments of the product portfolio, identifying areas for improvement and potential adjustments to prevent cannibalization.

Strategic Product Management:

Portfolio Optimization: Continuously optimize the product portfolio by retiring products that may be prone to cannibalization and introducing new offerings that align with market demands.

Customer-Centric Approach: Adopt a customer-centric approach to product management, focusing on understanding customer preferences and aligning product development accordingly.

Educate and Communicate:

Transparent Communication: Communicate changes in product offerings transparently to customers, explaining the value proposition of new products without undermining existing ones.

Educate Sales Teams: Equip sales teams with the knowledge and tools to effectively position products, emphasizing the unique selling points of each offering.

Monitoring and Adaptation:

Real-Time Analytics: Utilize real-time analytics to monitor the performance of products in the market, promptly identifying signs of cannibalization and allowing for swift adjustments.

Agile Decision-Making: Foster an agile decision-making process that allows the business to adapt quickly to changing market dynamics and customer preferences.

By implementing these strategies, businesses can navigate product cannibalization more effectively, turning challenges into opportunities for growth and ensuring sustained success in a dynamic market environment.

Real-world Case Studies

Examining real-world case studies provides valuable insights into how businesses successfully navigated challenges related to product cannibalization. These success stories highlight effective strategies and offer lessons that can be applied to diverse business scenarios:

XYZ Electronics: Balancing Innovation and Cannibalization

Challenge: XYZ Electronics faced the dilemma of launching a new line of smartphones that could potentially cannibalize sales of their existing models.

Strategy: Instead of avoiding the launch, XYZ implemented a phased approach, gradually introducing the new smartphones while offering incentives for existing customers to upgrade.

Result: The phased approach minimized the impact of cannibalization, and XYZ Electronics successfully increased overall market share by catering to a broader customer base.

ABC Fashion Retail: Introducing a New Apparel Line

Challenge: ABC Fashion Retail aimed to introduce a new line of casual wear that overlapped with an existing popular line.

Strategy: ABC positioned the new line as a complementary addition, focusing on differentiating features and marketing it to a slightly different demographic.

Result: The new line enhanced the overall brand appeal, attracting a new segment without significantly cannibalizing sales of the existing popular line.

PQR Automotive: Managing Product Lifecycle

Challenge: PQR Automotive had a mature product in its lineup, and the introduction of a more advanced model risked cannibalizing the sales of the existing one.

Strategy: PQR implemented a strategic end-of-life plan for the mature product, offering promotions and incentives for customers to transition to the new model.

Result: While there was a temporary dip in sales of the mature product, the overall transition was smooth, and PQR successfully established the new model as a market leader.

LMN Pharmaceuticals: Innovating in a Competitive Market

Challenge: LMN Pharmaceuticals faced stiff competition in the pharmaceutical market and needed to introduce innovative medications without jeopardizing existing product sales.

Strategy: LMN strategically launched new medications with unique formulations and targeted marketing, ensuring minimal overlap with existing products.

Result: The introduction of innovative medications not only expanded LMN’s product portfolio but also reinforced its position as a leader in the pharmaceutical industry.

These case studies demonstrate that businesses can strategically manage product cannibalization by adopting innovative approaches and understanding the nuances of their markets. By learning from these success stories, businesses can develop strategies that align with their unique challenges and opportunities.

In conclusion, this article serves as a comprehensive guide for business executives, product managers, and marketing professionals. It provides valuable insights into understanding, managing, and mitigating the impacts of product cannibalization. Encourage the audience to adopt strategic product management practices, viewing product cannibalization as a dynamic force that, when managed adeptly, can lead to innovation and sustained growth in a competitive market.

Product cannibalization and the effect of a service strategy

• Published: 21 April 2017

Cite this article

• Pietro De Giovanni 1 &
• Vinay Ramani 2  

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Product cannibalization can push some consumers to shift their purchasing preferences from new to used products. This is a costly issue for manufacturers, who have to adjust their pricing strategies accordingly to mitigate the negative effect of cannibalization. In this paper, we characterize an atypical channel to examine the effect of product cannibalization within the DellReconnect project. In particular, we investigate how the presence of a Goodwill agency in a second-hand market impacts the business of a manufacturer (e.g., Dell) in a new market through cannibalization, and how the manufacturer reacts to mitigate its effects. We show that even if the manufacturer adjusts its price to decrease the negative effects of cannibalization, this effect is so severe that it always loses some profits. Nevertheless, when the manufacturer provides some additional services to new consumers, the negative effects of cannibalization can be partially overcome.

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Check the website www.dell.com for the complete list of services provided to new consumers by Dell.

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Department of Operations Management, ESSEC Business School, Paris, France

Pietro De Giovanni

Department of Economics, Indian Institute of Management, Udaipur, India

Vinay Ramani

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Correspondence to Pietro De Giovanni .

Appendix 1: Analytical developments

Proof of proposition 1.

Since both players choose their strategies simultaneously, we will characterize the non-cooperative Nash equilibrium solution. Taking the derivatives of the profit functions in Eqs. ( 3 ) and ( 4 ) with respect to \(p_{M}\) and \(p_{C},\) respectively, and setting them equal to zero, we can derive the following reaction functions:

These reaction functions are upward sloping because \(\frac{\partial p_{M}}{\partial p_{C}}=\frac{\gamma }{2(\beta _{M}+\gamma )}>0\) and \(\frac{\partial p_{C}}{\partial p_{M}}=\frac{\gamma }{2(\beta _{C}+\gamma )}>0.\) Furthermore, the slope of the manufacturer’s reaction function is strictly greater than the slope of the collector’s reaction function. To see this, note that \(\frac{2(\beta _{M}+\gamma )}{\gamma }>\frac{\gamma }{2(\beta _{C}+\gamma )}\) , implies that \(4(\beta _{M}+\gamma )(\beta _{C}+\gamma )-\gamma ^{2}>0\) , which is always true in our model. This implies that the two reaction functions intersect only once and hence the optimal solution is unique.

Solving simultaneously the reaction functions yields the optimal prices; \( p_{M}^{\mathcal {B}}\) and \(p_{C}^{\mathcal {B}}\) are given in Eqs. ( 5 ) and ( 6 ) in Proposition 1. In addition, the Nash equilibrium prices of the manufacturer and the collector are stable, because if any of the players were to deviate from the optimal solution, based on the reaction functions, \( p_{M}(p_C)\) and \(p_C(p_M)\) , the solution would converge back to \(p_{M}^{\mathcal {B}}\) and \(p_{C}^{\mathcal {B}}\) .

The expressions for optimal profit of the manufacturer and the collector are

with \(\Omega _{1}={\rm DEN}\{ p_{M}^{\mathcal {B}}\}, \Omega _{2}={\rm NUM}\{ p_{C}^{\mathcal {B}}\} \) and \(\Omega _{3}={\rm NUM}\{ p_{M}^{\mathcal {B}}\} \square\) .

Proof of Proposition 2

We compute the derivatives of firms’ prices with respect to the cannibalization effect, \(\gamma ,\) to show that:

\(\frac{\partial p_{M}^{\mathcal {B}}}{\partial \gamma }=-\frac{2(\alpha _{M}-H_{M}\beta _{M}) ( 4\beta _{C}^{2}+6\beta _{C}\gamma +3\gamma ^{2}) +( \alpha _{C}-H_{C}\beta _{C}) ( 3\gamma ^{2}-4\beta _{C}\beta _{M}) +2c_{p}\gamma ( \beta _{M}\gamma +\beta _{C}( 2\beta _{M}+\gamma ) ) }{[ 4(\beta _{M}+\gamma )(\beta _{C}+\gamma )-\gamma ^{2}] ^{2}}<0,\forall \gamma .\)

the sign of \(\frac{\partial p_{C}^{\mathcal {B}}}{\partial \gamma }= \frac{[ 2( \alpha _{C}-H_{C}\beta _{C}) +K_{1}] [ 4( \beta _{C}+\gamma ) ( \beta _{M}+\gamma ) -\gamma ^{2}] -2[ 2( \beta _{M}+\beta _{C}) +3\gamma ] [ 2( \alpha _{C}+H_{C}\beta _{C}) ( \beta _{M}+\gamma ) +\gamma K_{1}] }{[ 4(\beta _{M}+\gamma )(\beta _{C}+\gamma )-\gamma ^{2}] ^{2}}\) depends on \(\gamma ,\) where \( K_{1}=\alpha _{M}-H_{M}\beta _{M}+c_{p}( \beta _{M}+\gamma ) >0.\) Solving that derivative with respect to \(\gamma \) gives two roots, one positive and one negative; indeed, only one of those is feasible \(({\rm e.g.},\,\gamma \in (0,1)) \) and results in \(\gamma ^{ \mathcal {B}*}=\frac{2\beta _{M}K_{2}-\sqrt{( 2\beta _{M}K_{2}^{{}}) ^{2}+16\beta _{M}K_{3}[ \alpha _{M}\beta _{C}+\beta _{M}( ( 2H_{C}-H_{M}+c_{p}) \beta _{C}-2\alpha _{C}) ] }}{2K_{3}}\) , where \(K_{2}=2[ 3( \alpha _{C}-H_{C}\beta _{C}) -2c_{p}\beta _{C}] >0\) and \(K_{3}=-( K_{2}+3( \alpha _{M}-H_{M}\beta _{M}) -c_{p}\beta _{M}) <0\) . Consequently, \(\frac{\partial p_{C}^{\mathcal {B}}}{\partial \gamma } \ge 0,\forall \gamma \in (0,\gamma ^{\mathcal {B}*}]\) and \(\frac{ \partial p_{C}^{{\mathcal {B}}}}{\partial \gamma }<0\forall \gamma \in (\gamma ^{\mathcal {B}*},1].\) Intuitively, because \(p_{M}^{\mathcal {B} }>p_{C}^{\mathcal {B}}, \frac{\partial ( p_{M}^{\mathcal {B}}-p_{C}^{ \mathcal {B}}) }{\partial \gamma }<0,\forall \gamma .\) \(\square \)

Proof of Proposition 3

\(\frac{{\rm d}\Pi _{M}^{\mathcal {B}}}{{\rm d}\gamma }= \frac{\partial \Pi _{M}^{\mathcal {B}}}{\partial p_{C}^{\mathcal {B}}}\frac{ \partial p_{C}^{\mathcal {B}}}{\partial p_{M}^{\mathcal {B}}}\frac{\partial p_{M}^{\mathcal {B}}}{\partial \gamma }-[p_{M}^{\mathcal {B}}-p_{C}^{\mathcal {B }}][p_{M}^{\mathcal {B}}-c_{P}]<0\) as \(\frac{\partial \Pi _{M}^{\mathcal {B}}}{ \partial p_{C}}>0, \frac{\partial p_{C}^{\mathcal {B}}}{\partial p_{M}^{ \mathcal {B}}}>0\) , and \(\frac{\partial p_{M}^{\mathcal {B}}}{\partial \gamma } <0\) by Proposition 2. Similarly, \(\frac{{\rm d}\Pi _{C}^{\mathcal {B}}}{{\rm d}\gamma }= \frac{\partial \Pi _{C}^{\mathcal {B}}}{\partial p_{M}^{\mathcal {B}}}\frac{ \partial p_{M}^{\mathcal {B}}}{\partial p_{C}^{\mathcal {B}}}\frac{\partial p_{C}^{\mathcal {B}}}{\partial \gamma }+[p_{M}^{\mathcal {B}}-p_{C}^{\mathcal {B }}]p_{C}>0,\) as \(\frac{\partial \Pi _{C}^{\mathcal {B}}}{\partial p_{M}^{ \mathcal {B}}}>0, \frac{\partial p_{M}^{\mathcal {B}}}{\partial p_{C}^{ \mathcal {B}}}>0\) , and \(\frac{\partial p_{C}^{\mathcal {B}}}{\partial \gamma } >0\) by Proposition 2. \(\square \)

Proof of Proposition 4

Since M and C choose their strategies simultaneously, we characterize first the non-cooperative Nash equilibrium solution. Using the given demand functions and the firms’ profit functions, we compute the derivatives of Eq. ( 3 ) with respect to \(p_{M}\) and A , and the derivative of Eq. ( 4 ) with respect to \(p_{C}\) . Putting these derivatives equal to zero, the first-order necessary conditions lead to the following reaction functions:

From ( 12 ) and ( 13 ), we can see that the reaction curves for M and C are upward sloping because \(\frac{\partial p_{M}}{ \partial p_{C}}=\frac{\gamma }{2(\beta _{M}+\gamma )}>0,\frac{\partial p_{M} }{\partial A}=\frac{n}{2(\beta _{M}+\gamma )}>0,\frac{\partial p_{C}}{\partial p_{M}}=\frac{\gamma }{2(\beta _{C}+\gamma )}>0\) , and \(\frac{ \partial A}{\partial p_{M}}=\frac{n}{l}>0\) . Solving the reaction curves yields the optimal prices chosen by the firms, \(p_{M}^{\mathcal {A}}\) and \( p_{C}^{\mathcal {A}}\) as well as the optimal level of service efforts, A , as given in Proposition 4. The Nash equilibrium solution is unique and stable. To see this note that substituting \(A(p_{M})=\frac{ n(p_{M}-c_{p}+H_{M})}{l}\) into ( 12 ), we get \(\frac{\partial p_{M}(p_{C})}{\partial p_{C}}=\frac{\gamma l}{2(\beta _{M}+\gamma )l-n^{2}}\) . Now, the reaction functions will intersect only once if \(\frac{2(\beta _{M}+\gamma )l-n^{2}}{\gamma l}>\frac{\gamma }{2(\beta _{C}+\gamma )}\) , implying that \(4l(\beta _{M}+\gamma )(\beta _{C}+\gamma )-2n^{2}(\beta _{C}+\gamma )-l\gamma ^{2}>0\) , which is always true in our model.

The expressions for optimal profits of the manufacturer and the collector are:

where \(\Psi _{1}={\rm DEN}\{ p_{M}^{\mathcal {A}}\},\; \Psi _{2}={\rm NUM}\{ p_{M}^{\mathcal {A}}\}, \Psi _{3}={\rm NUM}\{ p_{C}^{ \mathcal {A}}\} \) and \(\Psi _{4}={\rm NUM}\{ A\} \) . \(\square \)

Proof of Proposition 5

Consider the set of constant terms \( L_{k}>0,k=1,\ldots ,5\) . Footnote 5 We compute the derivatives of the firms’ strategies with respect to \(\gamma \) to show that:

\(\frac{\partial p_{M}^{\mathcal {A}}}{\partial \gamma }=-\frac{ \begin{array}{c}l(2n^{2}((\alpha _{C}-(2H_{M}+H_{C})\beta _{C})\beta _{C}+(3H_{M}-cp)L_{1})+(\alpha _{C}-H_{C}\beta _{C})L_{2}\\ +2(H_{M}\beta _{M}-\alpha _{M})L_{3})-l(2c_{p}\gamma (\beta _{M}\gamma +\beta _{C}(2\beta _{M}+\gamma )))\end{array}}{( 2( \beta _{C}+\gamma ) ( 2l( \beta _{M}+\gamma ) -n^{2}) -l\gamma ^{2}) ^{2}}<0,\quad\forall \gamma \in [ 0,1] \) ,

\(\frac{\partial A}{\partial \gamma }=-\frac{\begin{array}{c}n(2n^{2}(\alpha _{C}\beta _{C}-H_{C}\beta _{C}^{2}+H_{M}L_{3}-cpL_{1})+l(( \alpha _{C}-H_{C}\beta _{C}) L_{2}-2c_{p}\gamma (\beta _{M}\gamma\\ +\beta _{C}(2\beta _{M}+\gamma ))+2(\alpha _{M}-H_{M}\beta _{M})L_{3}))\end{array}}{( 2( \beta _{C}+\gamma ) ( 2l( \beta _{M}+\gamma ) -n^{2}) -l\gamma ^{2}) ^{2}}<0,\quad \forall \gamma \in [ 0,1],\)

\(\frac{\partial p_{C}^{\mathcal {A}}}{\partial \gamma }=\frac{\left\{ \begin{array}{c} -2n^{4}L_{4}+ln^{2}\left[ 6L_{4}\beta _{M}+2(\alpha _{C}-H_{C}\beta _{C})(\beta _{M}+3\gamma )+(c_{p}-3H_{M})\gamma ^{2}+2\beta _{C}(2c_{p}\gamma +\alpha _{M})\right] \\ -l^{2}\left[ 2\left( \alpha _{M}-H_{M}\beta _{M}\right) L_{2}+2\left( \alpha _{C}-H_{C}\beta _{C}\right) L_{3}-c_{p}L_{5}\right] \end{array} \right\} }{( 2( \beta _{C}+\gamma ) ( 2l( \beta _{M}+\gamma ) -n^{2}) -l\gamma ^{2}) ^{2}}\) depends on the amplitude of \(\gamma .\) By solving \(\frac{\partial p_{C}^{\mathcal {A}}}{ \partial \gamma }\) with respect to \(\gamma \) we find two roots and only one of these is feasible \(({\rm e.g.},\,\gamma \in ( 0,1) ) \) and turns out to be: \(\gamma ^{\mathcal {A}*}=\frac{2ln^{2}((2c_{p}+3H_{C})\beta _{C}-3\alpha _{C})+\sqrt{\left\{ \begin{array}{c} 4l^{2}n^{4}((2c_{p}+3H_{C})\beta _{C}-3\alpha _{C})^{2}-4n^{2}l(c_{p}-3H_{M})[c_{p}l^{2}L_{5}-2L_{4}(n^{4}-3ln\beta _{M})\\ -l(l(2L_{3}(\alpha _{C}-H_{C}\beta _{C})+L_{2}(\alpha _{M}+H_{M}\beta _{M}))+2n^{2}(\alpha _{M}\beta _{C}-(\alpha _{C}-H_{C}\beta _{C})\beta _{M})] \end{array} \right\} }}{2ln^{2}(c_{p}-3H_{M})}.\) Thus \(\frac{\partial p_{C}^{\mathcal {A}} }{\partial \gamma }\ge 0\Rightarrow \forall \gamma \le \gamma ^{\mathcal {A} *}. \square \)

\(\frac{{\rm d}\Pi _{M}(p_{M}^{\mathcal {A} },p_{C}^{\mathcal {A}},A)}{{\rm d}\gamma }=\frac{\partial \Pi _{M}^{\mathcal {A}}}{ \partial p_{C}^{\mathcal {A}}}\frac{\partial p_{C}^{\mathcal {A}}}{\partial p_{M}^{\mathcal {A}}}\frac{\partial p_{M}^{\mathcal {A}}}{\partial \gamma } -[p_{M}^{\mathcal {A}}-p_{C}^{\mathcal {A}}][p_{M}^{\mathcal {A}}-c_{p}^{ \mathcal {A}}]<0\) as \(\frac{\partial \Pi _{M}^{\mathcal {A}}}{\partial p_{C}^{ \mathcal {A}}}>0, \frac{\partial p_{C}^{\mathcal {A}}}{\partial p_{M}^{ \mathcal {A}}}>0\) (see Eq. 12 ), and \(\frac{\partial p_{M}^{\mathcal {A }}}{\partial \gamma }<0\) by Proposition 5. Similarly, \(\frac{{\rm d}\Pi _{C}^{ \mathcal {A}}(p_{M}^{\mathcal {A}},p_{C}^{\mathcal {A}},A)}{{\rm d}\gamma }=\frac{ \partial \Pi _{C}^{\mathcal {A}}}{\partial p_{M}^{\mathcal {A}}}\frac{\partial p_{M}^{\mathcal {A}}}{\partial p_{C}^{\mathcal {A}}}\frac{\partial p_{C}^{ \mathcal {A}}}{\partial \gamma ^{\mathcal {A}}}+p_{C}^{\mathcal {A}}[p_{M}^{ \mathcal {A}}-p_{C}^{\mathcal {A}}]>0, \frac{\partial \Pi _{M}^{\mathcal {A}} }{\partial p_{C}^{\mathcal {A}}}>0, \frac{\partial p_{M}^{\mathcal {A}}}{ \partial p_{C}^{\mathcal {A}}}>0\) (see Eq. 12 ), and \(\frac{\partial p_{C}^{\mathcal {A}}}{\partial \gamma }>0\) by Proposition 5. \(\square \)

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De Giovanni, P., Ramani, V. Product cannibalization and the effect of a service strategy. J Oper Res Soc (2017). https://doi.org/10.1057/s41274-017-0224-5

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Received : 10 October 2016

Accepted : 13 March 2017

Published : 21 April 2017

DOI : https://doi.org/10.1057/s41274-017-0224-5

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Product cannibalization in retail

In retail, a newly released product can cause a loss of sales for other items within a company’s product portfolio. This is known as product cannibalization, and occurs when the demand for the new product detracts from the demand for existing products, causing a marked loss of revenue for the items that preceded it. 

Sometimes, product cannibalization is an unintended effect, and a company will make an effort to recover the lost sales across its product portfolio. Other times, product cannibalization can be part of an intentional strategy to lead with a new product, attract greater audiences, and grow bottom line sales with a new, more premium-priced item. 

In CPG, product cannibalization is a common phenomenon that can be studied to derive insights about new product innovation and consumer shopping behavior, and can be used to guide a retail strategy.

Product cannibalization is a bit different from regular competition, because it occurs within a company’s own portfolio of products. It is when a company’s new product effectively “steals” sales from its other products – without growing the category or the company’s net revenue.

What is Product Cannibalization

CPG brands compete against one another for sales every day. Companies are no stranger to retail’s competitive landscape, and are always devising and reworking strategies to maintain and increase their market share. 

Product cannibalization is a bit different from regular competition, because it occurs within a company’s own portfolio of products. It is when a company’s new product effectively “steals” sales from its other products – without growing the category or the company’s net revenue. Instead of attracting new customers or driving multi-SKU purchases, the new product simply “cannibalizes” – or eats the sales – of their other products. 

For the supplier, this can cause compounding, excess inventory of its other products that may lead to a loss of revenue, and affect relationships with retail buyers. 

Retailers are not always keen on the phenomenon of product cannibalization, as they lose sales on the neglected products, just as the brands do. The excess stock can also take up space on the shelves or back rooms– valuable real estate that may be better served by another brand’s goods. 

However, savvy brands are utilizing product cannibalization to guide their sales strategy, rethink product innovation, and prove incrementality (the ability to grow a category through sales of different products) to retailers. 

Potential Reasons for Product Cannibalization

Product cannibalization can occur for a number of different reasons, depending on the product’s pricing, the type of product, or how the category is evolving. As mentioned above, the effect of product cannibalization can be an unintended result of taking new products to market - or a strategic move by a supplier to alter their product mix over time. 

If a supplier releases a lower-priced item that is similar to their other items, consumers may choose to only buy that product. In order to maintain sales volume of the higher-priced item, the company will need to communicate its differentiated value. By clearly communicating the features and benefits of differently priced items, brands can attract new audiences with diverse values – and increase top-line growth rather than lose sales to their cheaper SKUs.

Product cannibalization can also occur when an item is discounted. Discounting products can be considered a method of intentional cannibalization, in an effort to sell through a product more quickly than others. In any case, suppliers will want to consider how promotional pricing will affect sales for other products within their assortment. Product Mix

Leading CPG brands meet consumers’ demand for variety by maintaining a wide assortment of styles, flavors, product types and pack sizes within their product mix. They are able to maintain sales across the different items, and avoid product cannibalization by distinctly communicating the value of each item.

Introducing a new type of product can result in cannibalization of sales if it comes across as more valuable or useful than existing products. For example, a new, all-in-one cleaning solution can displace a brand’s other cleaning products. Or shoppers may reach for a new food or beverage product with added nutritional or health benefits, instead of a brand’s other products that are without them. 

Sometimes, product cannibalization can occur when the new product is simply more flavorful or exciting. 

New product development is an important process that CPG organizations invest in to meet the emerging needs of consumers, and can be leveraged to maintain and grow market share through the introduction of trending and all-together new product concepts. When done successfully, brands can attract new consumers, in addition to their loyalists and grow their product mix with success. However, new product development can also result in product cannibalization, triggering displacement of existing items by making them seem redundant. 

Examples of Product Cannibalization

Unintentional product cannibalization 

Say that a grocery wine brand sells bottles of wine priced over $20, and releases a red blend with a special label to draw in a new customer base – priced under $20. The wine brand faces product cannibalization when new customers and brand loyalists alike purchase the new red blend instead of the other bottles. This becomes a bigger cost issue if the customers make the same repeat purchases, because the brand’s perceived value will begin to align with the lower priced item. It will prove challenging to regain the sales volume of the original products, and their production costs can amount to lost revenue.

A snack brand experienced product cannibalization when it released a line of chips that are crispier because they are cooked in a new oil, and more irresistible because of new and exciting flavor additives. The product was intended to serve as a line extension, but due to customer demand it has effectively cannibalized sales of the other products. While the new products generate promising profits, the company did not anticipate loss of sales for their other goods and is struggling to resolve them. 

Intentional product cannibalization

Apple is a classic example of a company that plans for product cannibalization and leverages it to attract and retain new customers. For starters, the iPhone is considered to have cannibalized the iPod (and smartphones as a whole are considered to have cannibalized the digital camera) . Today, new generation iPhones cannibalize former models by including newer features for a relatively low price increase. The iPad also cannibalizes some sales from Mac computers, but the company plans and allows for this considering that it keeps customers in the Apple product ecosystem.

If a CPG food company conducts market research, and finds that its target market prefers options with added health benefits, the company may release a healthier line extension, and build awareness around it with a national marketing campaign and attractive design elements that call out the new features. They do not advertise for the original, more processed and sugary line and intentionally allow the new products to cannibalize its sales. Since the brand planned thoroughly for this, they did not overproduce the former products and enjoy a healthy new revenue increase overall.

Calculating Product Cannibalization

There is a method for calculating a cannibalization rate to better track its impact within a business. By calculating the cannibalization rate for different products after a new product release, a company can make better decisions about how to address the issue. 

The formula for a brand to identify a product cannibalization rate is:

Product cannibalization rate = ( number of sales lost on existing product ÷ number of sales of a new product ) x 100

• With number of sales lost on an existing product = Last year’s units sold – this year’s units sold (ex. 2000-1000= 1000 )
• And sales of a new product being the number of units sold of the new product SKU in the same period (ex. 2500)
• For example, ( 1000 / 2500 ) x 100 = 40% cannibalization rate

When CPG brands release new products, some degree of product cannibalization can be expected, with the trade off being that the new product begins to gain traction in the market. By using the cannibalization rate formula, companies can identify which products are losing the most sales and strategize how to recover the lost revenue.

Crisp YoY sales dashboards provide the necessary information to calculate cannibalization rates for any given product, and the platform provides near real-time data reports to monitor cannibalization trends immediately after going to market with new products.

Introducing a new type of product can result in cannibalization of sales if it comes across as more valuable or useful than existing products. For example, a new, all-in-one cleaning solution can displace a brand’s other cleaning products. Or shoppers may reach for a new food or beverage product with added nutritional or health benefits, instead of a brand’s other products that are without them. 

How to Avoid Unintended Product Cannibalization

Companies should always tap into data before going to market with new products, and keep a close eye on their sales after doing so. 

Market research and market testing are important elements of a go-to-market strategy because it provides a preview of how new products will perform in the market. A brand can also test their original products along with the new items to gain insight on how they will perform together. If the audience disproportionately favors the new product, a brand can plan for some degree of product cannibalization.

Companies should also refer to their existing regional and store-level data for insights about product sales and trends in different locations. Using Crisp, companies can research and identify areas of regional opportunity to strengthen their sales strategy.

A company should ensure that a new product release aligns with their fiscal sales plan. There should be a plan in place that considers potential product cannibalization losses, and forecasts new sales that meet and exceed revenue targets. “Measure twice and cut once” is sage advice that stresses the importance of sales planning before going to market with new products. 

The Crisp platform provides sales and finance teams a single source of truth for data to design a hardy sales plan. 

Pricing Strategy

Recall that pricing itself can cause product cannibalization. Consumers tend to reach for a lower priced item, if the value of two comparable products is not distinguished enough. CPG brands will need to conduct a pricing analysis that compares their new product with other products in their portfolio, and plan for sales of all the products to meet revenue targets set in the fiscal sales plan. 

Monitor and Identify

After going to market with a new product, companies can use Crisp to receive near real-time data that accurately shows how it, and other products are performing - down to the individual store-level . By tracking sales velocity, before and after a new product launch, brands can use the cannibalization rate formula to identify cannibalization activity much earlier than without the data. In doing so, the company can implement a plan to recover lost sales before they compound and affect top-line revenue. 

A company can avoid product cannibalization by innovating and going to market with products that are complementary to – and not competitive with – other products in their assortment. When successful, new products attract new consumers to a brand without affecting the sales velocity of other items, effectively generating a new revenue stream that helps the company grow. 

It happens that sometimes, product cannibalization is necessary to shift the product offerings as a whole and evolve the company’s positioning. 

By using data at every stage of new product development, through to launch and after, to monitor sales, companies can anticipate and plan for product cannibalization. Doing this can ensure success, while leaving things to chance can be detrimental for sales. Today, companies are using data to track multiple variables and optimize the performance of every product they offer, and having full visibility over the phenomenon of product cannibalization.

Get insights from your retail data

Crisp connects, normalizes, and analyzes disparate retail data sources, providing CPG brands with up-to-date, actionable insights to grow their business.

eCommerce: Product Cannibalization vs Internal Cannibalization

All companies want to launch new products that steal customers away from competitors. But sometimes you just end up stealing sales away from yourself.

Product cannibalization can affect companies of all shapes and sizes. It's happened to Kodak and Coca-Cola while the likes of Apple and P&G have done it intentionally. Read on to find out everything you need to know about product cannibalization.

Defining Product Cannibalization

Product cannibalization - also known as corporate cannibalism or market cannibalization - happens when a company's new product displaces an existing one.

In other words it reduces purchases of an older product and eats away at your own sales.

Total product cannibalization results in sales growth for a new product but the company's overall market share doesn't increase. This can happen when a company launches a completely new product or a variation of an older product.

Depending on production costs product cannibalization can really hurt a company's bottom line. But sometimes companies deliberately do it to stay competitive and provide their customers with more choices.

What causes product cannibalization?

Prior to launching it's important to make sure new products are significantly different from older models in terms of design features audience or pricing.

Let's take a closer look at some of the causes of product cannibalization:

1.Failing to Reach New Audiences

If a new item shares the same customer base as an already existing product it's bound to attract the same audience and split sales.

2.Creating Comparable Products

If a new product doesn't offer something different like a quirky feature a unique aesthetic or a new use case you'll attract the same customers and product cannibalization could become a problem.

3.Miscalculated Pricing

If not carefully implemented low-priced products can steal significant sales away from more expensive products - particularly if there is little to differentiate them in terms of features or design. This can devastate profits.

Deliberate product cannibalization

Market cannibalization isn't always a bad thing. Many companies do it deliberately to stay competitive put customers first or expand their market share just a little.

For example back in 2006 when Coca-Cola launched Coke Zero in the UK it aimed to attract male consumers who were concerned about their sugar intake. While this took away sales from its original drink as well as its female-focused Diet Coke brand it attracted lots of 18-25 year old males back to the cola market. So its sales increased overall.

Other leading companies such as Apple Google and Facebook proactively self-cannibalize so that they can improve their products and prevent new startups from taking their place.

In his biography Steve Jobs is quoted as saying : If you don't cannibalize yourself someone else will . So when the iPod's popularity was still through the roof he launched the iPhone. While this hurt iPod sales it attracted new customers and helped Apple stay ahead of competitors. Similarly newly released iPhones make older models obsolete but the company remains a market leader.

Apple overlooked fears of product cannibalization to pursue larger objectives. While this could impact short-term profits it can benefit a company in the long-term.

If your brand is looking to launch a new product and you want to offload old stock try using a Where to Buy Software Platform to send consumers to retailer sites. This means you'll avoid having to incur direct to consumer costs for old products.

How is product cannibalization calculated?

Whether you intend to undertake corporate cannibalism or not it's important to keep track of sales growth across all product lines to understand how new releases impact upon existing product sales.

Here's how you can calculate product cannibalization and monitor the risks posed by new products.

Cannibalism Rate = No. of sales lost on existing product ÷ Sales of new product x 100

To get the number of sales lost you can subtract this year's sales from last year's. So for example if an existing product sold 5000 units last year but just 4000 this year the number of lost sales would stand at 1000.

No. of sales lost on existing product = Last year's sales - This year's sales

Let's say 3000 units of your new product were sold this year.

Cannibalization Rate = 1000 ÷ 3000 x 100 = 33.3%

This means one-third of new product sales may have been taken from an existing product. However this is just an estimate. Sales of an older product may have fallen for other reasons such as reduced marketing activities or ecommerce trends .

Monitoring your cannibalization rate will let you see how new products are affecting overall sales and profits. It will also alert you if sales are just shifting from one product to another.

You can calculate the cannibalization rate for every existing product that may be impacted by a new release.

How to avoid product cannibalization

If you want the launch of your new products to impact competitors rather than the performance of your other products here is what you need to do before launching.

Step 1: Conduct Thorough Research

To find new audiences for your product you need to analyze and research the market for demand. It's also a good idea to assess the competition so you can find gaps in the market and learn from the past mistakes of other companies.

Next you should outline who buys your current products. Set out their demographics values problems and goals based on the data you have. Try creating personas to bring your targeting to life.

Then do the same for the target audience of your new product and compare the details . Some overlap is fine but if the two groups are indistinguishable it will probably result in significant product cannibalization.

ChannelSight can uncover deep insights into your customer base and will help you to understand their buying behavior's to a level of detail you never thought possible. Reach out to us to find out more.

Step 2: Ensure Your Products Are Distinctive

If there's nothing to differentiate a new product from an existing one you may end up shifting sales from one to the other and leave competitors completely unaffected.

Here are some ways to innovate without causing product cannibalization:

• Think outside the box: Create something totally unique that will appeal to a completely new demographic. This could mean transforming a smartphone into a wearable smartwatch or adding coffee to Coke to attract caffeine-craving adults rather than sugar-starved kids.
• Include upgrades: Add new features that will appeal to a specific target audience. For example back in 2013 Amazon launched its Kindle Fire HDX Tablet . To appeal to older people who hadn't owned tablets before it came with free on-screen 24/7 tech support.
• Offer a premium option : Introducing an expensive product line will appeal to an upmarket audience that isn't budget-conscious. This group may pay more for improved service quality convenience design or limited edition releases. Launching a cheaper product may work too but you need to ensure you don't cannibalize more profitable products.
• Create complementary products : Launching something that works alongside an existing product will enhance your offering and attract both new and returning customers. Plus it can't lead to product cannibalization.Whether you take a new approach to quality or pricing distinctly different products should appeal to new audiences and significantly reduce your cannibalization rate.

Step 3: Carefully Position Your Product

Your product may address the pain points of a new group but your work isn't done yet. You need to make sure your marketing appeals to this target audience too.

Create content that's on-brand but be unique and diverge from past campaigns. Google and Facebook Ads make it easy to target new demographics but you should seek out new publications for offline promotions.

A content compliance service is a great way to ensure that your carefully crafted brand collateral is being used correctly by retailers selling your products.

Step 4: Test Before Launching

No matter how much research you do it's impossible to know exactly how your target audience will react to a new release. So make sure you get feedback on your product packaging and marketing through interviews surveys and focus groups before the launch day arrives.

If the wrong audience segments are attracted to your product you'll be able to identify the reason and address any market cannibalization risks early on.

Step 5: Measure Everything

Once launched you should monitor individual product sales closely. This way if there's an unintended effect on existing product sales you can take action fast.

Calculating the cannibalization rate on a monthly or quarterly basis will help with this. It's also a good idea to observe the impact that discounts and promotions are having across your portfolio as this can lead to market cannibalization as well. Setting a minimum advertised price for each product will help if you're selling in the United States.

For European brands a price monitoring service will help you to keep on top of your retailer network's prices while staying on the right side of EU regulations.

Want to understand your consumers better?

ChannelSight's brand performance team is providing updated insights on consumer behavior' brands and retailers. If you would like more information and insights please feel free to reach out to us here.

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Computer Science > Machine Learning

Title: an xgboost-based forecasting framework for product cannibalization.

Abstract: Two major challenges in demand forecasting are product cannibalization and long term forecasting. Product cannibalization is a phenomenon in which high demand of some products leads to reduction in sales of other products. Long term forecasting involves forecasting the sales over longer time frame that is critical for strategic business purposes. Also, conventional methods, for instance, recurrent neural networks may be ineffective where train data size is small as in the case in this study. This work presents XGBoost-based three-stage framework that addresses product cannibalization and associated long term error propagation problems. The performance of the proposed three-stage XGBoost-based framework is compared to and is found superior than that of regular XGBoost algorithm.

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Home > Division of Research & Economic Development > Gambling and Risk Taking Conference > 2023 ICGRT > MAY23 > 74

Tuesday May 23, 2023

Submission title.

Product cannibalization: a case study

Session Title

Session 1-3-C: Lightning Talks

Bernardo Chagas Follow

Presentation Type

Lightning Talk

23-5-2023 1:45 PM

23-5-2023 3:15 PM

• Disciplines

Business Administration, Management, and Operations | Marketing

Corporate cannibalization is a marketing phenomenon that occurs when a product’s sales decrease in volume or market-share due to the release of a new product that is introduced by the same company. The new product then absorbs demand for the old product therefore reducing its sales. When considering institutions that operate in monopolistic, oligopolistic, or highly regulated markets as is the case with lotteries, it may be expected for the gambling activity to grow by the expansion of total demand. Very few studies so far have focused on the impact of new lottery games on other preexisting lottery games. The present study is the first to assess for the impact of cannibalization on the Portuguese national lottery portfolio and is also the first to include games such as passive lotteries. Results showed that cannibalization was found at the product category level and for individual products. Scratch-cards was the product that most cannibalized other products because it cannibalized most other games. Complementarity for product category and individual products was found. The national lotto correlated positively with EuroMillions’ except for situations when there was a rollover than increases one of these games’ jackpots The present study brings new findings that complement previous research on lottery cannibalization.

Lottery gambling; longitudinal Analysis; panel data; product cannibalization.

Author Bios

Senior Product Manager at the Portuguese National Lottery and Invited Assistant Professor of at ISEG - Lisbon School of Economics & Management. Chagas is a member of the ADVANCE - CSG/Research in Social Sciences and Management research unit of the University of Lisbon. His research focuses mainly on marketing, business strategy and entrepreneurship. His work has been published in international peer review journals and conference proceedings. He has also tutored several Master degree Students.

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Competing interests.

no competing interest

Since April 10, 2023

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