Cannibalization is a term used in product management that refers to the negative impact of a new product on the sales of an existing product. It occurs when a new product is introduced into the market, and it competes with an existing product from the same company. The new product takes away sales from the existing product, reducing its market share and revenue.
Causes of Cannibalization
Cannibalization can occur due to various reasons. One of the primary reasons is the introduction of a new product that is similar to an existing product. For example, if a company introduces a new smartphone that has similar features to an existing smartphone, customers may choose to buy the new product instead of the existing one.
Another reason for cannibalization is the pricing strategy of the company. If the new product is priced lower than the existing product, customers may choose to buy the new product instead of the existing one, leading to a reduction in sales of the existing product.
Impact of Cannibalization
Cannibalization can have a significant impact on the sales and revenue of a company. It can lead to a reduction in the market share of the existing product, which can result in a decline in revenue. It can also lead to a loss of customer loyalty, as customers may switch to the new product, which can affect the long-term growth of the company.
However, cannibalization can also have some positive effects. It can help the company to maintain its market share by introducing new products that appeal to customers. It can also help the company to stay ahead of its competitors by introducing innovative products that meet the changing needs of customers.
To manage cannibalization, companies need to have a clear understanding of their product portfolio and the market they operate in. They need to identify the potential impact of new products on existing products and develop strategies to minimize the negative impact.
One strategy is to differentiate the new product from the existing product by adding new features or targeting a different customer segment. This can help to reduce the competition between the two products and minimize cannibalization.
Another strategy is to phase out the existing product gradually and replace it with the new product. This can help to minimize the negative impact of cannibalization and ensure a smooth transition for customers.
Cannibalization is a common challenge faced by companies in product management. It can have a significant impact on the sales and revenue of a company, but it can also present opportunities for growth and innovation. By understanding the causes and impact of cannibalization and developing effective strategies to manage it, companies can maintain their market share and stay ahead of their competitors.