Cannibalization is a concept used in market strategies to describe the reduction in sales revenue, sales volume, or market share of a single product as a direct consequence of the producer introducing a new product in the market (Chandrasekar, 2010). This is one of the main considerations when conducting a product portfolio analysis. Cannibalization can be very effective if used appropriately to develop strong marketing strategies that can help improve customer satisfaction as well as expanding the companys market. One example that can illustrate the concept of cannibalization is the introduction of iPad by Apple Inc. This ultimately reduced sales volumes and revenues from the Macintosh, which was one of the companys best performing products. However, this strategy eventually proved to be fruitful for the company as it resulted in an expanded market for consumer computer hardware (Chandrasekar, 2010). From this approach, cannibalization is used as a strategy that will significantly hurt the competitors of the organization by reducing their market share.
However, market cannibalization can have a disastrous impact on the companys marketing approach. For example, it may result in forcing one product out of the market prematurely. The sales volumes and revenues from an existing product will decrease significantly as the market concentrates on the new product (Anandan, 2009). Eventually, the older product will be forced out of the market prematurely due to reduced revenues and sales volumes. This can prove to be tragic if the new product entering the market fails to meet the demands and preferences of customers (Chandrasekar, 2010). In this case, the company may suffer tragically from the loss of market share for both the older and the newer products.
Canalization can also be understood as the process of a retailer opening a new retail store closer to an existing one so that they both compete for the same customer. This will have the impact of drawing some customers from the older store into the new retail store. Essentially, a company involving itself in market cannibalization is essentially competing against itself (Anandan, 2009).
Product line extension entails using an established brand name for introducing a new product within the same category. This can happen when a company new additional products within the same category as an established brand in the market (Anandan, 2009). For example, line extension may involve introducing new colors, flavors, ingredients, or different sizes of the same product (Chandrasekar, 2010). The resultant effect of this strategy is that it will elongate the products range through the introduction of different items under the same product.
However, line extension increases the risk of cannibalization from a marketing perspective. This can happen in various ways. For instance, when a new item such as a new flavor, color, or ingredient is introduced into the market for a common product, customers are more likely to shift to consuming the new product line (Anandan, 2009). Consequently, the revenues and sales volumes from the original product will subsequently decrease significantly. This may have the impact of driving the original product out of the market prematurely since the focus for the customers will now be shifted towards the new product lines (Chandrasekar, 2010). In essence, the new product lines will be competitors for the original or main product that bears the brand.
Anandan, C. (2009). Product management. New Delhi: Tata McGraw-Hill Education.
Chandrasekar, K. S. (2010). Marketing management: Text and cases. New Delhi: Tata McGraw-Hill.
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