What Is Market Cannibalisation? Types, Examples & Tips

Brands often face the challenge of balancing growth while maintaining the success of existing products. Introducing new items to meet customer demands and boost profits is essential, but it can sometimes lead to market cannibalisation. This occurs when sales of a newly launched product reduce the demand for other products within the same brand.

The issue often arises when a company releases similar versions of its products or launches them too close together without proper planning. This article explores why market cannibalisation happens with a few examples and provides practical ways to prevent it, helping your brand maintain a strong market presence.

Defining Market Cannibalisation: The Basics

Market cannibalisation happens when a company’s new product competes with an existing one, causing a sales drop for the older product. Even if the new product performs well, the overall market share doesn’t increase because it appeals to the same customer base. 

Instead of attracting new buyers, the latest product takes away sales from the older one. This can also occur when a brand opens a new store near an existing one, drawing customers away from the original location. Cannibalisation leads to a loss of sales and market share. It hurts the revenue because the new product doesn’t bring in new customers but simply shifts existing ones. 

As a result, some companies hesitate to release new products if they think it might hurt their current product’s performance. For example, if a brand releases a new version of a popular drink with fewer ingredients or a different flavour, it might steal sales from the original version. Consumers may prefer the latest version because it offers something similar at a lower price or with added benefits.

How Cannibalisation Takes Place in the Market

Cannibalisation in the market occurs when a new product or service reduces the sales of an existing product, often from the same company. This can happen even with careful planning. For instance, a company may introduce a new version of a product that closely resembles an older one, leading customers to switch to the new version instead of attracting new buyers. 

One of the main causes of market cannibalisation is the similarity between the two products. For example, a tech company may launch a new tablet model that has nearly identical features to the previous one. Even though the company might have expected a larger market share, the new product ended up competing with its previous models.

Marketing also plays a significant role in this process. If a business promotes the new product in a way that makes the older one seem outdated or less appealing, it may push existing customers to switch. The tone of advertisements can make customers feel that the older product is no longer relevant, even if it still meets their needs. 

Exploring the Types of Market Cannibalisation

Here’s a breakdown of the types of market cannibalisation:

Planned Cannibalisation

This happens when a company deliberately releases a new product, knowing it will impact the sales of an older one. For example, brands like Apple and Samsung launch updated versions of their devices each year. 

While the older models remain popular, the newer versions often attract buyers who would have otherwise stuck with a competitor. This approach helps the company stay relevant while bringing in fresh customers.

Cannibalisation Through Discounts

Offering discounts to clear inventory or boost sales can also reduce the appeal of full-priced items. If customers start expecting regular price cuts, they may delay purchases or refuse to pay the original price. Retailers may offer even deeper discounts to encourage sales, hurting profit margins.

Cannibalisation Through eCommerce

When traditional retailers start selling online, customers shift away from purchasing from a physical store. While this might seem like a loss for physical locations, the online channel often attracts new shoppers who wouldn’t usually visit the store. This could lead to higher overall sales for the company, even if in-store purchases decrease.

Preventing Market Cannibalisation: Key Strategies

Preventing market cannibalisation involves planning to avoid the negative impact of new products competing with existing ones. Several key cannibalisation strategies can help companies prevent this issue and ensure that their product lines complement rather than conflict with each other.

Identify Market Segments for Each Product

It’s important to define each product’s target market clearly. By understanding which customer groups each product serves, a company can pinpoint any gaps that need filling. This clarity helps ensure that new products don’t overlap with existing ones, thus preventing unnecessary competition within the company’s product lineup.

Evaluate Demand for New Products

Assessing a new product’s market potential is crucial before launching it. Companies should consider the costs involved in production and the expected return on investment. 

Sometimes, new products might not increase revenue in the long term, even if they do in the short run. In such cases, sticking with existing products could be more profitable.

Conduct Market Research

Conducting thorough market research helps a company understand customer needs and preferences. This insight allows for the creation of new products that complement existing ones. Additionally, research can alert a company to potential threats from competitors, giving them a chance to act before similar products hit the market.

Implement Strategic Pricing

Pricing strategies can help minimise cannibalisation. Setting a higher price for a new product can limit its appeal to customers who want more features, leaving the original product intact for those seeking basic options. Moreover, offering a lower price for the new product can attract budget-conscious customers.

Is Market Cannibalisation Good or Bad for Your Business?

Market cannibalisation can be beneficial and harmful to your business, depending on how it’s handled. When a company introduces a new product line, it often leads to product cannibalisation, where the latest product takes away sales from existing ones. This is a natural part of business growth and innovation. 

It allows businesses to offer something fresh to the customers, which can help attract new buyers and improve the overall market presence. However, market cannibalisation comes with risks. A poorly executed product launch could end up competing with older offerings, leading to confusion among customers and weakening the brand. 

Contrarily, a well-thought-out cannibalisation strategy can mitigate these issues. Companies can avoid cannibalising their core products by ensuring the new product serves a different segment or complements existing offerings,. 

This type of market expansion helps increase the business’s share in the market, potentially leading to greater success in the long term. Companies need to strike the right balance. The key is to innovate without sacrificing the stability of current sales.

Market Cannibalisation: Case Studies

Here are three market cannibalisation examples that illustrate how it plays out differently.

Apple

When Apple introduced the iPhone in 2007, it knew it would affect iPod sales, its bestselling product. However, by releasing the iPhone, Apple attracted a new group of customers willing to pay a premium for the multifunctional device. 

Over time, Apple continued to release new iPhone models, ensuring older versions became obsolete. This strategy has helped Apple maintain its position as a market leader, with iPhone sales alone contributing over half of its annual earnings.

Kodak

In 1994, Kodak introduced its low-cost Kodak Funtime camera to compete with budget-friendly competitors. However, this move harmed the sales of Kodak’s more profitable film products. To limit the damage, Kodak restricted the availability of Funtime film, but customers began to switch to cheaper alternatives. 

Kodak eventually discontinued the product, but the brand had already lost significant market share by then. This mistake, combined with a series of poor decisions, led to Kodak’s eventual bankruptcy in 2012.

Coca-Cola

In 2006, Coca-Cola launched Coke Zero in the UK to appeal to health-conscious men, particularly those between 18 and 25. This product cannibalised Diet Coke’s sales, which had mostly attracted female consumers. Despite this, Coca-Cola saw tremendous growth as Coke Zero became one of the brand’s most successful launches. 

Managing Market Cannibalisation with Shiprocket

Shiprocket helps brands address the issue of market cannibalisation by providing advanced solutions that improve overall efficiency, ultimately protecting their market position. By simplifying logistics, it enables businesses to maintain better control over shipping and delivery processes. 

Their AI-driven API optimises field operations, helping to reduce return rates and improve delivery accuracy, thus ensuring a more reliable service for customers. When brands offer a seamless shopping experience with accurate delivery, they reduce the chances of customers abandoning their carts or switching to competitors.

Shiprocket’s domestic shipping services extend across 19,000+ pin codes, making it easier for brands to reach a wider audience. Automated features such as the courier recommendation engine and shipping rate calculator help businesses save time and reduce errors. These automated tools enable brands to stay focused on growth while reducing operational challenges that may cause market overlap or cannibalisation.

Conclusion

Market cannibalisation is a natural risk businesses face when introducing new products. While it can spur innovation and growth, it often leads to losing sales for existing products. Companies must carefully research market conditions and adjust pricing strategies to prevent this.

By engaging with existing customers and up-selling in line with the company’s goals, businesses can launch new products without losing market share. The key is balancing innovation with the preservation of your established brand.