The Marketer’s Guide to Cannibalization

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When marketers and businesses talk about cannibalization, they are talking about taking a bite out of their own sales with new or competing products. A good example of this is the story of Diet Coke.

Diet Coke was the pet project of a senior manager at the Coca Cola Company for many years. At the time, Coca-Cola was far and away the number one soda on the market. And the company already had a diet soda, called Tab, which was moderately successful.

Diet Coke was developed somewhat in secret because of the strong opposition to it within the company. Executives, salespeople, and marketers all believed that launching a diet soda with the Coke name would hurt sales of both Tab and Coca-Cola. They were worried about cannibalization.

Of course, those fears didn’t come to fruition in the case of Diet Coke. When it finally launched it was a huge success, and continues to be the number one diet cola on the market.

Why Fear Cannibalization?

Fears of cannibalization are often legitimate. When a company’s growth strategy involves launching new products, there is a fine line between products that are truly new and products that directly compete.

A truly new product is responding to an unmet need in the marketplace. It either targets a new group of consumers that are not already purchasing your existing product in that category, or it targets an additional need observed in the same group of consumers you already sell to.

If consumers view the new product as an alternative to the old, then cannibalization may occur. Consumers will simply shift from one product to the other.

Is Cannibalization Bad?

Cannibalization sounds bad, but that’s not always the case. It depends on a number of different factors. To illustrate this, let’s look at three different cases where cannibalization can actually be a good thing:

  1. Versioning – if you are replacing an older product with a newer version, something that is truly better, cannibalization might be good. By getting you customers to switch from the old to the new, you are better serving their needs. Although this may not directly increase sales, it does two things. First, it keeps them from switching to your competitor’s product, which is an increase in sales from what would have been. And second, it builds brand strength by creating happier customers.

  2. Upselling – if your new product is more expensive than the old product, then the value of each sale increases. In this case, successfully getting your existing customers to switch from the lower value product to the new, higher value product, will lead directly to an increase in revenue. Therefore, without adding new customers, you can still grow your business.

  3. Growing Overall Market Share – this last case is one where we can, again, look at the case of Diet Coke. Sure, some Tab drinkers switched to Diet Coke. And some Coca-Cola drinkers also switched to Diet Coke. But Diet Coke also brought in new customers that previously may have avoided soda or drank one of the competitor’s drinks. And if the losses to your old products are more than offset by the gains of the new, then the overall business grows.

How to Judge Cannibalization in Your Business

It won’t always be obvious whether a new product will cannibalize the old. But those kinds of questions and decisions may be yours to make. So how do you make them?

First, understand the costs associated with developing the new product. Second, understand the competitive landscape. What else is on offer? Are other companies aiming to steal market share with a new/better product? And third, prepare some realistic expectations of performance.

If the cost of developing and selling the new product is more than the overall gains expected by its release, you probably shouldn’t move forward. If the losses to your existing products are higher than the expected new business generated, also not the smartest decision. But if you risk losing business to a competitor and the only way to keep customers is by releasing a new product, then sometimes it’s worth the added cost.

Finding the Underserved Customers

When starting a new business, or launching a new product line within an existing business, the customer is a good place to start. Who are your customers? What problem of theirs are you trying to solve? And then, how are you going to solve it in a way that wins their business?

Here’s one way to set yourself up for success: find the underserved customers.

Instead of competing for the attention of the same customers that other companies are already after, find the ones they aren’t. Find the ones that no company does a good job reaching, and create something specifically for them.

Stories of companies using this strategy fill the pages of business books, but perhaps the largest such company is Walmart. In the beginning, Sam Walton created Walmart to bring the discount shopping and department store experience to rural neighborhoods that were long ignored by the larger chains and franchises. By serving underserved communities, he was able to build a business that grew quickly, free from most forms of competition.

So instead of trying to reinvent the wheel, find a segment of the population that doesn’t have access to the right solution to meet their needs. This may be a geographical segment. It may be a segment that is currently priced out of a certain market. It might be a segment whose needs are not met perfectly by any of the options available to them and would be better served by a more specific solution.

Find the underserved customers and make them your target. If you can win with them, you can have a market all to yourself.