Product Cannibalism Marketing 5341 Chip Besio

Product Line Extensions Are utilized because they: Minimal Market Resistance Minimal Market Resistance Leverage Existing Technologies Leverage Existing Technologies Utilize Manufacturing Utilize Manufacturing Capability Capability Capacity Capacity Minimize Financial Investment Minimize Financial Investment

Product Line Extensions Dominant Firms Utilize to: Dominant Firms Utilize to: Maintain market share Maintain market share Maintain shelf space Maintain shelf space Low Market Share Firms and New Entrants complain they use the strategy: Low Market Share Firms and New Entrants complain they use the strategy: Corner Market Shelf Space Corner Market Shelf Space Keep Out Rivals Keep Out Rivals Protect Competitive Position Protect Competitive Position

Product Line Extensions Are created by the introduction of Are created by the introduction of New Sizes New Sizes New Forms New Forms New Compositions New Compositions New Flavors New Flavors New Packages New Packages New Varieties New Varieties

Product Line Extensions Though they minimize failure risk Though they minimize failure risk They can create negative impact on exiting products, called They can create negative impact on exiting products, called Product Cannibalism

Can be defined as: The process by which a firm’s new entry product gains a portion of its sales by diverting sales from a firm’s exiting product(s). The process by which a firm’s new entry product gains a portion of its sales by diverting sales from a firm’s exiting product(s). Therefore, the loss of potential profits from an existing product is a real cost and must be absorbed by the new product. Therefore, the loss of potential profits from an existing product is a real cost and must be absorbed by the new product.

Product Cannibalism May result from: Management Decisions, or Management Decisions, or Competitive conditions Competitive conditions And becomes a problem when: No incremental competitive benefit, or No incremental competitive benefit, or No financial benefit result to the firm. No financial benefit result to the firm.

Product Cannibalism Examples of Management Decisions that can result in excessive cannibalism: Pressure for sales growth from new offerings Pressure for sales growth from new offerings Increasing product line to dominate a category Increasing product line to dominate a category Poor positioning of new products Poor positioning of new products Unrealistic market segmentation Unrealistic market segmentation Sales force overemphasis on new products Sales force overemphasis on new products

Product Cannibalism Some positive motivations for creating cannibalism: Increasing product line to increase brand equity for the base brand Increasing product line to increase brand equity for the base brand To eliminate gaps in existing product line that might be filled by competition, “pre- emptive cannibalism” To eliminate gaps in existing product line that might be filled by competition, “pre- emptive cannibalism”

Product Cannibalism Some examples of “pre-emptive cannibalism”: Flanker strategy (stop brand switching) Flanker strategy (stop brand switching) Fighting strategy Fighting strategy High market share High market share Susceptible brands to price competition Susceptible brands to price competition Wish to preserve profit margins Wish to preserve profit margins