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CANNIBALIZATIONS ON PRODUCT PROTFOLIO, INNOVATION AND PROMOTIONS

Abstract: Brand owners use existing brand names to reduce barriers to entry for the new line with the implicit assumption that additional profit will be earned as a result. But haunting the parent brand is the spectra of cannibalization. What if the line extension is successful but only at the expense of the parent? Then additional costs will be incurred without the benefit of incremental revenue. Cannibalization is a very real threat for the vast majority of new product launches. To evaluate the success of a new product, managers need to determine how much of its new demand is due to cannibalizing the company's other products, rather than drawing from competition or generating primary demand. When two or more brands in the identical product line, presented by same producer targeting similar market and compete among themselves by eating away the market share with no value addition to the marketer is called brand cannibalization. This can happen to any manufacturer if the branding and the market segment are not clearly defined. In few occasions brand cannibalization is necessary for survival as people want change and in todays environment with innovations happening overnight, there is a lot more need to launch new and improved products for different segment of the market. Purpose: The need for studying the effects of cannibalization and its importance has been established in the literature, especially, since an assessment of the expected cannibalization effect of a new product can help in deciding on suitable times for new product portfolio, introduction and promotions. Keywords: Product mix, Product management, Product development, absolute volume ,Market share, product cannibalization, intertemporal price discrimination, brand extension, Introduction:

Innovation, the process of bringing new products and services to market, is one of the most important issues for firms and researchers. To evaluate the success of a new product, managers need a method to gauge not only how much new demand it generates, but also to what extent this demand comes at the expense of (cannibalizes) their other products. When ignored, the success of the new product will be over-estimated. It is difficult for any manager to determine this managers tend to take a more aggregate approach and look at sales volumes and shares, not at an individual's buying patterns. It also over-simplifies the construct which can be viewed on a number of levels. While managers are aware of the cannibalization phenomenon, they typically are less clear on to how to quantify the size of the cannibalization risk.. Unilevers portfolio, for example, includes many food products, as well as several household and personal-care items. Hewlett-Packard is active in the notebook, desktop, printer and scanner markets, and many car manufacturers sell cars in both the SUV and the Luxury Sedan category. Even when managers are aware that the new product may cannibalize their other products in the same category, they may overlook a similar cannibalization potential in other categories. This is especially an issue in case of radical, pioneering innovations. These products add a new dimension to the consumers decision process (Cooper 2000), making it less obvious which categories will be affected (Moreau et al. 2001). For example, Apples iPhone crossed the boundaries of two categories (portable media players and mobile phones), with a clear cannibalization potential for the pioneering firm (LeClaire 2007). Similarly, Procter and Gambles Febreze may draw from the air-refresher category, as it eliminates odors, but also from the laundry-detergent category, as it works directly on fabric (Gielens and Steenkamp 2007). Given P&Gs presence in both categories, there are again two potential sources of cannibalization effects. Both cannibalization sources are unattractive to the firm, as neither implies that the net number of products sold increases (although profit may increase, depending on the respective margins). Within- and between-category brand switching, in contrast, come at the expense of other brands, and is therefore much more attractive from the introducing firms perspective. Finally, part of a new products demand can be really new, i.e., representing a primary demand effect, and come at the expense of the outside good (Albuquerque and Bronnenberg 2009).

Estimating the impact of a new product on other products in a company's product portfolio is a critical management function as any new product entering a market will take market share from all the existing players and predicting these cannibalization effects is a critical and difficult task. However, ignoring the effects may have adverse consequences on the financial performance of a company. Product innovation can help the manufacturer gain market share by giving customer many options in its product line to choose from but sometimes it can be a dual edged sword as it can also reduce sales of the old brand existing in the same segment of the market. The manufacturer should place the innovative products in such a way that it caters to different segments of the market. In few occasions if company purposely wants to obsolete its own product, then it can launch the new product in the same segment. For example as the old television got obsolete Samsung launched flat television but as market innovated further LED were launched, the company had to launch LED to remain in the market however it cannibalized the old brands which also exists in the market. The above example is to state that sometimes it is not a manufacturers choice to innovate or launch product which does not cannibalize the existing product segment. It is the market or the competitors which might force a manufacturer to cannibalize the existing products for its own benefits. And manufacturers who are not innovative or dont have the latest technology might lose their market share to the competitors. Thus brand cannibalization is a dual edged sword which needs to be used strategically by manufacturers and marketers. Evaluation of the anticipated cannibalization effect of a new product is thus necessary for timing its introduction and promotion (Cravens et al. 2000) suggested the importance of studying the relationship between market share and product attributes before introducing a new product. . It is evident that one of the critical issues associated with new product development is the ability to identify its impact on the existing product portfolio.

Cannibalization

The concept of product cannibalization was documented almost thirty years ago by Heskett (1976), who defined it as "the process by which a new product gains sales by diverting sales from an existing product". Copulsky (1976) defined product cannibalization as "the extent to which one product's sales are at the expense of other products offered by the same firm". More recently, Meredith and Maki (2001) have defined upward cannibalization as the cannibalization of a premium brand in the portfolio by a sub-premium brand and downward cannibalization as the cannibalization of a sub-premium brand by the premium brand. Subsequent researchers have focused on identifying the factors affecting cannibalization and how to measure its impact on an existing portfolio. (Wikipedia) In marketing strategy, cannibalization refers to a reduction in sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer. While this may seem inherently negative, in the context of a carefully planned strategy, it can be effective, by ultimately growing the market, or better meeting consumer demands. Cannibalization is a key consideration in product portfolio analysis. Mason and Milne (1994) and Lomax et al. (1997) provided a detailed background on the problem domain, and Lomax (1996) stated that: "the risk of product cannibalization is a real threat for many new product launches and the risk becomes more significant if the new product is launched under the same brand name as an existing product". Buday (1989) stressed the importance of addressing issues regarding product For example, when Hewlett-Packard puts out a new printer, they realize that older printers will suffer some erosion of sales or market share; that erosion is referred to as cannibalization. Samsung undergoes improvement occasionally which means killing its existing product in the market. With a launch of 10.1-inch Galaxy Note (Samsung's latest tablet) it would most likely to cannibalize sales of the existing 10.1-inch Tablet. That is fine for the corporation as somebody has said it rightly that the finest thing to continue to exist in the competitive market is to eradicate your own goods. Similar approach is followed by Apple. While launching i-Pad it didnt thought of cannibalizing Mac sales instead they went for its launch and did well. It happens that if the corporations or producers lack innovation, the category might become stagnant and obsolete as competitor might grab the entire market share.

Another example of cannibalization occurs when a retailer discounts a particular product. The tendency of consumers is to buy the discounted product rather than competing products with higher prices. When the promotion event is over and prices return to normal, however, the effect will tend to disappear. This temporary change in consumer behavior can be described as cannibalization, though scholars do not normally use the phrase "cannibalization" to denote such a phenomenon. Another common case of cannibalization is when companies, particularly retail companies, open sites too close to each other, in effect, competing for the same customers, such as Starbucks or McDonald's. When a firm introduces a new product, there are three strategic options to take into consideration: developing a new individual brand for the new product, applying one of the firms existent brands (which will be termed as parent brand) to the new product, or combining an existent brand (the parent brand) with a new one for the new product (sub brand). Kevin Lane Keller considers that brand extension is when a firm uses an established brand name to introduce a new product3. Its the case of the last two approaches of launching a new product presented above. Thus, the parent brand associated with multiple products through brand extensions will generate a family brand. Therefore, a set of attributes to help characterize each product, including brand, family, package size, package type, and package volume. (1) Brand - identifies the manufacturer of the product; (2) Family - each brand has one or more families; all products belong to only one family; (3) Product group - classification within a family based on any set of defining characteristics; and (4) Product - defines an individual "atomic" product within a product group. Cannibalization is an important issue in marketing strategy when an organization aims to carry out brand extension. Normally, when a brand extension is carried out from one sub-category (e.g. Marlboro) to another sub-category (e.g. Marlboro Light), there is an eventuality of a part of the former's sales being taken away by the latter

Peter Farquhar considers that brand extension can be classified into two general categories4: line extensions (when the parent brand is used to brand a new product that targets a new market segment within a product category currently served by the parent brand), and category extensions (when the parent brand enters a different product category from that currently served by the parent brand). However, if the strategic intent of such an extension is to capture a larger market of a different market segment notwithstanding the potential loss of sales in an existing segment, the move to launch the new product can be termed as "cannibalization strategy". In India, where the passenger-car segment is going up dramatically since the turn of this century, Maruti-Suzuki's launch of Suzuki Alto in the same sub-category as Maruti 800, which was the leader of the small-car segment to counter the competition from Hyundai is seen to be a classic case of cannibalization strategy. A company engaging in corporate cannibalism is effectively competing against itself. There are two main reasons companies do this. The company wants to increase its market share and is taking a gamble that introducing the new product will harm other competitors more than the company itself. The company may believe that the new product will sell better than the first, or will sell to a different sort of buyer. For example, a company may manufacture cars, and later begin manufacturing trucks. While both products appeal to the same general market (drivers) one may fit an individual's needs better than the other. However, corporate cannibalism often has negative effects: the car manufacturer's customer base may begin buying trucks instead of cars, resulting in good truck sales, but not increasing the company's market share. There may even be a decrease. This is also called market cannibalization. Product categories are generally complex. Each brand competes with a product line composed of product formats that differ in size, taste, quality, characteristics, and so on. Therefore, promotional effects not only show up competition among brands, but also competition within brands. This competitive effect within a brand is called cannibalization, and consists of the substitution of the product that is often bought by another format of the same brand, but in a

different size, color, taste or any other characteristic, that is, the switching of different product formats within one brand. 16, 18 Specifically, the cannibalization effects empirically examined in this study focus on size-based formats of the same kind of product; some brands commercialize different size-based product lines within the same product category. Price promotions are often not profitable. Fewer true incremental sales accrue to the brand when one of its pack sizes is promoted, because an appreciable proportion come from other pack sizes of the same brand. The managerial implication is that price promotions must be assessed across the entire brand; it is not enough to inspect a sales spike for a promoted pack size. The extent of cannibalization from other brand-pack sizes must be factored into calculations of the profitability of a price promotion. In an effort to avoid the cannibalization problem, sellers often attempt to segment the market by employing intertemporal price discrimination by offering high-end goods early and low-end goods at a later time .Rather than lowering the actual quality of the low good, the seller degrades the product by using delay to force low type consumers to wait for the introduction of products suitable to their needs. However, certain unique features of the online channel may provide the seller with additional ways to combat the cannibalization problem. For example, because personalization technology allows the seller to better identify a prospective customers preferences, the seller may be able to use personalization to mitigate the cannibalization problem and move toward first-degree price discrimination in the online channel. In addition, the seller may be able to provide an additional incentive to entice customers to reveal their preferences by bundling the purchase of the physical good with access to a value-added online community. If the seller is able to restrict community access based on specific consumer purchasing behavior, the seller may be able to entice consumers to reveal their true purchase preferences. It is important to be able to identify the new product to be analyzed and to distinguish between a new product introduction and a new product group introduction. Therefore, available data must be analyzed to verify if multiple new products were introduced during the same time period. Once the new product has been isolated, model formulation can begin. The first step is to identify the attributes of the possible victims in the portfolio using both qualitative and quantitative analysis.

Qualitative analysis may involve discussions with the executive management of the company and are often based on experience with the previous products.

Quantitative analysis is performed based on product attributes; if the existing products in the portfolio have one or more of the product attributes of the new product, then they are potential cannibalization victims. Sales data trends (volume of sales vs time) are compared to help identify potential attributes. Performance measures such as absolute volume*, market share* and market volume* for the possible victims are utilized to identify the victims in the entire portfolio:

* absolute volume - percent volume of victim product group(s) to the total volume of family was studied for the entire sales data period; * market share - percent volume of a family of the total volume sales of the brand was studied for the entire sales data period; and * market size - percent volume of company's total sales of the total market share was studied for the entire sales data period. Lomax et al. (1997) used the ratio of loss of sales of the existing product to the sales of new product to measure cannibalization, but do not account for losses across product families. Analysis of the performance measures identifies which products have been cannibalized and their levels of cannibalization. The parametric measures help identify the sources of cannibalization, i.e. from within the portfolio or the competition. Thus it could help identify the level of cannibalization among the boundary conditions established earlier. Once attributes of the cannibalized product are identified, including identification of the percentage contribution of each of those attributes towards cannibalization, existing forecasting models are used to predict sales of the victims and loss in sales of the victims resulting from the introduction of the new product. Based on the results from the cannibalization model, management will be able to assess the impact of the introduction of the new product, resulting in better new product introduction decisions including changes in marketing, e.g. pricing of the new product, pricing of other products in the portfolio, and promotions.

Types of cannibalization

Four different scenarios resulting in product cannibalization (in consumer industry) are discussed in this section. (Sundara, R. S., Ramakrishnan, S., & Grasman, S. E. (2005). Incorporating cannibalization models into demand forecasting. Marketing Intelligence & Planning, 23(4), 470485.)

(1) Intra-product cannibalization. Different products in the market could compete for the same market share. Intra-product cannibalization is observed between two that are different but offer similar functionalities. Although these products are different, their functional commonality is higher than the differences and hence results in cannibalization; hence they compete with each other for a common market share. Depending on their functionalities and the needs, one product might be cannibalized in preference to the other. An example of intra product cannibalization is the competition between microwave and ovens. Although these products are different in the fact that they offer minor functional differences from the other, they compete for a common market share.

(2) Inter-product cannibalization. This occurs when products within the same product group from a company compete with each other for market share. It could affect, for example, mint-flavored and cinnamon-flavored toothpastes. Both these products have very similar features and are competing for the same market share. Depending on factors such as price, consumer preference and marketing strategies, one product might be cannibalized in preference to the other.

(3) Multi-product pack cannibalization : This type of cannibalization occurs when companies market multiple products as one product. For example, a combination of closely related products (such as a tube of toothpaste, toothbrush, dental floss, and mouthwash as one product) or a set related by their use rather than their nature (such as a camping kit that includes insect repellent, torch light, knife, and sleeping bag). Typically, the price of this multi-product pack would be less than if the products in the pack are

purchased individually, and if a consumer finds the cost of the multi-product pack to be only minimally higher than the sum of the individual items they intended to purchase, the multi-product pack will be purchased and cannibalization of the individual items will occur. In such cases, it may be difficult to determine which product is being cannibalized.

(4) Combo-product cannibalization. An example of a combo product is a television monitor, plus VCR, plus a DVD player. The main difference between multi-product pack products and the combo products is the fact that the products in the multi-product pack can be separated into individual products, while the combo product cannot be separated. The difficulty of identifying which product is being cannibalized still exists.

Sources of cannibalization

Introduction of new products refers to the introduction of a new package, line-extension, or brand new product. Price elasticity is concerned with price changes due to introduction of a new product or price changes for an existing product due to changes in the process/logistics or a change in the marketing strategy. The marketing field relates to changes in the marketing policies, such as introduction of a product into a completely new market, or a market in which another product of the company is already well established. Competition straight forwardly describes the introduction of new products or price changes by the competition. Market trend sums up changes in the economic conditions or consumer preferences. Market share boundary conditions for product cannibalization

It is important to firstly identify the realms of product cannibalization in order to make decisions on the introduction of the new product and quantify the impact of cannibalization.

Consider an example with two products, A and B, offered by companies X and Y, respectively.

If company X wants to introduce a new product C, which has functionalities very similar to product A, product A will be cannibalized. But studies should also be performed to check if the new product C increases the overall market share of the company. Considerations should also be made related to the cost of manufacturing the product and other expenses in order to find out if the new product would increase the total profit, since increase in market share may not necessarily lead to more profit.

Four different scenarios are observed when a new product is introduced in a product portfolio. Traylor (1986) reported similar scenarios of cannibalization, but does not explain the reasons.

Scenario 1. The new product draws all of its sales from products in the company portfolio and does not increase the overall market share.

Reasons for the new product drawing all of its sales from the existing products in the portfolio include:

* functional similarity with the already established products; * marketing in the same areas as the existing products; or * customer preference of the new product over the existing product.

Scenario 2. The new product increases the overall market share, while cannibalizing the company portfolio, but not the competition. Possible reasons that the new product has increased the market share are that functionalities distinguishing it from the established product result in increased market share, and that functionalities similar to the existing product result in cannibalization of some market share of the existing product.

Scenario 3. The new product increases the overall market share and cannibalizes both the product portfolio and the competition. In this scenario, the new product has functionalities that can be used to distinguish it and create its own niche, and are common to the products in the market, thus cannibalizing market share.

Scenario 4a. The new product increases the overall market share and cannibalizes only the competitor products . The new product has attributes to distinguish it and create its own niche, which are common to the competition's products, hence cannibalizing their market share

Scenario 4b. The new product increases the market share by the same quantity as in the previous scenario, but does not cannibalize either the product portfolio or the competition. It may be deduced that the new product has been introduced in the new market with no competitors, or that the new product has unique features.

Scenario 1 could be termed the "worst case" situation, because all the resources spent in developing the new product did not generate any additional market share. Since the new product has drawn all of its sales from product A, the new product will not generate an increase in the profitability of the company unless it has a higher profit margin.

Scenario 2, although the new product has cannibalized some market share of product A, it has increased the overall market share of the company. The new product is likely to increase the profitability of the company as a function of profit margin.

Scenario 3 is a similar, but generally more favorable outcome.

Scenario 4 could be termed as the "best case" scenario since the new product increased the market share without cannibalizing the product portfolio. The new product has increased the overall market share of the company by either cannibalizing only competitor products or by creating a new market niche.

Why does cannibalization occur?

There can be several arguments that can be put forward on why a business adopts the strategy of cannibalization. We often observe that there are two stores owned by same owner operates is

close locations. Here, the psychology of the owner can be that the size of market is large enough to support two stores and they can afford drop in sales as long as their total sales are in upward trend. Sometimes it may happen that any company in order to push out a competitor off market launches a revised version of its own product. Introducing a revised version of own product definitely leads to reduction of sales of the old version but it also lowers the market share of the competitive product .Cannibalization may also happen as a result of a companys efforts to satisfy or meet customers needs through extending its product line thus having a new product eating up the sales of the existing product of the same company. Therefore, Cannibalization in the marketing context is defined as the negative impact a company's new product has on the sales performance (volume and revenue) or the market share of the existing products of the very same company.

Effects of Cannibalization:

1. New product introductions impose resource costs on existing products : Such cost can be incurred during research and development stages of the new product, during the introduction stage with all the pre-launch and launch periods characterized with intense promotions, advertisements and new product placement. For example to develop, launch and market the new Mirinda variations such as Mirinda Pineapple, a significant amount of funding was to be done. Such funds originated from the same limited financial sources. It also meant that the existing brands such as Mirinda Orange had their fund allocated to successfully introduce, market and distribute Mirinda Pineapple or Fruity. As a result, the brand strength that Mirinda Orange had before as a single fruit flavoured product is reduced greatly. This weakens the brands immunity to competition, both in the short and the long run terms. As a result, brand market share drops.

2. Decline of Core brands market share: Anther effect of cannibalization by sister products from the same maker is the decline of firstly, the individual fateful brand being cannibalized , above example being continued of Mirinda Orange and secondly the overall generic brand such as Mirinda. On the other side, the outward market share of Mirinda in respect to the soft drink industry remained stable in the first six months but gradually declined as some of the newly introduced Mirinda Variations were not constantly available in the market thus creating a gap that was easily seized by competitors. Some peripheral markets would go months without a particular brand, especially the Mirinda Fruity which was highly loved by the younger market (children in particular). This weakened the overall brand image.

3. More focus and resources are directed to the newly introduced product hence an elevated priority (importance and attention) to a newly introduced brand at the expense of the existing one (Mirinda Orange). This is brand wise unhealthy for the existing product as it weakens the brand which can easily give way to the competition. With every new introduction, it was found that majority of its efforts were directed into these new brands. Being too curious about new brands, other existing brands suffered. Sales people had to spend more time on new products, promotional campaigns focusing on new brands but on the external battle field the competition was waged against the core brands and not much on their variants. As a result, the overall corporate brand market share also slid back a bit.

4. Loss of Profit across all marketing offerings: With profit as a central most objective of any business venture, cannibalization tends to reduce the profitability index of the total set of the companys offerings. Given that profit is a function of Unit Volume and Unit Margin, the declined volume of units as a result of cannibalization (market share loss) directly result into low profits. To control the effects of cannibalization of this nature, the volume of new product and the margin of the new product must be higher or equal to the function of volume and margin of the old/existing product.

5. Regular Out of Stock Situations create a less friendly relationship between the company, its distributors, wholesalers, sales points and finally the already committed consumers of the newly introduced brands. In case of out of stock or deliberate production stoppage, customers get angry and may react negatively. The effect of cannibalization here is the resultant poor relations as a result of unsatisfied customer demands.

6. During times of deliberately created scarcity as a response to cannibalization, some amount of sales of a core brand is lost to close substitutes from competition or other substitute products that are not available to the already existing customers.

7. Low brand growth especially to the cannibalized brand and those newly introduced brands with limited or very low marketing activities like advertisements. This leads to unhealthy brands which can easily be defeated by competition.

8. General economic losses to the company in case of failed brand or discontinued production of a particular brand. All costs incurred during R&D, production, initial launch and the funds spent to procure initial raw materials are wasted when decisions are made to stop production or withdrawal of a particular product. For example, Mirinda Lemon is hardly available in the market. Some market have not seen it at all since its launch in 2002.

So how do you combat cannibalization concerns?

Find ways to turn the threat into an opportunity. One of the easiest ways to do this is to find customers who aren't consuming because existing solutions are too expensive or complicated. There probably isn't a clearer recent example of this than Apple's iPad. When the product came out that that analysts might complain about how it ate away at Apple's higher priced computer offering. As Chief Operating Officer Tim Cook noted in Apple's recent analyst call, there did appear to be some of that going on. But that effect was more than offset by Apple using the iPad

to introduce people to its products. And of course, selling 15 million iPads and producing $10 billion in revenue didn't hurt. "If this is cannibalization," Cook quipped, "it feels pretty good." Make sure you are doing something legitimately different. If all you are doing to win in a more price-sensitive market tier is chopping price, you deserve the fate you receive. One mantra that Procter & Gamble follows is "delight, don't dilute." P&G's VP for R&D in Asia Maurizio Marchesini described how the company successfully introduced a custom laundry brand in India called Tide Naturals. It's a unique product that's attuned to the needs in the market. P&G Asia President Deb Henretta also noted how you have to make sure you have a go-to market and marketing approach that's appropriately different. If you use the same marketing vehicles and distribution arms it's hard to bring new benefits to different customers. Remember, cannibalization isn't really in your control. Whether due to Adam Smith's invisible hand or Joseph Schumpeter's gales of creative destruction, if an opportunity is large enough, someone is going to find a way to realize it. Wouldn't you rather it be you who seizes the opportunity than a competitor?

Knowing more about cannibalization has at least three managerial benefits. Firstly, it may allow better appreciation of the likely profit outcomes of price promotions for both manufacturers and retailers. Secondly, to identify price promotion tactics that minimize cross-pack cannibalization Third, to provide better forecasting of the sales of non-promoted SKUs which could aid

and hence preserve profit contribution for manufacturers and retailers.

production and inventory planning.

There is also the question of which brands to support. How do you assess which brands in the portfolio will give best return on investment? Size matters. Established brands with more than 10 percent market share are better positioned to gain market share than small brands. In addition to operational advantages, large brands drive market share growth through strong brand equity built over years. The likelihood of increasing market share is much greater among large brands with high brand equity.An important part of

brand equity is a brands customer base. If sales of a brand extension come at the expense of the original customer base, the extension sales may not compensate for the damage to the brand equity. Gillette had a strong shaving cream brand Right Guard and wanted to attack Barbasol with a low-end entry. Gillettes Good News! line of razors was already positioned as a low-end line. Gillette thus tested Good News! Shaving Cream by Gillette. It took sales from Right Guard. The problem was partly that consumers felt that they could save money by buying Good News! and still get a Gillette product. Campbells, after trying a series of extensions such as Chunky, Home Cookin Golden Classics, and Soup-for-One, all of which cannibalized the original brand, introduced a soup line under the Prego name. The Prego brand is intended to attack the Progresso Italian-style soups (which had been taking share from Campbells) without cannibalizing the basic Campbells line.

Funding each brand according to its size or current profitability may fail to capitalize on brands with potential .There are many factors that play a part in such decisions, including whether the category is in growth or decline, changing social trends, and demographic changes. The importance of particular brands to the company is also a factor which cannot be underestimated. Linchpin brands, large dominant brands, brands with future potential, and those able to indirectly affect sales may all require support. However, brands with strong momentum are more likely to provide future profits, and equity analysis of your brands should be factored in when assessing which of your brands are worth investing in. Additional factors which need to be taken into account include forthcoming innovations, competitor threats, likely pricing levels, and the quality of upcoming marketing activity see our Knowledge Point Can copy testing accurately predict advertising effectiveness?.

Conclusion:

The extent to which cannibalization has occurred, and the nature of its effects, varies considerably from one industry to the other. Some industries are built on infrastructures that are more conducive to the process of cannibalization than others. In the beverage industry, for

instance, Coca Cola and Pepsi are the heavily affected firms . These multinationals fight an inward as well as an inter-companies war of cannibalization. The telecommunication industry is the other victim, especially when the company wants to master all forms of telecom services without specialization. The primary effect of cannibalization can be experienced by a firm through the decline of sales volumes, market share and customer preference. These are the traditional effects. The secondary effects of cannibalization can be the negative effects on the intermediaries (distributors, wholesalers, stockists) thus affecting the distribution channels and an increase in direct marketing activities as efforts to contain cannibalization effects. Cannibalization can lead to more price competitiveness and inter-industry conflict. Cannibalization also leads to an overhaul of market strategy and sometimes greater labour mobility especially when the effects of cannibalization are intense.. Lastly the retail outlets operations are greatly affected. Despite the harshness of the term, cannibalization is sometimes viewed as a good, or at least necessary, business practice. In these cases, the implementation of new operations or new business channels at the expense of existing ones is deemed an acceptable means of gaining a foothold in changing market conditions. This was particularly true in the relatively rapid transformation from a strictly bricks-and-mortar world to the modern day clicks-and-bricks economy. Getting products and business operations online often was viewed as an absolute market necessity in the late 1990s and early 2000s. Because of this, many companies deliberately cannibalized their existing operations and channels in order to establish an online presence. The alternative was to be completely squeezed out of the game by more Internet-savvy competitors. Planned cannibalization, however, must be carefully considered and delicately executed. Eating away at existing operations may be a necessary step for restructuring. However, if not mediated the results can quickly devolve into internal chaos that can bring a company's productivity and earnings tumbling. Even where cannibalization is viewed as an advisable strategy, analysts agree that over the long run, businesses and industries would do well to limit the degree of household cannibalization, as it inevitably involves suboptimal efficiency and lower profits.

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