POSITIVE IMPLICATIONS OF CANNIBALIZATION

POSITIVE IMPLICATIONS OF CANNIBALIZATION

Cannibalization is a phenomenon that results when a firm develops a new product or service that steals business or market share from one of its existing products and services. Thus one product may take sales from another offering in a product line. Although the idea of cannibalization may seem primarily negative, it also has some positive implications. In the world of e-commerce, some companies have intentionally chosen to cannibalize their retail sales through bargain-priced online offerings.

Positive and Negative Aspects of Cannibalization

Having a new product take sales away from an existing product is not usually an attractive situation for a firm. A soap manufacturing company saw their bleach products suffer when they introduced laundry detergents with bleach as an added ingredient. A new subway franchise can cannibalize sales from another franchise just two kilometers down the street. Other examples of the power of new products to harm companies or even entire industries are everywhere.

In this case of cannibalization, a firm will need to reduce the benefit calculated for a new product by the amount of the existing product benefit lost. However, firms need to recognize that cannibalization is not always avoidable. After all, competing companies might have entered the market with a similar product and taken these sales anyway, even if the new product had not been introduced.  Cannibalization can even occur before a new product is introduced. In fact, some experts claim that a pre-announcement for a new product can cannibalize the sales of an old product in a prior period.

While cannibalization may seem to be very negative, several researchers have found that only innovative firms are sometimes willing to sacrifice or cannibalize their prior investments. In fact, this may be a type of growth strategy. Some experts argue that organizations should encourage cannibalization. By encouraging competition among their stand-alone business units, companies could create a climate in which risk taking and new ideas were both rewarded and valued. Having a future market focus and abandoning an old product as soon as a new one comes along can benefit overall profits. 

Cannibalization and E-Economy

Changes in internet upstarts have overturn successful technologies and business models of the past. Remaining competitive in this rapidly evolving business environment may mean destroying the value of past investments  – factories, relationships within a supply chain, or commitments to a certain way of doing things. It may mean actively working to depress share price and profitability, even if these actions may go against manager’s training or beliefs.

In the trend toward intentional cannibalization, entrepreneurial companies often prevail through excellent innovation. Small firms are seen as quick and nimble and better able to take the risks necessary to develop radically new product and service innovations. In the future, they may surpass the larger firms with research and development capacities and financial resources.

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