Market Cannibalization

Published Oct 25, 2023

Definition of Market Cannibalization

Market cannibalization refers to the negative impact that a company may experience when introducing a new product or service that competes with or overlaps with its existing offerings. Essentially, it occurs when a company’s new offering eats into the sales and market share of its own established products.

Example

To illustrate market cannibalization, let’s consider a fictional electronics company called XYZ Corp. XYZ Corp. is known for its line of smartphones, which are its primary source of revenue. The company decides to introduce a new tablet to its product lineup. However, upon the launch of the tablet, sales of their smartphones start to decline.

As customers begin to purchase the new tablet, they may choose it as an alternative to purchasing a smartphone from the company. This means that the introduction of the new tablet cannibalizes the sales and market share of XYZ Corp.’s smartphones. While the company may gain some new customers who prefer the tablet, it comes at the cost of losing customers who would have otherwise bought a smartphone.

Why Market Cannibalization Matters

Understanding market cannibalization is crucial for companies, particularly when considering the introduction of new products or services. While launching new offerings can be an opportunity for growth, it is important to carefully evaluate the potential impact on existing products.

Companies should consider factors such as target market segmentation, customer preferences, and potential cannibalization effects before introducing new products. By thoroughly assessing these factors, companies can make educated decisions that minimize the negative impact of market cannibalization and maximize overall growth and profitability.