Don't be afraid to launch ew cannibilazing products

What killer-apps.com says :

Launch new goods or services that gain market share at the expense of existing offerings. By recognizing that the old channels for doing business will disappear on their own soon enough, cannibalizing is a powerful way to get into the new channels early enough to be a competitive player.

What we understood :

Product cannibalization refers to the phenomenon where-by a new product introduced by a firm competes with and reduces sales of existing products.

This is an issue of product strategy and a critical issue for consumer goods companies.

For example, Company A is the market leader in the market for all sorts of cookies. One fine day, Company B introduces a new type of cookies, TASTY ice-cream cookies (in the line of ice-cream) and it becomes very popular. However, after 1 month, a new brand of FANTASTIC ice-cream cookies enters the market and competes with TASTY ice-cream cookies. FANTASTIC ice-cream cookies are cheaper and have better access to distribution lines e.g. supermarkets. Another 3 months pass and, TASTY ice-cream cookies are forced out of business.

What happened? Company A, the market leader, with greater economies of scale and access to distribution lines, cannibalizes its existing products (the other types of cookies it products) with the introduction of FANTASTIC cookies to force Company B and TASTY cookies out of business.

Moral of the story: strategy & industry analysis needs to precede financial analysis in such a product decision.

Another example: Even though local phone companies in the United States are separate from long-distance ones, the local companies benefit from long-distance calls in many ways. They get access charges from the long-distance companies for the use of local lines. Many also have won the right to offer long-distance service in their local regions, or offer it in other regions–and of course, don’t forget cellular phones.

So BellSouth is cannibalizing its profits to enter a new industry, VoIP. This is consistent with what many business analysts say–that an established business cannot survive a major change in its environment without risking its old business model and throwing away the cash cows it’s already built up. What’s interesting is that one of the oldest and most conservative companies–a Bell operating company–can take the risk, and what it says about the success of the Internet.

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cannibalize : Cannibalize your market(s)

eLife Strategy

Don't be afraid to launch ew cannibilazing products

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