What is Corporate Cannibalism
Corporate cannibalism is a product's decrease in sales volume or market share after a new product has been introduced by the same company. A new product ends up “eating” demand for the current product, therefore reducing overall sales. This downward pressure can negatively affect both the sales volume and market share of the existing product.
Understanding Corporate Cannibalism
BREAKING DOWN Corporate Cannibalism
Corporate cannibalism occurs when companies introduce new products into a market where these products are already established. In effect, the new products are competing against their own incumbent products.
Corporate cannibalism is also referred to as "market cannibalism."
Planned vs. Unplanned Corporate Cannibalism
If the new circumstances are handled properly and on purpose, the company will begin to see a shift from the old product line to the new one. The company may even end up tapping into a whole new market with its new product. Any drop in sales in planned corporate cannibalism is usually expected.
However, when it is done unintentionally (and without proper planning), corporate cannibalism can have a huge — and negative — impact on a company’s bottom line as well as its repertoire of products. Most companies that fall prey to it may have to stop making a product, and therefore may lose a loyal customer base. The sales drop in unplanned corporate cannibalism is normally unexpected.
Why Would a Company Use Corporate Cannibalism?
While the idea of corporate cannibalism may conjure up negative images, it can, at times, be a beneficial strategy. If, as we said in the last section, it is planned, it can provide some good results for a firm.
One of the benefits of employing corporate cannibalism as a business strategy is to stay on top of the competition. For example, Company X may have released a new laptop on the market with a great screen and lots of features. Company Y may end up being forced to do the same to remain competitive, even though it may already have several other laptops (without as many features) out on the market.
Secondly, companies may also find it useful to help make small improvements to already existing products. Sales may drop for a good or service, but releasing a new and improved version of it may help boost revenue. Take for instance Kit Kat bars in Britain. According to the Guardian, sales were estimated to have dropped by more than 5 percent between 2002 and 2004. In order to help boost sales, Nestlé — the company that makes the chocolate bar in the U.K. — released a thicker, chunky version of the bar, stealing market share from the bar's predecessor.
Why Is Corporate Cannibalism Important?
If it is not done properly, corporate cannibalism can have a huge financial impact on a corporation. There are a few things firms need to consider before using it as a strategy. The best thing any company can do is to conduct sound market research before launching a product. If a new product is released too soon, then it can hurt sales, because the new product will eclipse the one that is already on the market.
Other Examples of Corporate Cannibalism
Corporate cannibalism is more abundant in the marketplace than we think. A good example is Apple, which uses planned, purposeful cannibalism to sell its products. Not only does the company continue to release new versions of its iPhones, iPads, iMacs and MacBooks (among others), these products are also competing with each other. But in Apple’s case, the cannibalism is working because each product also complements the others. And even if one product cannibalizes the other (i.e., an iPad eating away at market share of a MacBook), the company knows it will still retain a loyal customer base.