Brand Cannibalization

With increasing commoditization of brands, differentiation is hard to come in every industry. Consumers are now flooded with options, single company having several brands in same product category. Positioning, targeting, segmenting can serve as strategies no more. Rather it is the basic hygiene which any company needs to follow if it needs to sustain in the race for market share.

So, what should a marketer adopt as a strategy? There are unconventional approaches followed by Multinationals to address the goal of increasing their market share. With consumer demand for innovation increasing, brand loyalty being a privilege of few companies and E-commerce providing an instant comparison amongst brands, there are few avenues to grow sales and subsequently earn profits. Providing low price – high quality products is the demand of the market. But what company would want to replace a high-priced product with a low-priced product? That’s a good way to end up on the corporate chopping block. These lines aptly determine the paradox of a Marketing term known as Cannibalization.

Market cannibalization is when sales of one particular product decreases due to the launch of another product from the same company. In the contest of enabling Brand Proliferation, in which a company introduces new brands in the same product line to provide the consumers with variety of options, lies hidden the fear of Brand Cannibalization. It results into increase in sales of one brand at the cost of another by the same company without much effect on the final revenue earned by the company.

In the FMCG Industry, a classic example would be that of “Le Sancy” soap, a new brand which aggressively ate on to HUL (India) flagship brand “Lux” which had to eventually taken out of

the markets. Same was observed by launch of variant “Diet Coke” which resulted into reduced sales of Regular Coke. In recent years, we have seen aggressive intentional cannibalization by cell phone manufacturers like Samsung and Apple to constantly stay ahead in the race.

So, does it mean Cannibalization always has a negative impact? While there are two school of thoughts that argue about the same, I choose to adhere to diplomacy. As it is true for every strategy, in implementation of it lies the crux. There are examples of brands which faltered in the implementation and ended up cannibalizing for no gain or for a loss of revenue and then there are these who have learnt to effectively deploy it as a successful tool. If carefully planned, we even may talk about new opportunities that can lead to increased sales and market share (Proactive Cannibalization). And if a company does not have a strategic plan for digital transformation someone else will (Passive Cannibalization).

To exemplify my stand on why the only answer is Effective cannibalization we have a look at some previous decisions. Taking the example of The New York Times, which saw newspaper sales plunge when they began posting free online versions of their stories on the internet, it would not be wrong in calling it as inefficient Cannibalization. But in this case, every other newspaper faced the same situation since if they did not provide such services, the market share of New York Times would increase, which was then undesirable. So they rushed and joined the league since “Cannibalism hurts if you eat your own toes, but it’s better than starving”.

On the contrary, a brand that uses their existing brand reputation to leverage a successful cannibalization campaign is Gillette, which is owned by P;G. Gillette makes two product lines, the Mach 3 and the Fusion ProGlide. When the Fusion ProGlide was introduced, they made a decision, not to go after new customers to launch the brand, instead they purposely focused their marketing and advertising on getting old customers to purposely switch to the new product. This proved a smart strategy, since Gillette was positioned as the number one selling brand of razors in the world.

The Fusion Proglide was actually 40% more expensive than then the Mach 3 when it originally launched in 2006. Two years later, it was able to achieve be a billion dollar selling brand, and was the fastest brand in P;G history to reach that milestone. Today, the Fusion Proglide series, is the bestselling razor in the world, and shows that cannibalization, when done right, can be hugely profitable.

James C. Collins insightfully described in his book “Good to Great”, the factors to ensure your company is not leapfrogged. “Change is the only constant” is the mantra that is to be followed. As the law of the marketing jungle, cannibalization is definitely an essential tool. As the great man, Steve Jobs rightly quoted, “If you don’t cannibalize yourself, someone else will.”

Reference

http://blogs.hbr.org/anthony/2011/02/combating_cannibalization_conc.html

https://www.citesales.com/712-brand-cannibalization-brand-proliferation-brand-rejuv.html

http://seekingalpha.com/article/1189201-the-cost-of-product-cannibalization-dooms-apples-growth

http://www.mcngmarketing.com/when-to-cannibalize-your-existing-products/#.UfK9ro03BUN

http://aqpq.org/2009/08/03/product-cannibalization-a-risky-business/