how market cannibalization works
market cannibalization occurs when a new product intrudes on the existing market for an older product from the same company by appealing to its current customers instead of capturing new customers the company fails to increase its market share while almost certainly increasing its costs of production marketing cannibalization is often unintentional when the marketing or advertising campaign for new products draws customers away from an established product as a result market cannibalization can hurt a company s bottom line this phenomenon can be a deliberate growth strategy for example a supermarket chain might open a new store near one of its older stores knowing that they will inevitably cannibalize each other s sales however the new store will also steal market share from nearby competitors with the possibility of eventually driving them out of business stock analysts and investors generally look down upon cannibalization as a marketing strategy that s because they see it as a potential drag on short term profits as companies design their marketing strategies marketing cannibalization should be avoided this means companies should closely monitor individual product sales to determine if cannibalization is occurring for instance companies like starbucks and shake shack constantly weigh sales growth opportunities with the risks of local market cannibalization special considerationsthere may be times when market cannibalism cannot be avoided every major department store operates an online store knowing full well that its sales can only cannibalize its brick and mortar locations their only other choice is to allow internet retailers to continue taking market share away from them consider how online sales are hurting major retailers like macy s which continues to close down some of its stores across the country 1market cannibalization is also commonly referred to as corporate cannibalism types of market cannibalizationthere are several types of market cannibalization they include planned cannibalization discount related cannibalization and cannibalization through e commerce market cannibalization is measured by the cannibalization rate the formula for the cannibalization rate is 100 x lost sales on old product sales of new product 