Be Wary of Cannibalization When Launching New Products
Last week, Marka and the FEI tribe discussed strategies for entering a new product category. This week, they discuss the concept of product “cannibalization” and how it should play into a company’s overall product-entry strategy. Remember, fire = print.
Lucy stood in front of the FEI tribe. “Today we’re going to talk about cannibalization,” she said.
Zoot jumped behind his chair. “No! Not those nasty Cyclopses! I’m never going back to that island again!”
“I’m talking about cannibalization of our existing products,” Lucy said. “Before developing new products or product line extensions, we should determine whether this product has the potential to detract from our base of existing sales, and, if so, to what extent.”
“It’s not necessarily a bad idea to enter a new product that will compete with another FEI product,” Marka suggested. “If we’re going to lose sales to someone, we might as well lose them to ourselves. Because Lucy’s matches are a high-value product that allows us to capitalize on a distinct market opportunity, we should move forward with entering this product while remaining aware of its potential to cannibalize sales from our more established offerings.”
“But we want to avoid haphazardly entering new product lines or categories that don’t offer the value of Lucy’s matches,” Numo cautioned. “Developing, launching and distributing a new product involves research, development and inventory costs. There’s little point to pouring a lot of time and resources into a new product that doesn’t offer any value beyond what’s offered by current products.”
“At the same time, becoming too paranoid about cannibalization can backfire,” Marka noted. “Remember Pegasus Horse-drawn Chariots? It refused to enter the winged chariot market because management was afraid that if the company offered this new product, it would cannibalize the well-established horse-drawn chariot business.”
“It’s been years since I’ve seen a horse-drawn chariot,” Zoot mused.
“Exactly,” Marka said. “Because Pegasus was unwilling to risk cannibalization by developing products in line with changing market needs, the company could not stay competitive and went out of business.”
“When you have a high-value product like matches, it seems that accepting the risks of cannibalization is sometimes necessary in order to stay competitive,” Org pointed out. “If we don’t make it into the match market first, however, someone else will, and then we’ll have blown a good opportunity.”
“Glad we agree,” Lucy said. “And, oh, Zoot – the Cyclops just called. He said he’s on his way.”
“That’s not funny,” Zoot snorted.
Today’s FIRE! Point
Before developing new products or product line extensions, printing companies should determine whether this product has the potential to detract from their base of existing sales, and, if so, to what extent. It’s not necessarily a bad idea to enter a new product or service that will compete with an existing one. New products or services that offer distinct value unavailable in your company’s other offerings can be developed despite the risk of cannibalization they may run.
FIRE! in Action
Hindustan Lever Strategically Cannibalizes and Succeeds
After discovering that many of its customers used soap to wash both hair and body, the Indian hygiene products company developed a low-cost combination soap/shampoo to help consumers meet both needs. Though acknowledging that this brand may cannibalize users of Lever’s other discount soaps and shampoos, Lever executive Mukul Deoras said, “Even if there’s cannibalization, it’s OK. Consumers are buying a value-added product, which is likely to increase loyalty.” So far, he’s been right.Lever currently claims more than 70 percent of rural shampoo sales.
Next week: The FEI tribe discusses the topic of intelligent discounting.