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What is Product Cannibalization?

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Product cannibalization is when a firm has multiple products that compete with each other in the same market.

Negatives

Generally speaking, the term product cannibalization has negative connotations. It implies that a firm has invested capital to develop new products only to take market share from its own products. In some cases, large firms lack coordination between business units in areas such as product management and marketing. In other cases, business units may actively compete with each other.

Positives

Some firms encourage business units to compete or intentionally develop similar products intended to compete for the same customer segment. The thinking is that it is better to compete with yourself than an actual competitor. A firm with multiple brands can give the impression of great variety in the marketplace, even if they have a high market share with little competition.

Examples

An automotive firm that offers two models of large pickup truck.
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A fast moving consumer goods company offers both a regular apple juice and an organic apple juice to customers under different brands.
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A hotel spa sees bookings drop when the hotel opens a rooftop pool and bar with a view.
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A restaurant sees a drop in wine sales when they begin to offer craft beers.
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A software company loses customers for its business rule engine to its event processing product.
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A solar panel company sees sales drop when it preannounces a future product that is far more advanced.
Overview: Product Cannibalization
Type
Definition
Multiple products from the same firm that directly compete in the marketplace.
Also Known As
Market Cannibalization
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