Businesses face the threat of cannibalization of an existing product by a new product. Sometimes businesses get so caught up in the fear that cannibalization will occur that they cease to produce new product lines and end up missing out on potential profit. Rather than avoiding product development altogether, use some smart strategies to help your small business avoid the problem of cannibalization.

Understanding Cannibalization

The term “cannibalization” refers to the phenomenon that occurs when a business manufactures and produces new versions or styles of its existing products or creates additional features or elements to add to its products. Sales of the business’s original products drop, replaced by sales of the new or altered product. This is referred to as cannibalizing because the company is eating its own profits instead of the profits of a competing company.

Six Steps to Avoid Cannibalization

There are six specific steps you can take to avoid cannibalization:

1. Determine the specific markets each product fits into. This lets you understand what space your product already fills, who it serves, and what specific problem it was designed to solve. This is important information to have clearly fixed in your mind before you consider tweaking any product.
2. Analyze the potential market demand for a proposed new product in terms of the potential net income the product represents. While proposed new products might produce more unit sales than a current product, it can be better to stick with your original product if it generates a greater amount of net income than you expect to generate from the new product.
3. Identify the preferential features of each product with the goal of identifying the features that set your product apart from all others – including your own existing products. Every potential product market seeks or prefers a different set of unique features as a solution to their problem. As you compare current and new products, the more frequently you detect that the products have the same features, the greater the likelihood that cannibalization is going to occur.
4. Prioritize which markets are best-suited for the introduction of new products that are sufficiently differentiated from your existing products so they decrease the possibility of cannibalization. Analyzing the markets in this way lets you determine relative pros and cons of launching a new product line.
5. Assess your competition. To market your new product effectively, you need to play up your product’s strengths in direct comparison to your competitors’ weaknesses.
6. Evaluate different marketing strategies using the information obtained from the previous five steps. This should give you a relatively good idea of where your product fits in the marketplace, what problems it solves, and who is most likely to buy it. Using these facts, you can craft an optimal marketing campaign for your new product.

References & Resources

• hbr.org
• supplychainbrain.com
• associationlaboratory.com