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📣honors marketing review

Market cannibalization

Written by the Fiveable Content Team • Last updated September 2025
Written by the Fiveable Content Team • Last updated September 2025

Definition

Market cannibalization occurs when a new product or service eats into the sales of an existing product from the same company, instead of attracting new customers. This often happens when a brand extension is introduced, leading to competition within the brand's own portfolio. While it can be a concern, cannibalization can also indicate that a company is innovating and responding to market demands.

5 Must Know Facts For Your Next Test

  1. Cannibalization can lead to decreased overall sales if the new product significantly underperforms compared to the original product.
  2. Successful brand extensions can sometimes cause short-term cannibalization, but may ultimately strengthen the brand in the long run.
  3. Market research is critical to understand potential cannibalization effects before launching a new product.
  4. Cannibalization is not always negative; it may indicate a strong response to consumer preferences and innovation.
  5. Brands need to monitor their sales closely post-launch to assess the impact of cannibalization and adjust strategies as needed.

Review Questions

  • How does market cannibalization impact a company's product line and overall sales strategy?
    • Market cannibalization can significantly impact a company's product line by shifting sales from existing products to newly introduced ones, which may disrupt the established revenue stream. Companies must analyze whether the benefits of introducing innovative products outweigh the risks of losing sales from their original offerings. In some cases, this internal competition can lead to adjustments in pricing, marketing strategies, and inventory management as companies strive to balance their portfolio effectively.
  • What role does market research play in understanding potential market cannibalization before launching a brand extension?
    • Market research is essential in assessing potential market cannibalization prior to launching a brand extension. By analyzing consumer behavior, preferences, and purchasing patterns, companies can predict how the new product may compete with existing offerings. This insight allows businesses to make informed decisions about positioning, marketing strategies, and product features that can minimize negative impacts while maximizing overall brand value.
  • Evaluate the strategic advantages and disadvantages of allowing market cannibalization when launching new products under an existing brand.
    • Allowing market cannibalization when launching new products can offer strategic advantages, such as reinforcing brand loyalty and staying relevant in rapidly changing markets. However, it also poses risks like diminishing returns on older products and confusing customers about brand identity. Companies must carefully weigh these factors, ensuring that any cannibalization aligns with long-term business goals and market positioning while fostering innovation without alienating existing customers.