Friday, September 2, 2011

How to Tackle Cannibalization - Marketing Channel

by Fred Victor

Not surprisingly, I was asked recently on the issue of cannibalization, where a company faces the dilemma of promoting a similar product range (under different branding strategy, perhaps) within the same retail environment.


Accordingly, one brand outclasses another. How?

I wrote this to reply:

Dear Madam,

I’m just pragmatic enough to share more ideas on the issue discussed via our tele-con last Saturday. Further to my very-short explanation on cannibalize as “cut-throat” (“yoi” in Cantonese), here’s a slightly long story to begin with.

It’s in fact a marketing strategy, cannibalization occurs when decreased demand on an existing product due to the “same” vendor releases another new “similar” product.

It sounds negative but can be extremely effective if it’s planned accordingly (to target customer) and stealing (expanding) market share quietly.

Let’s think outside the box, it’s all about our brand/product portfolio strategy!

Allow me to recap – cannibalization is an important issue in marketing strategy when a company aims to carry out brand/product extension (for itself and others).

Let’s take a real life example, when Philip Morris introduced Marlboro Light, a sub-category and similar product (to Marlboro Classic); such extended brand/product portfolio strategy is to “capture” a “broader” market segment (for those who love light smoking, for ladies, for new smoker etc.) although losing “some” sales in an existing segment (from Marlboro Classic). Marlboro stole market shares from Salem … quietly.

Accordingly, in effect, Marlboro Classic and Marlboro Light aren’t really competing for the same customer segment. Price is same, but taste lighter and smoother, packaging differs, marketing elements vary etc.

As per your case, is your “brand A” direct competing with your “brand B”? Should re-consider?

In my 2-cent opinion, to tackle cannibalization, brand/product differentiation strategy should exist – you should really differentiate both brand A and brand B. In short, the brand A should maintain its “major” entity, brand B should re-define its niche … quickly.

Have fun ;-)

Cheers,
Fred

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  4. Thanks a lot for sharing your information. This was my question and having read your post, I have a brither mind now.

    Just to recap, I think the key is in market segmentation. Cannibalization can work in our favor when two brands compete in two different segments. As you said perfectly it is a safe strategy when it is planned.
    I recall the time when we were about to launch a new smaller size for a detergent brand as a result of identifying oopportunity in an untouched segment of occasional users. Our solution was to set profit margin higher so that switched users would generate more profit in return for the lost volume. Now I'm thinking of the accurate ways of calculating cannibalization rate between two brands.

    Regards :)

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