Analyzing Product Cannibalization

All brands want to launch new products that steal customers away from competitors. But sometimes, you just end up stealing sales from yourself!
This effect is called product cannibalization—when a brand’s new product displaces an existing one. In other words, rather than expanding overall sales, it simply shifts purchases from an older product to a newer one.

But in most cases, this is a necessary trade-off. If brands avoid launching new products for fear of cannibalizing existing ones, they risk losing customers to competitors instead.

Defining Product Cannibalization

Not all product cannibalization is equal. It generally falls into two categories:

1. Constructive Cannibalization

Product cannibalization isn’t always a bad thing. Many brands use it strategically to stay competitive, put customers first, or even expand their market share. This happens when new product sales outweigh the losses from the old product, leading to higher overall revenue and profit.

Apple is the prime example of constructive cannibalization. For decades, it has proactively replaced its own products—introducing newer, better versions to prevent competitors from taking market share.

2. Destructive Cannibalization

Now, let’s look at the other side of the coin. Destructive cannibalization happens when sales of the old product decline faster than the new product grows, resulting in an overall loss of revenue or profit. This often stems from poor pricing strategies, product positioning, or external competition.

Ensuring Constructive Cannibalization in Your Product Launch

A successful product launch should result in constructive cannibalization, where the new product boosts overall revenue rather than causing a net loss. To achieve this, you need to carefully plan and manage the transition from an older product to the new one, while making sure that both the new and old products contribute positively to your bottom line. Here's how:

1. Assess Market Demand and Product Differentiation
Before launching, ensure there's a clear demand for the new product that's distinct enough from the existing ones. This could mean addressing different customer needs or providing enhanced benefits that encourage customers to switch without completely replacing the old product.

Let's say a supplement brand launches a Stress Relief Tincture that's marketed to a slightly different customer base than the Relaxation Support Tincture:

• Stress Relief Tincture: Target consumers who experience acute stress, such as those with high-pressure jobs, busy parents, or people managing deadlines and stressful situations. Emphasize the fast-acting nature of the product.
  
  
• Relaxation Support Tincture: Target consumers who are looking for a preventative or long-term solution for relaxation. These customers might be dealing with chronic stress, sleep issues, or general lifestyle factors that require sustained support.

By differentiating the two, the brand can attract new customers who need quick results, while still retaining the audience for the existing product.

2. Plan for Strategic Pricing
Avoid aggressive price cuts on the older product. Instead, keep it at a competitive price point that allows the new product to grow without devaluing your entire product line. Offering the new product at an introductory or slightly higher price can encourage customers to view it as a premium offering without undermining the older product’s value.

For instance, the brand could price the Stress Relief Tincture slightly higher than the Relaxation Support Tincture, signaling to customers that it's a more advanced or specialized solution. This pricing strategy prevents a rapid decline in sales of the older product and ensures both products are positioned in a complementary way.

3. Cross-Promote to the Right Customer Segments
Identify existing customers who would benefit from the new product, and target them with personalized marketing campaigns. Cross-sell the new product in a way that adds value to the customer's journey.

For the brand, sending targeted email campaigns or offering bundle discounts to existing buyers of the Relaxation Support Tincture could encourage them to try the Stress Relief Tincture as a complementary product. This way, the new product adds value to their routine, rather than simply replacing the older one.

How to Identify Product Cannibalization

To determine whether a new product is growing the business or simply shifting sales, monitor the following:

• Sales and Revenue Trends
  Look for a drop in sales of an existing product following the launch of a new one. A sudden decline in revenue without a corresponding increase in total sales could indicate cannibalization.
  
  👉 Monitor the performance of the old product under Products > Product Development.
  
  
  
  
• SKU Comparison
  Compare items sold and revenues of both products before and after launching the new product. If the sales of the old product decline at the same rate that the new product grows, it's a strong sign of cannibalization.
  
  👉 Monitor the performance of both products side by side under Products > Product Development by selecting the old and the new product.
  
  
  
  
• Customer Segmentation Insights
  Analyze whether the new product is attracting new customers or just shifting purchases from existing ones. If most buyers of the new product were previously purchasing the old product, it could be a warning sign.
  
  👉 Create Customer Segments to distinguish new customers who were attracted by the new product from existing customers who purchased it as a cross-sell.
  
  
  
  
• Product Stickiness
  Check if the new product improves customer retention. A successful product launch should attract better-fit customers and encourage repeat purchases, not just replace an old product.
  
  👉 Check how often orders containing a product lead to repeat purchases of the same product under Products > All Products.
  

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