Brand Cannibalization: Are You Eating Into Your Own Market?

Companies sometimes deliberately target their own markets in the hope of securing a larger portion of the company’s market share. When a company introduces a new product through various sales channels, cannibalization occurs if current customers shift from an established product to the new offering.

The key is in knowing how to draw the line between stealing customers from competitors and stealing customers from yourself. This often involves understanding how a new product might share the same customer base as an existing one, potentially splitting sales without increasing market share. Companies must evaluate cannibalization risk to ensure that new product launches do not erode the company's market share or harm established products.

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What Is Brand Cannibalization?

Brand cannibalization happens when a company releases two or more products that compete with each other. This is also known as product cannibalization, which often occurs during a product launch when new offerings from the same company impact the sales of existing products within the product portfolio.

This may lead to:

• An oversaturation of the market, eating into sales of the company’s existing product lines,
• Damaging the existing brand and all the hard work put into it

Because they’re buying your shiny new offering, your existing customers would buy less of your older product, impacting your own product sales.

If either one of these scenarios happen, you’ve got brand cannibalization hot and heavy on your heels. Market cannibalization can occur, where new products diminish demand for existing ones, leading to loss of sales, reduced sales, or fewer sales for older products. However, by monitoring product sales across your product portfolio, you can manage and mitigate these effects.

Planned cannibalization and intentional cannibalization are strategic moves used to stay competitive or reach new segments, while destructive cannibalization can lead to a net loss in profit. Constructive cannibalization, on the other hand, can help a company steal market share from competitors by choosing to "eat itself" rather than letting others do so.

The good news is that there are ways to avoid the negative effects of brand cannibalization, and even use it to your advantage. Effective strategies to prevent brand cannibalization include thorough market research, market analysis, strategically timed product launches, and monitoring sales data. Companies use pricing strategy and product differentiation to prevent cannibalization, ensuring new products offer distinct features and benefits compared to existing ones. Product differentiation is one of the most effective ways to manage sales cannibalization, allowing companies to target different customer segments. Companies often use varied pricing structures to clearly separate products and their value propositions.

Some brands out there intentionally ‘cannibalize’ themselves in an effort to execute their brand vision and carve out a bigger piece of the market share for their own taking.

Take Apple for instance. Almost every year a new iPhone fitted with fancy upgrades is released, inevitably driving down the sales of older models. Yet by doing just this, Apple has still managed to increase their overall sales.

The halo effect occurs when the purchase of one product positively correlates with the purchase of another, leading to increased sales of related products. For example, the introduction of a new product, such as fruit jams, can lead to increased sales of an existing product like peanut butter, as customers buy both items together. The halo effect can enhance customer loyalty and increase overall sales, especially when related products are offered by the same brand or same company.

As Steve Jobs famously quoted in his biography:

“If you don’t cannibalize yourself, someone else will.”

Planned brand cannibalization can be seen as a gamble, but if you play your cards right you could be winning the jackpot of your life.

Online sales and online stores can cannibalize sales from physical stores, and opening a new store can impact existing locations by drawing customers away, affecting profits and costs. Demand planning should account for the cannibalization rate to help manage inventory and avoid overproducing older models. Managing sales cannibalization requires balancing innovation with market stability, and timing product launches to coincide with the natural decline of older products can help mitigate risk.

Let’s take a look at another example of a brand cannibalization strategy that struck gold.

The Curious Case Of Costco's Existing Products

If products were pounds of flesh, Costco has managed to make cannibals of its suppliers.

Here’s how.

Costco often sells both its Kirkland Signature products and the original branded products from the same company or same brand side by side. This means that even if Kirkland cannibalizes sales from the original brand, the product sales still remain within the same company’s portfolio, allowing Costco and its suppliers to retain overall market share.

The Kirkland Signature coffee

Their Kirkland Signature products are often private labelled and manufactured by big brands that sell their own branded products on Costco shelves. The Kirkland Signature coffee made by Starbucks is just one of many examples: This is a case of Brand Cannibalization done right.

Similarly, companies are launching their own home rental business to counter the impact of competitors such as Airbnb.

What's insane is that they must abide by the following criteria, according to Costco's co-founder James Sinegal:

1. The quality needs to be as good as, if not better than the national market leader.
2. The product must cost 15-20% LESS than the already low prices at Costco.
3. The product must be something customers care about.

Why would companies cannibalize their business by supporting a brand that isn't theirs and being sold in the exact same venue? In other words, what kind of magic does Costco use to get these brands to shoot themselves in the foot?

It's not as crazy as one might think.

In 2020, Costco generated $122.14 billion in revenue from their operations in the United States.

That's one BIG revenue pie. Even though you'll have a private labelled version of your product in the same outlet, you're not going to miss out on that pie. Either way the choice for consumers is to have your product or your product (under the Kirkland Signature brand). Besides, you wouldn't have to drop a dime on social media ads or other forms of advertising.

This is a case of Brand Cannibalization done right.

Don’t Eat Your Own Brand: Indulge In Brand Evolution Instead

If you want your new product to have an impact on competitors rather than hurt other sales from your own company, here are some marketing strategies to keep in mind before launching any new product or brand.

Planned cannibalization and intentional cannibalization are proactive strategies companies use to stay ahead of competitors by deliberately introducing new products that may replace or reduce sales of existing ones, optimizing market share and demand planning. Product differentiation is also key, as it ensures new products complement rather than directly compete with existing offerings, helping to manage market cannibalization effectively.