Analysis of the Effects of Product Cannibalism

PRICING STRATEGY CANNIBALISM AND NEW PRODUCT DEVELOPMENT R. A. KERIN M. G. HARVEY J. T. ROTHE 1. My choice I have chosen to bring on this topic for these reasons. For many years now, and mostly because of the economic crisis, a lot of subsidy and mid-range brands have to compete against low-cost ones. In order to do this, some of these companies decided to launch low-cost brands to bring back wooly customers.But I have already learned that this strategy can sometimes bring to pass a real threat for their premium brands in fact, companies who do this can think that they bring new customers but unfortunately these customers ar coming from their premium brand. Some real life examples are coming to me such as Coca-Cola Company who launched Coca-Cola light and Coca-Cola zero which was successful. How to avoid or reduce the brand cannibalization? What agreeable of strategy to develop? I hope that this article, even if its a very old one, can answer these questions. . The summary T he article starts be giving a definition of the cannibalization tack we consider 2 polar products (A and B) belonging to the same company cannibalization means that (all other things equal), decreasing the price of product A give bring the sales decreasing of product B. This undesirable effect is occurring when the company, instead of launching a new product, prefer to reformulate one which already exists in an already created market. Authors are putting lights on two main consequences of cannibalistic strategy.The first one is positive, it allows to the company, through the new product, to open a new market, and and then gain market shares. The second seems to be negative, because customers of the first companys product can switch to the second, and it will not bring any additional revenue to the company. But, as authors underline, sometimes its better for the company to see customers moving from the first product to the second one inside the same portfolio than reaching the c ompetitors product.So, cannibalism strategy can be a good way for the company to kill competitors, but the risk is huge if the new product creates an artificial segmentation which implies artificial needs. The distortion effect of cannibalism is the second main part of the article. Basically, it means that in order to appreciate the profitability of the new product, you must take in account cannibalization of the first one. Authors are talking about Pyrrhic Victory when ones overestimate the growth of the sales volume and market share due to the new product.Authors provide a etymon to avoid this bas effect of cannibalism the market test. For them its the best method to know what need(s) the new product will fulfill when it will be launched. This method can do managers to identify (the most early as possible) what amount of the new product should be produced in order to reduce the cannibalization. The question of the acceptable level of cannibalization is evoked the two main dr ivers to compute it are according to the authors the cost structure and market maturity. 3. My opinionOne of the main lessons I learned reading this article is that cannibalism can unfeignedly be a positive thing for companies. Even if customers of the new product are indeed customers who switched from the previous one, they still not competitors customers. Far to be a threat, the cannibalism strategy can really be useful and great for companies, especially, as I said in my first part, in time of crisis. Then I think, the article could provide more examples of positive or negative cannibalization. The example of Coca-Cola provided at the beginning of this memo is revelatory of the positive cannibalization.In fact, a lot of different soda beverages belong to the Coca-Cola company (such as for instance Fanta, Minute maid or Coca-Cola). In 1983, Coca-Cola company launched Coca-Cola light, which tastes different from the original Coca-Cola but sugar reposition and then, at the be ginning of 2000, Coca zero was launched which was supposed to have the same taste as Coca-Cola original, and still sugar free. Even if Coca- Cola light lost many customers who switched to Coca zero, they still inside the same company and not moved to competition.This kind of strategy was learned in our Brand management mannequin that sometimes it consists in creating a similar product can extend the market share of both products. Named the Flanker strategy, the two products are belong not only to the same company but also to the same product category. This strategy has many advantages its often almost free to market, as its very ratiocination to the first product and using the same brand, and it was noticed that its also a good way to promote both products and brands.