How to calculate the Cannibalisation Rate Easily - Formula & Explanations

Whether in traditional or digital marketing, considering product or market cannibalisation is important for companies. In fact, this phenomenon makes it possible toidentify sales performance within a company in relation to its new products. It is therefore advisable to analyse it and carry out in-depth tests to assess whether sales are profitable or unprofitable. This article sets out the key points to remember about cannibalisation and explains how to calculate its rate for your business.

What is market cannibalisation? 

The term cannibalisation refers to a situation where sales of one product increase rapidly at the expense of another product of the same company. This phenomenon is also known as company cannibalisation. This occurs when a new product is launched with key features that are more innovative and better performing. In this case, it should be noted that cannibalisation can be intentional or unintentional. If cannibalisation is unintentional, the marketing or advertising campaigns for the new products may turn away potential customers. This can damage the company's key revenues. 

In all cases, it is essential to take into account the state of the market in your sector. Cannibalisation can destabilise your product stock management.

However, cannibalisation can apply to different areas of the commercial sector. This can range from products of the same brand to a chain of shops if the company opens a similar establishment. It is therefore crucial to monitor this phenomenon closely to prevent any disruption in your commercial activities on the market. 

What are the advantages and disadvantages of cannibalisation? 

There are many advantages to cannibalisation in marketing, particularly when it is neutral. In this case, a company can deliberately use cannibalisation to sell off at best an old key product. In addition, it can be used as an offensive strategy, exploiting the new product to win market share from competitors. But it can also be a defensive strategy. This strategy is used by shops selling technological products. They will launch new product brands at the same time as their competitors to compete effectively.

On the other hand, cannibalisation is often the result of a positioning problem or a high degree of similarity between products. When several items cannibalise each other, the company may find it difficult to sell them. This can lead to a drop in the prices at which they are sold. This is known as cannibalisation through discounts.

When faced with this type of situation, it is essential to consider the loss of the cannibalised product. This is done at the time ofestimated demand and sales of the new product you are going to market. In this case, it is important to carry out an in-depth analysis of the market. You also need to study the needs of your customers and the competition in order to minimise the negative effects of cannibalisation.

Example of marketing cannibalisation at Apple and Kodak

The Apple brand is a successful example of marketing cannibalisation. By launching a new iPhone at the same time every year, it encourages consumers to go for the latest versions. This makes older versions obsolete despite their high price tag. In this way, Apple uses a deliberate and recurring cannibalisation system. This enables it to maintain a high level of demand for its new products, while regularly renewing its offering on the market.

On the other hand, the Kodak brand failed to adopt an effective cannibalisation strategy. This had negative consequences for the company. Despite its reputation in the photography sector, Kodak relied on its popularity and did not launch any new cameras. As a result, its competitors took advantage by offering more innovative products and responding to changing consumer needs. The lack of cannibalisation on its part has led to a decline in its market share and sales.

How can I easily calculate the cannibalisation rate? 

The cannibalisation rate is easy to calculate. Simply take into account the lost sales of the old products and the total sales of the new key product. The formula is : (Sales of standard products at a loss/Total sales of the new product) x 100.

Suppose a flat-screen TV company launches a new curved TV model on the market when it already has two older models on sale. Prior to the launch of the new model, monthly sales of the old models were as follows:

• 140 cm flat screen TV: 1000 units sold
• 80 cm flat screen TV: 800 units sold

Following the launch of the new model, monthly sales were 1,500 units. The cannibalisation rate of the new product on the old products is therefore : 

Cannibalisation rate = ([1000 + 800]/1500) x 100 = (1800/1500) x 100 = 120 %

How can we minimise market cannibalisation in a given sector? 

Several strategies can be implemented to reduce cannibalisation in a given market. Firstly, it is essential to take into account the product positioning market. Products that are too similar in terms of price and placement, such as new flavours or added features, present a high risk of cannibalisation. It is therefore important to diversifying our offering and to offer products with distinct characteristics to avoid direct competition between products.

Another approach is to use less expensive brands or ranges specific products to compete with low-cost rivals. And all this without affecting top-of-the-range brands. By creating "battle brands" or products for address a specific market segmentIn this way, the company can prevent cannibalisation. This means it can offer customers alternatives without devaluing its key products.

In addition, careful planning of the launch of new offerings is essential. By avoiding launching new products that could compete directly with old ones, the company can reduce cannibalisation. In-depth analysis of demand, customer preferences and market trends can help to identify the right times to introduce new offers. And without having to disrupt sales of existing products.

Finally, it is important to monitor closely monitor the sales and performance of key products on the market. A keeping watch of the market will enable any signs of cannibalisation to be detected quickly. It also helps to take corrective action if necessary. Gathering customer feedback is also essential to understand their preferences. This will help to adjust the offer presented on the market.