“cannibalisation”

Product Cannibalization

Product cannibalization occurs when a company decides to replace an existing Product and introduce a new one in its place , regardless of its position in the market (I .e . the product 's life cycle phase does not come into account . This is due to newly introduced technologies and it is most common in high tech companies . As all things in life there is negative and positive cannibalization

In the normal case of cannibalization , an improved version of a product replaces an existing product as the existing product reaches its sales

br peak in the market . The new product is sold at a high price to sustain the sales , as the old product approaches the end of its life cycle Nevertheless there are times that companies have introduced a new version of a product , when the existing product is only start to grow In this way the company sustains peak sales all the time and does not wait for the existing product to enter its maturity phase . The trick in cannibalization is to know when and why to implement it , since bad , late or early cannibalization can lead to bad results for company sales

Product cannibalization is an important phenomenon in new product introduction because it affects the revenue stream of new product introduction . The revenue streams from a new product introduction can be broken into three sources : revenues from market expansion , revenues taken from competing products , and revenues from other products offered by the same firm (Traylor , 1986 . The first and the second sources represent revenues from direct effect and strategic effect of new product introduction , respectively (cf . Tirole , 1988 , whereas the third represents cannibalized sales due to a new product introduction . The ideal situation would be the case when the third portion is zero , i .e , all new revenues come from expanding market and /or are taken from competing firms ' sales . But this ideal situation is very hard to obtain since many firms offer multiple products and may launch variants of existing products through brand extension or line extension (Hardie , 1994 Reddy , Holak , and Bhat , 1994 Aaker and Keller , 1990 , which may make cannibalization virtually inevitable . This is particularly true in very high competitive markets where new product introductions are a matter of course (Traylor

1986 D 'Aveni , 1994 ) and firms should preempt competitors by cannibalizing current competitive advantages with next-generation advantages (Nault and Vandenbosch , 1998 ) before competitors steal the market . Therefore I believe cannibalization should be considered as an important factor in understanding firms ' choice of product features (i .e , product location choice , product location choice , regardless of whether it is an error that should be avoided (Copulsky , 1976 , or a strategic option for gaining or maintaining competitive advantages (Chandy and Tellis , 1998 Nault and Vandenbosch , 1998 . Related to cannibalization , the literature on product differentiation has not paid much attention to the role of a division as an entity to develop and launch a new product into the market . Nowadays many large firms have multiple operating divisions...