Impact Of Cannibalization On Market Share Retention

Project and Seminar Material for Business Administration and Management BAM

Chapter One

Introduction

1.1 Background of the Study

Product Cannibalization refers to reduction in sales volume, sales revenue, or market share of existing product as a result of the introduction of a new product by same manufacturer or by competitors. Normally product cannibalization may consider negative, even in the context of a carefully planned strategy. It can be efficient, by eventually raising the total sales volume of a company’s product, or superior consumer demands. Cannibalization is a key consideration in product portfolio analysis. Product cannibalization is defined as “the process by which a new product gains sales by diverting sales from an existing product” by (Heskett, 1976, Harvey and Kerin, 1979).

Copulsky, (1976) and Mason & Milne, (1994) have explain extent of Product cannibalization as the extent to which one product’s customers are at the expense of other products offered by the same firm. Cannibalization is a real threat for vast majority, prevalence of line extensions as manufacturers struggle to maximize the leverage of their brand equity has been explained by (Tabur 1981, Ries and Trout 1986, Aaker1991). (Ehrenberg, 1991) has stated that any new product entering a market will take market share from all the existing players and predicting these cannibalization as a critical and difficult task.

Ulrich and Tung (1991) suggested that excessive use of commonality could result in products of similar nature and cause product cannibalization. Paley (1991) defined modification as altering the feature of a product to create “newer” ones that replace the existing product. Reddy et al. (1994) defined it as a percentage of the new product’s sales which derives from the sales of an existing product with in the company’s portfolio.

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). Reports have alleged that branded producers have used a variety of delaying tactics to avoid this “cannibalization” of their profits in the branded segment. One common means is for the branded firm to introduce and promote a new form of the concerned product with strategic effects, or tactic effects.

1.2 Statement of Problem

The basic aim of this research paper is to investigate the influence of a firm’s willingness to cannibalize on brand loyalty, with customer satisfaction as moderating variable. Definition of cannibal by Oxford dictionary is “A person who eats human flesh”. Generally this term is defined as “An animal that eats animals of his own kind”. Heskett (1976) is the first person who introduced this term in area of marketing. In view of Kotler& Keller (2009) cannibalization is a system in which a firm’s existing brand is competed by a new brand of its own. Chandy & Tellis (1998) claimed that cannibalization is a fundamental variable to determine why certain firms introduce new products more profoundly than others.

It’s not desirable by any firm that its newly launched brand starts challenging its own product(s) rather than competing with rivals’ products. Problem may also arise when a firm’s new product can’t be distinguished from the predecessor. Therefore in order to create a unique image in the minds of customers and the market, it is essential that new product has different characteristics from previous one. It has been found that some customers are unable to differentiate between two different branded products of the same firm (Chandy & Tellis, 1998).

The logic behind introduction of new products is technological improvements and variations in customer requirements with the passage of time. Companies carry out research and development in this area as and whenever required in order to design more advanced products and to have competitive edge in the market place. Problem arises when the introduction of a new product not only challenges the competitors’ products but also start posing threat to the firm’s own present product. This creates a space of competition between products of same firm in the market. Such competition sometimes proves damaging rather than productive because the potential of the present product declines because of introduction of newer and a more

1.3 Research Objectives

The main aim of the study is to explore the effect of product cannibalization on market share retention on the Manufacturing Industry in Nigeria with customer satisfaction playing the mediating role for market share retention. The specific objectives would be as follows:

To examine the relationship between product cannibalization and market share retention in the Manufacturing Industry in Nigeria
To examine the relationship between customer satisfaction and market share retention in the Manufacturing Industry in Nigeria
To examine the mediating role for market share retention of customer satisfaction in the relationship between product cannibalization and market share retention in the Manufacturing Industry in Nigeria.

1.4 Research Questions

Based on the objectives set above, the study seeks to answer the following questions:

What are the relationship between product cannibalization and market share retention in the Manufacturing Industry in Nigeria?
What are the relationship between customer satisfaction and market share retention in the Manufacturing Industry in Nigeria?
What is the mediating role for market share retention of customer satisfaction in the relationship between product cannibalization and market share retention in the Manufacturing Industry in Nigeria?

1.5 Significance of the Study

The benefit to study a sound product cannibalization in the manufacturing industry of developing countries like Nigeria cannot be over. Emphasize product cannibalization has been seen to be the most importance competitive weapon to boost market retention of organization. This study is aimed at adding to the existing body of knowledge in the area of product cannibalization, and also aid fellow student and researcher, teacher and principal persons in the area of marketing in future research work also this research work would improve the knowledge of the managers, supervisors as well as the respondent as it has potential of widerning their horizon in modern business operation for profitability and continuity.

To general public, this research work would restore credibility and confidence in manufacturing activities and in manufacturing with banks.
To company′s management, it will assist them in their formulation and implementation of strategies aimed at satisfying customer.

1.6 Scope of the Study

This study is carried out within Asaba metropolis this is where the organization selected for the study is situated. The study forcus on the manufacturing industry in general. The sampling object or population element used in the study are employees, manager, customer and other stakeholder these categories are able to identify and ascertain the impact of customer relationship on market share retention the adoption indicators in the study include trust, empathy, promise fulfillment and bonding others ones can be used in other studies but these would make for easy measurement of market share retention.

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Frequently Asked Questions

How does cannibalization of existing products affect market share?

The cannibalization of existing products leads to no increase in the company’s market share despite sales growth for the new product. Market cannibalization can occur when a new product is similar to an existing product, and both share the same customer base.

What is cannibalization rate?

It is the percentage of existing product sales which the introduction of a new product has impacted. A company that considers releasing new products calculates the cannibalization rate. For almost any similar product introduced in the same market, market cannibalization is inevitable.

What is market cannibalism and how can you avoid it?

Market cannibalism is also known as corporate cannibalism. When a company manufactures a new product or introduces a new service, the goal is to attract a few of their existing customers and a large number of new customers. Unfortunately, things don’t always go as planned.

How can sales analytics help prevent cannibalization?

Regular extensive sales analytics can help pre-empt such cannibalization situations and prevent one from being blind-sided by them. Would you like to get a sample sales data analysis for your company?

What is market cannibalization and how does it affect sales?

Market cannibalization is a loss in sales caused by a company’s introduction of a new product that displaces one of its own older products. The cannibalization of existing products leads to no increase in the company’s market share despite sales growth for the new product.

Is product cannibalization a consequence of launching a new product line?

While product cannibalization is an expected consequence of launching a new product line. While a poorly planned entry may harm sales of existing products, a well-planned market launch can help a company gain more overall market share.

What is cannibalization rate?

How to prevent cannibalization in business?

There are other strategies they can use to prevent cannibalization: 1. Identify the specific markets for each of the products In such a way, it’s easy to determine what gap the existing product fills and the specific consumers that the item serves.

What is market cannibalization and how does it affect sales?

Market cannibalization is a sales loss caused by a company’s introduction of a new product that displaces one of its own older products. Market cannibalization can occur when a new product is similar to an existing product and both share the same customer base.

How to prevent product cannibalization?

Fortunately, there are several ways to prevent product cannibalization. First, due diligence is key. The launch of any new product should be guided by comprehensive market analysis that gathers information on consumer preferences, competitors, market and segment opportunity, and other key factors.

How do you measure cannibalization in product mix?

You cannot measure cannibalization by simply looking at a product mix report because it does not show you the content of guest checks. Market Basket is a term for describing all the items that are sold in combination with another menu item. When we go into a restaurant, we usually buy more than a single menu item.

What is Apple’s product cannibalism strategy?

Intentional product cannibalism keeps customers in the Apple ecosystem where they will buy other Apple products and services. You see similar strategies in fashion and other industries that need to stay “fresh” in consumers’ eyes. Eastman Kodak introduced its first economy-brand camera film, Kodak Funtime, in 1994 to combat low-cost rivals.