Applying Cannibalization Methods to Marketing Strategy

This paper talks about cannibalization and marketing innovation. It discusses how the concept of cannibalization has started growing and gaining so much momentum in the field of marketing in contemporary times. It moves on to discuss examples from the real world of companies that have undergone processes of cannibalization as a way to boost profits and gain a competitive edge over their competitors. For further understanding, the paper highlights some of the positive and negative impacts that the cannibalization process carries within itself, under the heading of the impact of cannibalization. It also here discusses how the risks taken by these companies that undergo cannibalization deal with them. A section of the paper talks about the unpredictability attached to these risks and how companies, therefore, counter cannibalization in marketing innovation.

Introduction

In the field of marketing, cannibalization has been a very prominent and popular choice since it has resulted in massive results positively. Cannibalization here refers to the reduction of sales, both volume and revenue, along with a reduction in market share for one product due to the introduction of a new product by the same company. Cannibalization is the marketing concept that talks about the negative effect that a company’s new product creates on purpose, on the overall performance of another good or product that the same company has. It is an effort that the company does on its own, deliberately.

Therefore, when a company is practicing the theory under cannibalization, it is basically creating more competition for itself or ‘eating its own market’. For example, if Coca-Cola creates a new product which is called Coke-Poke for instance, then if the customers actually buy this new product it is a sign that cannibalization has taken place. Even though the company’s sales for the original Coke are decreasing, the overall company’s sales are the same, leading to again no net effect.

Cannibalization – the application

The reason why most companies do cannibalization their products is that they fear that other companies would do the same by introducing their products and cutting demand for the company its own products, henceforth one should do it by oneself. Whenever for instance Sony introduces a new product it always creates three separate teams by dividing their work. One of the teams is responsible for minor improvements, another team assumes responsibility for major improvements and the third team works on making the new product obsolete. HP or Hewlett Packard is another company that also practices cannibalization by creating lots of competition within its own divisions of the variety of products that it has (Kumar, N., n.d.).

Many retailers also set up cannibalizations strategies into implementation by making sure that they set up more retail outlets within the vicinity of their more successful retail outlets because they say they simply believe in keeping competitors as cannibals within the family only (Kumar, N., n.d.).

When it comes to strategy making and implementation with respect to marketing innovation and cannibalization, then it is said that a company decides to cannibalize it does so by making sure that the demand is predictable and known widely. Also, along with this stagnancy in demand forecast, it deals with making sure that the technology that is there is the same for both the products. Hence, when we talk about having success in the form of good products then it can be said that yes, cannibalization is a good option (Moorthy, K., 1992). This is so because it results in profitability for the firm since the loss it makes from the ‘cannibal product’, it covers all that very well through the huge profits it makes through successful revenues from the product that takes advantage of the cannibal product. When henceforth, a company faces the decision of introducing two products at once or one after the other; at a time like this the company could undertake the option of introducing the other product at a lower quality, lesser price and the ‘wanting to make the product successful’ product at a higher quality. Therefore, instant cannibalization is made advantage of. Many times history has proven however that sequential introduction is a lot better than simultaneous or ‘both at once’ introduction, whenever it is thecae that cannibalization is an issue (Moorthy, K., 1992).

Cannibalization in marketing strategy in practice

This part of the paper talks about General Motors as the case under study. It talks about how strategies inclusive of cannibalization and retrenchment are used when new product development is taking place.

Product Development Strategy

Product Development strategy would increase sales by improving or modifying current products and services. The problem General Motors faces is not their lack of a quality product, rather the lack of current technology combined with their quality product. Although declining, GM still has an adequate market share both in the US as well as foreign markets and would easily draw attention to their new vehicles and technology. Financially a product development strategy is not cheap as it will require a large investment into both research and development; however, GM even at this point is still financially stable enough to make that investment (Wheelwright, S., 1992).

Retrenchment

The Retrenchment strategy involves cost and asset reduction to help reverse GMs declining sales and profits. This involves making difficult decisions that could include cutbacks, layoffs, the closing of factories. Although the shareholders may opt for the retrenchment strategy to better serve themselves initially, it is not always the right decision for the betterment of the company. Looking at the case we are able to see the GM used the retrenchment strategy back in 2004 discontinuing its Oldsmobile brand (Haines, S., 2005).

Divestiture

A divestiture strategy would include selling off a division or a part of the organization in order to raise capital. It is similar to a retrenchment strategy in that they both require cutting back or selling off. In many cases, divestiture is part of an overall retrenchment strategy. With the problems, GM is having this might be something too considered in order to cut costs and raise extra capital (Haines, S., 2005).

Recommendations for GM keeping in mind Cannibalization

With the above three strategies mentioned, my recommendation is that General Motors take the following action to counteract its recent decline within the worldwide automotive industry: Effective immediately I would begin implementation of a retrenchment strategy focusing on the following objectives: Cut total costs and expenses by 8%, discontinue bottom product performers and potentially sell off brands producing drastic negative returns using the divestiture strategy. As the cutting of costs and rising of capital take effect General Motors should generate the appropriate funds to begin a product development strategy. With the product development strategy underway, its main objective should be on alternative energy and the development of Hybrid vehicles. General Motors must make an impact on the world of alternative energy as that is where the automotive industry is headed. With the success of the development in alternative energy technology, GM should have no problem using their already established global experience to increase both US and foreign market share and once again become the worldwide automotive leader.

Countering Cannibalization and its risks involved

Many companies see the process and strategy behind cannibalization as a very fearful thing. However, it is a common fact that this can be countered and the effects of the cannibalization process can be made to be nullified by various techniques. Companies hence can counter cannibalization by actually creating more competition for the same type of product by using cannibalization tools. This countering cannibalization can be done for instance by using one’s own older, unique product and desirable by extending its lifecycle overall.

Also, one more thing that can be done is creating a new niche within the same market that a company’s product exists in. Therefore, with the introduction of, for example, an old product can be made to lower the price of it and making it affordable and cheap; the newer product on the other hand can be made a niche market for existing by creating a profile of high status, more expensive product which can be targeted at the higher income class. This way the company can take advantage of both the product’s different markets and niche. If this can be done then automatically, there will be the existence of no cannibalization while talking in general terms. This will be the case since due to the older, cheaper alternative; the old products will too capture the market greatly. Therefore, with the strategy of making the old product a niche market and niche product, a company can counter cannibalization successfully. The company can thereby enjoy a new market’s benefits from only a little innovation. Out-of-the-box thinking hence is the key here when a company thinks about countering the effects of cannibalization in its line of work and field of operations (Kam, D., 2008).

The positive and negative impact of Cannibalization

There can be both positive and negative impacts of the process of cannibalization. If there is a new product, usually what happens is that sales from an existing product are taken away due to the new product. An example of this could be McDonald’s opening up a new franchise within close proximity of an already established chain. Therefore, here the power of a new outlet will harm the other already existent chain due to the attraction that the new one offers.

Intense analysis into the process of cannibalization hence needs to be done so as to make sure that the benefit-driven out of the cannibal product’s introduction is greater than the overall loss. But, in these times of intense cutthroat competition in industries like the telecommunication industry, fast food, etc., companies need to understand that cannibalization often is not also a deliberate decision they make to gain an advantage over their competitors, and these are the times when it is said that cannibalization and including it in the overall marketing strategy in the business was not avoidable. This henceforth carries itself with again unpredictable changes and effects. But, what needs to be understood again is the fact that yes, even if cannibalization would have not been done, outside cannibalization would have destroyed the overall situation for the company. Another negative impact of cannibalization is that it carries with itself great unpredictability since it can also occur without notice much before a new product is also introduced (Hillstorm, K., Cengage, G. and Hillstorm, L., 2006).

However, keeping aside the negative effect that cannibalization generally carries, it can be said based on thorough research into the marketing strategy that cannibalization can b used as a successful growth strategy. When it comes to innovation in marketing henceforth, it can be hence said that if companies like Kodak for instance have not had introduced digital technology in its division, then other companies and similar field products must have completely taken over Kodak’s film business. Therefore, cannibalization and innovation can be said to go hand in hand as well, the only difference here is that the new product is made to do exceptional well based on the updation and up gradation of technology into whatever field of business a company is operating in (Hillstorm, K., Cengage, G. and Hillstorm, L., 2006).

It is hence very much recommended usually that companies use the strategy behind cannibalization thoroughly and take advantage of stand-alone units in the business the company is in. Risk-taking bad implementation of new product developments and new ideas hence proves itself to be necessary. This risk factor is there and cannot be ignored, but also it can be said that it becomes increasingly important for the company when it is using cannibalization as part of its marketing strategy. Many times, henceforth a lot many popular personalities in the field of business and marketing have commented on cannibalization by calling it ‘destroy your business. com’; or in the words of Picasso ‘to create something new, another thing needs to be destroyed’; and as Harvard Business School’s Dr. Christensen says that cannibalization is a process that is actually survival that a company attempts to do through doing the act of suicide. Other famous words include cannibalization being called as ‘the valley of death’, by Andy Grove, and ‘Forced obsolescence’ (Hillstorm, K., Cengage, G. and Hillstorm, L., 2006).

Conclusion

The concept of cannibalization is quite old has been used by many companies the world over as this paper clearly explains. The concept of cannibalization has started growing and gaining so much momentum in the field of marketing in contemporary times and moved on to today’s world as a strategy to boost company profits and gain a competitive edge over their competitors. These companies regard cannibalization not as eating your own profit but making more profit. They do this by clearing the path from any competitor and by adding their own. This way, they capture most of the market share and hence profitability for the holding company. An important thing is that cannibalization is often a risk that companies take which sometimes backfire. The risks are due to the dynamic market and the variable environmental factors that come into play when a new player enters a field even if that is the company’s own player. However building a long vision is a part of this strategy and through clear foresight and calculated risk-taking, companies are able to reap success out of a cannibalization strategy.

Works Cited

1. Haines, S. (2005) The ABCs of Strategic Life Planning. Publisher: Systems Thinking Press.
2. Hillstorm, K., Cengage, G. and Hillstorm, L. (2006) Cannibalization. Encyclopedia of Small Business. eNotes.com.
3. Kam, D. (2008) How to counter cannibalization.
4. Kumar, N. (n.d.) Marketing as strategy. Publisher: Harvard Business School Press.
5. Moorthy, K. (1992) Market Segmentation, Cannibalization, and the Timing of Product Introductions. Management science, Vol. 38, No. 3, 1992, pp. 345-359
6. Wheelwright, S. (1992) Managing New Product and Process Development: Text and Cases. Publisher: Free Press