Contents
What is brand cannibalization?
Brand cannibalization refers to a situation where the sales growth of one brand within a company occurs at the expense of declining sales of another brand from the same company. This can happen when two brands owned by the same company begin competing against each other for the same audience. The reasons for this phenomenon often lie in incorrect positioning and mistakes in the marketing strategy, leading to confusion among consumers who do not always realize they are purchasing products from the same manufacturer.
For example, the company "Wimm-Bill-Dann" has two dairy brands with similar positioning — "House in the Village" and "Cheerful Milkman." It actively promotes the first brand to gradually reduce the presence of "Cheerful Milkman" in the market. As a result, the audience familiar with "Cheerful Milkman" through old advertisements may switch to the more popular and actively promoted brand. Ultimately, instead of attracting a new audience, the company may simply lure away its current customers, leading to market cannibalization.
Causes of cannibalization
The main factors contributing to brand cannibalization are related to mistakes in marketing strategy:
- Incorrect positioning: The new brand targets the same audience as the old one.
- Lack of significant differences: Both brands offer similar products that do not have unique characteristics.
- Incorrect pricing policy: One of the brands is cheaper, attracting customers who see no reason to pay more for a similar product.
- Unsuccessful marketing campaign: The new brand appears more relevant and appealing, leading to a loss of interest in the old product.
A classic example is the company Kodak, which launched the FunTime film line. Consumers could not identify significant differences between the Gold film and FunTime, leading to a decrease in sales and dilution of the Kodak brand.
Types of brand cannibalization
Cannibalization can be either negative or positive:
Negative (unplanned) cannibalization
This occurs unintentionally and can lead to negative consequences such as:
- Market saturation.
- Decline in sales of the old brand.
- Brand dilution.
- Loss of profit.
Positive (planned) cannibalization
In this case, companies intentionally introduce a new product to attract the audience. For example, Procter & Gamble launched Tide detergent in 1946, which competed with their old brands but ultimately displaced them from the market.
Cannibalization coefficient
The cannibalization coefficient shows what share of the market the old brand lost after the new brand entered the market. Its formula is:
Cannibalization Coefficient = Sales loss of existing brand / Sales of new brand
To calculate this, it is necessary to compare sales data of the two brands over the same period. For example, if a juice manufacturer launches a new product and there is a decline in sales of the old one, this will indicate cannibalization.
How to avoid brand cannibalization
To minimize the risks of cannibalization, it is necessary to develop a brand portfolio management strategy:
- Define unique positioning: Each brand should have a clear identity and target audience.
- Enhance the product: The new product should differ from the existing one, offering unique features and benefits.
- Avoid audience overlap: It is essential to clearly understand who the target audience is for each brand.
- Manage pricing: Develop a pricing strategy that considers the positioning of each brand.
- Regularly analyze sales: Monitor the performance of each brand, especially when launching new products.
- Test new brands: Conduct research to assess the perception and attractiveness of new products.
A well-thought-out strategy can help avoid the negative consequences of cannibalization and even use it as a tool for market growth.