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For some professionals, growth and growth potential are more important indicators of success than even metrics like profit. Whether or not you subscribe to that specific ideology, the truth is that growth is crucial to the long-term viability of any organization. As such, businesses in the retail sector need to pay particular attention to product cannibalization. That’s because cannibalization can –– in many instances –– actively inhibit expansion and drive up costs significantly. Here, we’ll explain the basics of retail cannibalization analysis and how businesses can use it to protect their interests.
Retail cannibalization occurs when a company or brand introduces a new product that displaces a current product. As such, products that are very similar to each other and that appeal to a similar customer base won’t lead to an increased market share –– since the new product appeals to the same people that the old product still does. (Note, product displacement is not the same as replacement.) At the same time, though, companies producing two cannibalizing products incur extra costs because they now must spend capital on development, marketing, production etc. of two products as opposed to just one.
There is a fine line between complementary products –– products that consumers buy in addition to existing products –– and cannibalizing products. The problem is that the difference between the two is not always obvious. What’s more, professionals who have worked to develop cannibalizing products may not realize it because they have an internal bias and overestimate how unique a new product really is.
A large part of preventing retail cannibalization, then, comes down to understanding consumer behaviors, preferences, and perceptions. And, unsurprisingly, the best way to do this is to conduct thorough research prior to a new product’s development.
To be more specific, businesses looking to prevent retail cannibalization can utilize all of the following research tactics:
In short, the better a company understands its own brand, its customers, and the overall nature of its industry, the better chance it has of introducing a product that has a positive impact on overall profitability.
Most of the time, retail cannibalization is an unintended consequence of releasing an ineffective product. However, certain businesses have managed to purposely use retail cannibalization as a long-term strategy. For example, some large chains may decide to build store locations in very close proximity to each other. While these two stores cannibalize each other’s business, they can also drive down sales for competing businesses in the area. In the same way, large retailers that introduce several similar products can “flood the zone” and so saturate the market that it makes it hard for smaller competitors to keep up. Of course, this strategy only works for companies that have the capacity to take on short-term losses in order to produce long-term gains.
No growing company wants to miss out on a big opportunity to improve their brand. Thankfully, our team at Research America can help you perform high-quality market research that will prevent lost capital from product cannibalization. We can help you get to know your customer base better! Contact us here to learn more or to get started today.