Question

Discuss the issues of dilution and cannibalization as related to the proliferation of new product introductions and inappropriate channel design.

Answer 1

Cannibalization in very simple terms means eating away the sales of an already existing product of the same firm. This can occur when a firm introduces a variant of the same product category in which it is already present. There are various issues pertaining to dilution or cannibalization of the sales of the product, some of them are mentioned as follows,

• When a firm introduces a product in a category in which it is already present then there are chances that the new product will eat up the sales of the existing product. This can be of the lesser impact if the existing product is the market leader in that particular category. Hence understanding the market dynamics of that product category is essential to understand the cannibalization effects and devise a strategy which will result in an ultimate increase in overall market share in the product category.
• When we introduce the new product in a channel that is used by the existing product then there is a high possibility of the new product replacing the existing product. Since the channels coincide the differentiation capability of the consumer reduces significantly due to the same brand of products. Hence, the channel chosen to market should be significantly differentiated so that the risk of cannibalization is reduced. The appropriate channel can be determined for the new product by calculating the risk of cannibalization and incorporating it in calculating the revenue and market share and making sure the risk of cannibalization does not overpower the profits due to the introduction of new product.

These are some of the prominent issues in the introduction of a new product and creating the risk of cannibalization or dilution.