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Business cannibalization is when a company competes with itself or other businesses by reducing sales volume or market share. It can be intentional and beneficial, such as in e-commerce, or unintentional and harmful, such as opening a new store in the same area as a successful one.
Business cannibalization refers to the practice of competing with an already established business model by creating a reduction in sales volume or a reduction in total market share. The cannibalization that is taking place is usually focused on attracting clients or customers. One practice cannibalizes the market another practice focuses on. Also known as market cannibalization, it can occur within a single company providing two or more competing products or services, or it can occur across multiple competing industries. It can also occur between numerous chains of the same company or between related product lines that have similar offerings.
Cannibalization often occurs when a company’s marketing strategy is based entirely or partially on the assumption that a given market can support multiple stores or multiple products. A good example would be if a retail store operation has one particular store that is doing very well in a specific area. The company may choose to open a second location within the same area, assuming proven sales in the first store will support an additional store even if both locations have slightly lower activity than the existing single location. Just as one cannibal is known to have eaten the flesh of another, corporate cannibalization suggests that the new store could fuel the first location’s finished success. If cannibalization were to go into effect, the first store would start to see a reduction in market share while the second store begins to reduce some of its sales revenue and thus reduce the head office’s total sales. This, of course, assumes a finite customer base that would not grow as a result of major locations.
While corporate cannibalization may seem inherently bad, it can be a good thing. Sometimes it involves a carefully planned strategy and also forces a company to think outside the box to evolve with the changing needs of both the market and the consumer. In the e-commerce world, for example, some companies intentionally cannibalize their retail sales through lower prices on their online product offerings. While their in-store sales may decline, the company could see overall positive gains. While the retailer saves on the operating costs of a brick and mortar location, the consumer automatically benefits from the cannibalization of the retailer through lower cost of goods.
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