Cannibalization in retail is one of the significant challenges brands and retailers face today. If you have noticed that your new products, categories, or promotions are not delivering the expected results, they may be competing against each other. Although common, this phenomenon can be managed effectively.
Understanding Cannibalization in Retail
Cannibalization can manifest in different ways: at the product level, when a new version reduces existing product sales; at the store level, when one category negatively impacts others; or when a new location draws sales away from nearby stores.
For example, when a department store expands its sportswear section, it may see a decrease in sales in its casual wear section. Similarly, when a brand launches a new product variant, it may redistribute existing sales instead of capturing new market share.
Cannibalization can arise for various reasons, and understanding them is the first step toward effective management.
One common scenario is a poorly planned product mix. This can occur if products are too similar or lack clear differentiation. It can also happen when introducing new products without a well-defined positioning strategy.
Pricing strategy is equally crucial. Excessive discounts on new products, insufficient price differentiation between categories, or inconsistencies between online and physical channels can lead to scenarios where products compete for the same customer.
The Unique Challenge of Promotions
Promotions are particularly susceptible to cannibalization. Research has shown that approximately 17% of the additional volume generated by promotions is lost to this phenomenon. This figure should prompt any retailer or brand to reconsider its promotional strategy.
Consider some concrete examples: a supermarket creates a promotional island for healthy snacks in the central aisle, boosting sales but reducing traffic and sales in the regular snack section. Another option could be that a brand promotes a new sunscreen only to see sales of its existing versions fall by the same amount.
The impact of promotional cannibalization in retail goes beyond immediate sales. Frequent promotions can train consumers to expect discounts, diluting sales across multiple SKUs and weakening overall market positioning.
When Cannibalization in Retail Can Be Strategic
It’s essential to recognize that not all cannibalization is negative. In some cases, it can serve as a valuable strategic tool.
Cannibalization can be part of a modernization strategy when a store renews its sections or introduces new concepts. Product cannibalization is sometimes even desirable when introducing new features or improvements and gradually eliminating old or less profitable products. Apple exemplifies this approach: The company consciously allowed the iPad to cannibalize some Mac sales, understanding that keeping customers within the Apple ecosystem was better than losing them to competitors.
Building an Anti-Cannibalization Strategy
Promotions should aim to attract new consumers or increase total consumption, not just redistribute existing sales. This requires developing effective segmentation, implementing strategic promotional planning, and maintaining continuous performance monitoring.
Having a technological tool to facilitate implementing and monitoring commercial initiatives is essential to turning this strategy into concrete actions.
Frogmi is a comprehensive solution that enables retailers and brands to ensure proper promotional execution from start to finish. The platform facilitates that each phase of the promotion—from launch through maintenance and teardown—is executed according to plan, recognizing that each point of sale has unique characteristics. Through clear communication and visual guidelines, store teams can implement and document each process phase excellently, enabling detailed and accurate analysis of campaign effectiveness and assessment of potential cannibalization effects.
Its real-time tracking capabilities allow management to access up-to-date information, analyze the impact of promotions at each store, identify behavioral patterns that may indicate cannibalization issues, and make immediate adjustments, turning data into actionable insights.
Cannibalization in retail is a complex phenomenon requiring careful and ongoing management. With a clear understanding of its causes and effects, a well-planned strategy, and the right tools, retailers can prevent undesirable cannibalization or leverage it strategically when beneficial to the business.
This way, cannibalization can transform from a threat into an opportunity for business growth.
