KPI of the Day – Sales: % Cannibalization rate of new product offering
Definition
Measures the decrease in sales of existing products due to launches of new products.
Purpose
To indicate the break-even rate of cannibalization (the maximum sales volume of the new offering that could come from the company’s existing offering without incurring a loss).
Recommendations
New product launches ultimately impact the sales of existing products, by pushing forward the sales for the newly released products. The % Product cannibalization rate reflects on the magnitude of newly released products on the existing product portfolio. Product cannibalization occurs when newly launched products target the same market segments as the existing ones.
Some recommendations on effectively managing product cannibalization rates include:
- Addressing new market segments for market base expansion;
- Targeting related but different markets with new product offerings;
- Using product cannibalization strategies on competitors rather than oneself;
- Forecasting the effects of newly launched products on the existing product portfolio;
- Marketing strategies that alleviate the effects new product launches have on existing company products.
Cannibalization is a consequence of product line extensions, which typically aim to increase the company’s revenues or to steal market share from the competition. A side effect of product line extensions is that in addition to stealing share from competitors, new offerings also take away market shares from the company’s current offering.
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