Every company, when it scales its business, introduces new products into its catalog. This broadening process of product offerings provides many benefits, like taking advantage of market share, attracting new customers, retaining existing audiences, and increasing sales.
But in this aggressive chase for expansion, companies often run into an issue called “product cannibalization,” where companies end up losing business due to their own products.Preventing product cannibalization requires building a solid branding plan right from the start, especially in terms of demand planning. With a demand forecasting solution, companies can anticipate fluctuations in the market, changes in customer demand, and disruptions due to various other factors and create a solid plan for new product introduction.
Product cannibalization can significantly affect sales numbers and profits, which can be easily avoided using demand planning software.
Product cannibalization: Causing Factors and Impact
Consider a company that introduces a new product at a lower price compared to a similar existing product in demand of its own catalog. It is easy for customers to transfer their purchasing preference to the new product. As a result, the current product loses out. This is known as product cannibalization.
Instead of bringing in new customers or building new income channels, product cannibalization moves existing earnings from one item to another within the same brand. Here are some of the factors that can cause product cannibalization:
- Product Line Growth: Companies will often put new products in the market as they grow or expand. If the new product is similar to the products they were already selling or has better features, it becomes product cannibalization.
- Pricing Methods: Launching a new product at a cheaper price can cause a shift from higher-priced goods. Without careful pricing checks, brands can unintentionally cut into their own profits.
- Shared Target Markets: When companies don’t clearly set the new product apart, or when its value seems to outshine the older version, cannibalization can occur.
- Lack of Market Insight: Releasing a new product without solid market insight can trigger cannibalization.
Such factors can impact a business’s growth in multiple ways. These include:
- Income Drop: When users move to cheaper plans or products within the same group, overall income may drop.
- Rise in Churn Rate: If customers feel like they’re paying for features they don’t use or that a new item gives more for less, they may cancel existing services, causing high churn rates.
- Brand Weakening: Selling too many lookalike products or often changing prices can make it harder for customers to find the uniqueness of each product and may weaken the brand’s position in the market.
Preventing Product Cannibalization with Demand Forecasting Solution
When companies introduce new products with a proper plan, they can encourage business growth instead of adding to the competition, i.e., product cannibalization. In a highly competitive retail environment, product cannibalization cannot be entirely avoided, but it can be greatly minimized using demand forecasting solutions.
1. Forecast-based Analytics
Demand planning software helps companies detect and measure how a new product introduction can impact the existing market. It considers various factors such as the price of the new product, its similarities with the existing product, and local demand. This helps companies to prepare in advance instead of reacting to cannibalization.
Artificial intelligence powers demand forecasting solutions to study the influence of large volumes of data at once. They make it possible to evaluate important factors like:
- Area-specific demographics
- Promotional response
- Sensitivity of demand to price changes
- Time-of-year patterns
Companies can use forecast-based analytics provided by demand planning software to plan for new product introductions. By doing this, they can bring in the right quantity of new items and set the best price, which may lead to:
- Fewer sellouts and higher income
- Avoided extra stock and lower markdowns
- More reliable promotions and seasonal planning
2. Finding the Right Pricing Method
An ideal pricing strategy for a new product is crucial to maintain a healthy balance among rival items. As there’s no past sales data, pricing a new item is difficult. Demand forecasting solutions can help in such scenarios. They can help retailers find the best price for a new launch by analyzing the past sales data of a similar product and forecasting customer demand.
Demand planning software works across all sales channels, letting retailers shape their pricing plans in a connected way. This not only cuts down internal competition between in-store items but also reduces conflict between digital and physical store operations.
3. Making Products Unique
If customers don’t find the difference between a new item and an older ones, they may not see a reason to buy both. This makes it crucial to ensure each new product has something fresh and unique. Companies can achieve this by using a demand forecasting solution, which assists them in anticipating what customers may need in the future. This helps them to,
- Add new features to an existing item that appeal to a specific audience or niche.
- Launch a premium version of the original product to specific customers willing to pay more and create a differentiation from the original product.
- Create a product that complements or adds value to an original product. This way, if the customer buys the new product, they now have a higher value associated with their original spend.
Demand planning software helps to invent something truly new that fills a gap in the market.
Bottom Line
Product cannibalization is a complicated issue that every company with a broad product range must be aware of. While it can reflect progress and expansion, it also brings challenges that can hurt profit margins, weaken brand strength, and hinder growth efforts. With demand planning software, companies can get solid market insights and do better research before launching a new product, preventing any potential cannibalization.
Besides preventing product cannibalization, demand forecasting solutions can benefit companies in many other ways. By predicting future demand accurately, retailers can minimize stockouts, overstocking, and waste. Demand planning software offers a peek into what’s ahead, allowing retailers to predict how their plans will unfold without risking major issues like product cannibalization while ensuring profitability and operational efficiency.
Ethan Cross is a tech journalist and analyst with a passion for gaming, AI, and emerging innovations. With years of experience covering hardware, software, and industry trends, he breaks down complex tech topics into engaging, accessible insights. Whether it’s the latest gaming hardware, smartphone innovations, AI breakthroughs, or startup disruptions, Ethan delivers sharp, in-depth coverage that keeps readers ahead of the curve. His expertise spans gaming reviews, software updates, blockchain, and industry shake-ups, ensuring that no major tech development goes unnoticed.
