# What Is Market Cannibalization? Types and How to Prevent It

![Market Cannibalization: A drop in sales and demand for a product when the company replaces it with a new one.](https://www.investopedia.com/thmb/FCrY8e0ditJQ2UQMKI5UqGaNn2k=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/marketcannibilization.asp-final-53bea81056d64fa5a838e34283f84f07.png)

*— Investopedia / Julie Bang*

## What Is Market Cannibalization?

Market cannibalization refers to a drop in sales and demand for a product when the company replaces it with a new one. Market cannibalization can occur when a new product is similar to an existing product, and both share the same customer base. It leads to no increase in the company's [market share](https://www.investopedia.com/terms/m/marketshare.asp) despite sales growth for the new product. Cannibalization can also occur when a chain store or fast food outlet loses customers due to another store of the same brand opening nearby.

### Key Takeaways

*   Market cannibalization is a sales loss caused by a company's introduction of a new product that displaces one of its own older products.
*   This phenomenon can occur when a new product is similar to an existing product and both share the same customer base.
*   Market cannibalization may occur deliberately to blow out the competition while other times, it's a failure to reach a new target market.
*   It is measured by the cannibalization rate, the number of lost sales for old products as a percentage of new sales.
*   Products with similar branding are most at risk of cannibalization, which is why companies should engage in market research and testing.

## How Market Cannibalization Works

Market cannibalization occurs when a new product intrudes on the existing market for an older product from the same company. By appealing to its current customers instead of capturing new customers, the company [fails to increase its market share](https://www.investopedia.com/terms/d/dog.asp) while almost certainly increasing its costs of production.

Marketing cannibalization is often unintentional when the marketing or advertising campaign for new products draws customers away from an established product. As a result, market cannibalization can hurt a company's [bottom line](https://www.investopedia.com/terms/b/bottomline.asp).

This phenomenon can be a deliberate growth strategy. For example, a supermarket chain might open a new store near one of its older stores, knowing that they will inevitably cannibalize each other's sales. However, the new store will also steal market share from nearby competitors with the possibility of eventually driving them out of business.

Stock analysts and investors generally look down upon cannibalization as a [marketing strategy](https://www.investopedia.com/terms/m/marketing-strategy.asp). That's because they see it as a potential drag on short-term profits. As companies design their marketing strategies, marketing cannibalization should be avoided. This means companies should closely monitor individual product sales to determine if cannibalization is occurring. For instance, companies like Starbucks and Shake Shack constantly weigh sales growth opportunities with the risks of local market cannibalization.

## Special Considerations

There may be times when market cannibalism cannot be avoided. Every major department store operates an online store, knowing full well that its sales can only cannibalize its [brick-and-mortar locations](https://www.investopedia.com/terms/b/brickandmortar.asp). Their only other choice is to allow internet retailers to continue taking market share away from them. Consider how online sales are hurting major retailers like Macy's, which continues to close down some of its stores across the country.  

> **Fast Fact**
>
> Market cannibalization is also commonly referred to as corporate cannibalism.

## Types of Market Cannibalization

There are several types of market cannibalization. They include planned cannibalization, discount-related cannibalization, and cannibalization through [e-commerce](https://www.investopedia.com/terms/e/ecommerce.asp).  

*   **Planned Cannibalism:** One familiar type of cannibalism occurs every year when companies like [Apple and Samsung](https://www.investopedia.com/articles/markets/102714/how-apple-and-samsung-compare-and-coexist.asp) release new versions at the expense of older models, even if the products are still popular. While these new releases may cut into sales of older models, they also attract new buyers from other brands.
*   **Cannibalization Through Discounts:** Many retailers regularly put products on sale, either to increase [cash flow](https://www.investopedia.com/terms/c/cashflow.asp) or to make room for newer products. But, regular discounts can have a cannibalizing effect if buyers start to expect routine discounts. If customers refuse to buy items at full price, the retailer may be forced to offer increasingly steep discounts.
*   **Cannibalization Through E-commerce:** Many traditional retailers now offer [online sales](https://www.investopedia.com/articles/pf/08/buy-sell-online.asp), which could come at the expense of their brick-and-mortar stores. However, these losses could be a net benefit if online shopping attracts new customers from outside the retailers' normal base.

> **Fast Fact**
>
> Market cannibalization is measured by the cannibalization rate. The formula for the cannibalization rate is: 100 x (Lost Sales on Old Product) ÷ (Sales of New Product).

## How to Prevent Market Cannibalization

It is important to consider how the two products are branded to prevent new products from cannibalizing older ones. Products with similar pricing and placement, such as new flavors or added features, pose a high [risk](https://www.investopedia.com/terms/r/risk.asp) of market cannibalization, according to the Nuremberg Institute for Marketing Decisions.

This risk can be reduced through more distinctive branding. For example, creating inexpensive fighting brands to compete with low-cost competitors without cannibalizing from the premium brands. New offerings can also be carefully timed to avoid disrupting older offerings.  

## Advantages and Disadvantages of Market Cannibalization

### Advantages

Market cannibalism is not always to be feared, especially if it can protect or expand a company's market share. Apple founder [Steve Jobs](https://www.investopedia.com/articles/fundamental-analysis/12/steve-jobs-apple-story.asp) is reported to have embraced the practice, saying: "If we don't cannibalize ourselves, someone else will." Although newly-released [iPhones](https://www.investopedia.com/financial-edge/0912/the-cost-of-making-an-iphone.aspx) do cannibalize buyers from older models and other devices (like iPods), they make a bigger dent in Apple's competitors.

It may also be an appropriate defensive measure against competitors, as when Airbnb started cutting into the margins of the hotel business. In 2019, Marriott started its own home rental business, which cannibalized from its hotel revenue—but ultimately denied market share to Airbnb.

### Disadvantages

There are also major risks to market cannibalism. High-end retailers should be cautious about introducing low-priced versions, which could dilute the value of their premium brands.

There is also a danger of [market saturation](https://www.investopedia.com/terms/m/marketsaturation.asp), as might occur when two identical fast-food restaurants appear on the same block. Depending on local market dynamics, the brand might end up competing against itself.

As with other marketing decisions, thorough [market research](https://www.investopedia.com/terms/m/market-research.asp) and careful timing can make all the difference between positive and negative market cannibalization.

Pros

*   New offerings can revive interest in older product lines
    
*   Bargain alternatives can prevent competitors from undercutting core brand
    

Cons

*   Bargain alternatives may dilute the value of premium brands
    
*   Market saturation may occur when multiple venues compete for customers
    

## Examples of Market Cannibalization

Apple is an example of a company that ignores the risk of market cannibalization in pursuit of larger objectives. When the company announces a new iPhone, the sales of its older models immediately drop. However, Apple counts on its new phone to capture customers from its competitors so it can increase its market share.

Companies often risk market cannibalization to see a boost in their market share. For example, a company that makes crackers may introduce a low-fat or lower-salt version of its brand. It knows some of its sales will be cannibalized from the original brand, but it hopes to expand its market share by appealing to health-conscious consumers who otherwise would buy a different brand or skip the crackers altogether.  

## Is Product Cannibalization Good or Bad?

Product cannibalization is an expected consequence of launching a new product line. It may also be necessary so companies can innovate and grow their businesses. But, there are risks associated with market cannibalization, which means businesses should take precautions when executing this strategy. While a poorly planned entry may harm sales of existing products, a well-planned market launch can help a company gain more overall market share.

## How Can You Measure Product Cannibalization?

Product cannibalization is represented by the cannibalization rate, which is the percentage of new sales that occurred at the expense of old product lines. The cannibalization rate is calculated by dividing the lost sales for older products by the total sales of the new product.

## Why Is Product Cannibalization Important?

Product cannibalization is an important factor in brand marketing. Since any new launch runs the risk of poaching customers from other product lines, it is essential to carefully research the market and conduct thorough testing to determine if the risks outweigh the benefits.

## The Bottom Line

Companies have different growth strategies they can explore to help them gain market share and increase their sales. At times, it may come at the expense of their existing product lines. When a company loses sales for an existing product to a newer one, it's called market cannibalization. While it can help businesses innovate, increase their customer base, and release new product lines, there are risks with this strategy. Low-priced goods and market saturation can be hard to avoid. This is why companies should do their research first.

> **Article Sources**
>
> 1.  Macy's Inc., Investors. "[Macy's, Inc. Confirms Planned Macy's Store Closures](https://www.macysinc.com/newsroom/news/news-details/2025/Macys-Inc.-Confirms-Planned-Macys-Store-Closures/default.aspx)."
>     
> 2.  ChannelSight. "[What is Product Cannibalization and How Do You Avoid It?](https://www.channelsight.com/blog/product-cannibalization)"
>     
> 3.  Mason, Charlotte and Kaushik Jayaram. "[Don't Get Eaten! Understanding and Handling Cannibalization](https://www.nim.org/fileadmin/PUBLIC/12_NIM_MIR_Issues/MIR_Markenrisiken_im_Fokus/MIR_Markenrisiken_im_Fokus_EN/mason_jayaram_vol_10_no_1_english.pdf)." _GfK Marketing Intelligence Review_, vol. 10, no. 1, 2018, pp. 34-39.
>     
> 4.  Harvard Business Review. "[The Real Leadership Lessons of Steve Jobs](https://hbr.org/2012/04/the-real-leadership-lessons-of-steve-jobs)."
>     
> 5.  The Wall Street Journal. "[Marriott to Take on Airbnb in Booming Home-Rental Market](https://www.wsj.com/articles/marriott-to-take-on-airbnb-in-booming-home-rental-market-11556535600)."