Analysis of the Effects of Product Cannibalism

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PRICING STRATEGY
- CANNIBALISM AND NEW PRODUCT DEVELOPMENT –

R. A. KERIN
M. G. HARVEY
J. T. ROTHE

1. My choice

I have chosen to work on this topic for these reasons. For many years now, and mostly because of the economic crisis, a lot of« premium » and mid-range brands have to compete against low-cost ones. In order to do this, some of these companies decided to launch low-cost brands to bring back lost customers. But I have already learned that this strategy can sometimes become a real threat for their premium brands: in fact, companies who do this can think that they bring new customers but unfortunately these customers are coming from their premium brand. Some real life examples are coming to me such as Coca-Cola Company who launched Coca-Cola light and Coca-Cola zero which was successful. How to avoid or reduce the brand cannibalization? What kind of strategy to develop? I hope that this article, even if it's a very old one, can answer these questions.

2. The summary

The article starts be giving a definition of the cannibalization effect: we consider 2 different products (A and B) belonging to the same company – cannibalization means that (all other things equal), decreasing the price of product A will bring the sales decreasing of product B. This undesirable effect is occurring when the company, instead of launching a new product, prefer to reformulate one which already exists in an already created market. Authors are putting lights on two main consequences of cannibalistic strategy. The first one is positive, it allows to the company, through the new product, to open a new market, and thus gain market shares. The second seems to be negative, because customers of the first company's product can switch to the second, and it will not bring any additional revenue to the company. But, as authors underline, sometimes it's better for the company to see customers moving from the first product to the second one inside the same portfolio...
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