Cannibalization: Is the PAC-MAN effect a significant risk or a strategic opportunity?

Certainly, companies fear cannibalization; they used to see it as a true nightmare: A risky move that can impact branding, supply chain, inventory, and sales— an arrow to the profit. Nobody wants their products to be eaten away by their own business. However, in some cases, market cannibalization represents a best-case scenario.  As Steve Jobs asserted in one of his speeches: “If you don’t cannibalize yourself, someone else will”.

To avoid the PAC-MAC effect, examine your business around the following question. Does my brand offer a unique value that aligns customer demands and target segments in the market, offering the right product and right price that embraces the latest innovations?

Key Aspects to Evaluate

1. Target market

The success of a new product introduction begins with a clear and detailed understanding of customer demands and target segments. That determines whether you're attracting the same customers or appealing to new ones. Moreover, as I always recommend, conducting market research as a double check, that can serve as a "jaque mate", if you're in a company with a presence in different regions, it helps to validate your approach and aligns your regional strategy with the corporate before launching the product, as well as to ensure that your strategy mitigates any cannibalization risk.

Otherwise, cannibalization could work as a perfect strategy to increase market share. For instance, working with an alcohol beverage company, I was managing a Prosecco brand that shares similar attributes to La Marca Prosecco. At that moment, the Prosecco had renovated its label, positioning the product to compete more closely with La Marca.  Nevertheless, it's essential to highlight that the company had been focusing its Prosecco promotion on the On-premises side. However, I saw it as a big opportunity to gain market share by capturing new consumers. And, certainly, the accuracy in market data insights must help to understand the opportunity. Therefore, the first task was to utilize Circana source to calculate the market size to propose a change in the product strategy. This means a better understanding of Prosecco's market presence, volume sizes, price, and sales.  As well as identify its target audiences and key consumers.  In addition, to confirm which points of sale could provide a rapid growth to move its Prosecco to the Off-Premises side, particularly on those retailers that La Marca leads without direct competitors. To amplify the research, I gathered feedback and insights through a “focus group” using La Marca fans and consumers, especially among women.  With that information, we meet the sales team to present the proposal.  In order, to increase product distribution, improve brand engagement, attract new consumers, and boost sales.

In short, as author Scott D. Anthony used to say, "If an opportunity is large enough, somebody is going to find a way to realize it". Cannibalization in your product line could be a risk. But employing a Cannibalization strategy to capture market share is an opportunity that you shouldn't miss.

If an opportunity is large enough, somebody is going to find a way to realize it".  Cannibalization in your product line could be a risk. But employing a Cannibalization strategy to capture market share is an opportunity that you shouldn't miss. 

2. Price point

Indeed, price point is a critical factor that can easily erode your product line, representing a significant threat to your profitability.  A common example is the introduction of new variations in an existing product, which may include differences in size, color, flavor, or functionality. A great example to examine this point is the boom effect of the Margarita Ready-to-Drink (RTD).  These cocktail beverages have seen a significant growth over the past years, especially due to changes in consumer preferences and purchasing habits during the COVID-19 pandemic. Gaining popularity among the young generations.  Brands commence to expand their product line with new flavors, and that’s okay; it's good to test. The issue comes in adding new sizes, such as the case of both sizes (750ml and 1.5L) on the same shelf without clear price differentiation or point of sale segmentation, resulting in an inevitable PAC-MAN effect.  

Introducing new product sizes merely to meet demand without a strategy and education plan can be a risky move that will impact your product value, inventory, and sales; a direct punch to your profit.

3. Product attributes  

A new product introduction should offer unique features or benefits that differentiate it from existing options.  It needs to give customers a compelling reason to switch.  Once again, if the new one has similar attributes without a clear advantage over the current offerings, it must conduct default cannibalization of sales from the existing product line.

A common example can be found in the beauty industry, particularly in skincare products.  In many cases, due to formula patents, once the period lapses, the patented formula enters the public domain, allowing brand competitors to legally manufacture similar or identical products, which often leads to more affordable alternatives that attract customers to test. Beauty brands must prevent it and take proactive measures by launching new reformulated products or developing innovative technologies to enhance their product offerings.  But as previously mentioned, these changes are accompanied by a clear message to consumers.  In conclusion: Don't get eaten!

Sources by Forbes, Vecteris, Leafio & Circana.

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