Cannibalization as a growth strategy

Cannibalization, in very simple terms, is losing market share of one product by introduction of a new product by the same producer. Talk about Hulu, and one of the things that come to mind is cannibalization of network airtime by broadcasting television shows online. But then talk about YouTube, DailyMotion et al and one of the things that come to mind is losing airtime to competition on new media channel. Which one sounds better? Losing market share to your own product or losing share to competition?

This is a classic question which every company needs to address to some extent while releasing a new product that in some ways is competing with a current offering.Whether it’s Coke launching Diet Coke or The New York Times investing in nytimes.com, you have to look in the issue of cannibalization. When does cannibalization make sense?

Short answer, when there is competition. Long answer, almost all the time. When you see an opportunity to come up with a new product to tap a new channel or a new way to fulfill some customer needs, you should go for it. Because the possibility is that the same opportunity is being discovered by other players in the industry irrespective of whether they are currently competing with you or not. Like Amazon never competed with Barnes & Noble through brick-and-mortar stores, but as Internet started gaining traction and Barnes & Noble delayed putting together an Internet strategy due to various reasons, including fear of cannibalization, Amazon discovered the Internet as a channel to sell books and took off. Parallels can be drawn, to some extent, in case of Microsoft delaying to put Office Suite online while Google Apps and Zoho tapping that market (though Microsoft Office losing share is not an issue at this time).

The point here is, more often than not, cannibalization is required. It should be seen as a growth engine. When a better channel of delivery emerges, people will notice it just like you will. If you go and tap it, you have an advantage of expertise of delivering product on the traditional channel and brand name over anyone else. You can grow the sum total of your business by using all the channels available. But if you sit and watch the show, someone else will develop the expertise and gain the first mover advantage on the new channel.

Accept the fact that change is constant. One way to grow in this changing environment is by keeping up with the change and if the only way to do that is by cannibalizing your own product, go for that. It’s much better than losing it to the competition.