How To Mitigate Cannibalization Risk From New Products
“I don't want this new product to eat away at my existing business.”
We hear this a lot.
So many executives get caught up in the fear that new products will detract, or worse destroy, their existing business. Total or partial cannibalization can occur when a new product moves customers away from current service offerings or product lines. It is a legitimate concern, but the right framework and strategy can help companies stay competitive and turn potential threats into opportunities.
Ultimately, if we don’t risk disrupting our own products and services, someone else will.
That’s why it is important to scope, position, and launch new product innovations in a way that does not mistakenly cannibalize existing revenue streams.
To overcome common cannibalization fears, I advise using what I call the 3 Cs of Cannibalization.
3 Cs of Cannibalization: Customers, Complementary, Christensen.
1. Customers: Successful products all start with clear customer needs and target customer segments.
If you want to mitigate the impact of cannibalization (notice I did not say eliminate—more on that later), start first by clearly defining the customers for your current services or products.
Don’t just describe their demographics, also include their psychographic attributes such as the goals, fears and values of your customer. Better yet, use this information to create a detailed persona, or personas, of the customers who use your services or products. Finish by describing the problems your service solves for each customer segment.
Now, do the same for the new product you are considering.
- Which customers will be interested in this product?
- What are the characteristics or personas of each target customer segment?
- What problems will this new product solve for each segment?
Now compare the personas and problems of your current customer segments with the new customer segments side-by-side so you can see how much overlap you have. If most of the attributes overlap, your new product will likely cannibalize the existing product. If the circles are mutually exclusive, then the new product is unlikely to cannibalize.
For example, when Apple’s iPad came out, analysts predicted sales would eat away at Apple’s higher priced computer offerings, such as the iMac or MacBook. And while that did occur to some degree, it was more than offset by the number of new customers that weren’t currently consuming because the existing products were too expensive. Upon selling 15 million iPads and generating $10 billion in revenue, Apple COO at the time, Tim Cook, proclaimed, “If this is cannibalization, it feels pretty good.”
2. Complementary: Find a product that is a good partner for your existing services.
According to David Robertson, author of The Power of Little Ideas: A Low-Risk, High-Reward Approach to Innovation, one way to avoid cannibalization is to find complementary innovations around your current service.
We love this idea because not only does it generate new revenue, it enhances your existing services by making them even more appealing and valuable to your customer base. That's why it is a low-risk approach, as Robertson calls it. You are leveraging your expertise and strengthening your core service. It's also high-reward because your current customers will receive more out of working with you while you open the door to attract new customers.
“The real trick is to identify complementary products that overlap with your existing products enough to branch into new markets while taking advantage of your marketing expertise gained from acquiring present customers and existing customer goodwill.”
--Shuba Swaminathan, The Accidental Product Manager
To find a complementary offering you can ask and answer questions such as:
- What do your customers need to consume more of your service?
- What are customers consuming along with your service?
- What technology could make using your service easier?
- What related problems do your clients have that you can solve?
Peloton is a great example of a company that has taken its exercise biking platform, and, through insights from its most loyal users, continued to identify new ways users engage with the current product, turning behaviors into product features and services that appeal to their entire audience.
3. Christensen: As in the late Clay Christensen and the pattern of disruption described in his classic book The Innovator’s Dilemma.
Companies tend to protect what they have and run away from products that might cannibalize. That fear comes at a hefty price. Remember Kodak? Blockbuster? Book stores? Given the pace of change enabled by technology and access to capital, businesses that are willing to cannibalize their existing revenue streams are more likely to survive. Essentially, cannibalization isn’t entirely in your control, so early entry into the marketplace is paramount, because:
“...if an opportunity is large enough, somebody is going to find a way to realize it.”
–Scott Anthony, co-author, Dual Transformation: How to Reposition Today’s Business While Creating the Future
In other words, consider the advice of Steve Jobs: “If you don't cannibalize yourself, someone else will.” In truth, your new products cannibalizing your existing business is the best-case scenario. Sooner or later, your revenue will erode from competitors if you aren’t willing to risk business as usual. Our best advice is to get over the idea of totally protecting your existing services. Be prepared to think like a competitor and plot a course that may eventually put yourself out of that line of business.
In the business-to-business services market, your biggest innovation competitors are likely going to be digital competitors moving upmarket into services. Such as a marketing automation software provider who begins to provide tailored market messaging by leveraging artificial intelligence technology. Or, a project management software provider, who begins providing project management training.
Bottom line: Analyze Your Market
Each of the 3 C’s of Cannibalization requires one thing: market analysis. The absolute most important part of mitigating the negative effects of cannibalization is doing the right market research and analysis upfront. You'll need to analyze current usage behaviors, talk to a few customers and prospects, and understand the competitive landscape. We also recommend running a few small tests to see if your hypotheses around which customer segments will be attracted to the new product are accurate.
Our proven expertise at Vecteris makes it safe for you to innovate. We can guide your business transformation using a proprietary, proven market analysis approach for helping companies identify, develop, and introduce successful products. Our specialty is identifying urgent and expensive customer problems for you to solve while leveraging your existing business assets along with new advancements in technology and analytics.
Our services range from understanding customer needs to translate those needs into product requirements to product launch and iteration. We can jump in at any stage of the process or take you from beginning to end. Get in touch today to see how we can help.