“I’d rather Apple cannibalize Apple than somebody else cannibalize Apple.”
These were the words of Apple CEO Tim Cooks in an interview a few years ago. Cook had been asked if the many new product launches by Apple would ‘kill’ other existing Apple products. According to Cook, Apple would rather cannibalize its existing products with new products than risk a competitor eating into their business. Cannibalization was not a threat, but an opportunity to grow Apple.
Many businesses exist in the space of, ‘If it isn’t broken, why fix it?’ This is particularly true for companies’ core brands that account for the bulk of the business revenue. These brands are usually mature and enjoy heritage. They look very healthy, but if nothing is done, two things are probable; decline or rebirth. It’s never a matter of if but when. It is therefore critical that companies innovate to give these brands a new lease of life. But with innovation comes cannibalization.
What is cannibalization? How do you determine the acceptable level of cannibalization and how can organizations view this as an opportunity rather than a threat to their businesses?
The concept of cannibalization is anchored on Schumpeter’s theory of creative destruction, the process in which technology and innovation create new ways of doing things and, in the process, leave the old ways behind. When businesses launch new products and the sales from the new brand cut into existing product sales, cannibalization happens. This explains why most businesses would not rock the boat in the name of innovation.
The big question then is, how do businesses balance between innovation and cannibalization? The truth is if you are afraid to change (innovate) you will learn the hard way. And as Jack Welch put it, you are better off changing before you have to. Think Kodak for instance, the once world biggest film company that was beaten by the digital evolution. They invented the digital camera but its leaders felt that going digital meant killing film, the company’s golden egg. Fuji its competitor innovated beyond film and introduced other products such as video tapes and copiers. Over time Kodak’s shares fell 80 per cent and it eventually filed for bankruptcy in 2012 (the Independent UK). Kodak failed to self-preserve itself by avoiding to cannibalize itself.
Determining the right level of cannibalization
Every business must accept that with innovation comes cannibalization. Establishing the right level of self-cannibalization is critical for self-preservation. An organization can do this by establishing internal metrics for measuring the acceptable level of cannibalization. This can be a percentage or value/volume measure that will act as a trigger for next steps. Another way could be product pricing. If the new product is priced lower than the existing one, but offers more value cannibalization will happen. Therefore competing purely on pricing may end up being dilutive. To counter to this, look at other ways to determine better value to consumers in addition to say a discounted price. The last way is product discontinuation. This is a big one because most organization find it hard to kill certain products. They see discontinuation of a product as failure. This should not be the case as some products go through the product life cycle too fast, bringing in profit immediately after launch but are unable to sustain growth. This is particularly true for variants and flavors. If the launch objective has been met, the business must be bold enough to curl such products.
Companies such as Netflix, Amazon, Facebook, Apple and P&G have embraced cannibalization as an opportunity for sustaining business growth which they do by continually innovating new products that focus on future growth. They believe that if they don’t, someone else will. If there exists an unmet consumer need that your current products don’t address, chances are that your competitor can see it too and can leverage on the opportunity.
Be bold enough to compete against yourself. It is better to eat yourself than have yourself eaten by others. Self-cannibalization is self-preservation.
This article was also published in the Marketing Africa Magazine.