September 26, 2012

Good Cannibalization, Bad Cannibalization

There are two kinds of cannibalization.  One is good, the other is the one that we practice all too often.

Good cannibalization happens when one channel takes over.  For instance, a customer starts purchasing via email, and stops purchasing via catalogs.  This is good cannibalization.  You stop mailing 12 catalogs a year, you switch down to 3 catalogs a year, you save a bunch of money and the customer buys 1.9 times a year instead of 2.0 times a year.  This is a win-win, for you, for your customer.

Good cannibalization happens when you deliberately phase out a product in favor of a new product.  Think about the transition from iPod to iPhone to iPad.  There's a ton of cannibalization here, with the net result being unfettered profit.

Bad cannibalization is what we do to a customer all of the time.  We mail 18 catalogs a year and we deliver 100 email campaigns a year and we force the customer to take advantage of a discount or promotion via Facebook.  At the end of the year, the customer buys 2.1 times instead of 2.0, and the CFO is yelling at the marketing team about an expense structure that is not aligned with sales.  

We should actively practice good cannibalization.

We need to eliminate bad cannibalization.

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