Brand Cannibalization

Brand cannibalization is an advanced science in brand marketing warfare. It is the science  of creatingsub-brands within the main brand so that it targets a whole range of consumers in order to reatinand grow its consumer base.For eg. Marriot group runs hotels like Courtyard by Marriot which is a lesser budget concsious hoteltargetted at the business class in the same city where Marriot is also present. Marriot is the parent brandand is a 5 star chain whereas Courtyard by Marriot is a sub brand for business and budget consciouscustomers. Another common example is the brand extensions by GM Motors like GMC, Buick,Pontiac, Saturn, Outlook and Traverse within its 4x4 domain. What it basically does is offer a customermultiple choice within the GM brand, it also allows the dealer the chance to book additional profitmargins by converting a customer who is say wanting to buy an entry level 4x4 into a mid level 4x4.Becasue of the plethora of choices the customer is satisfied at the same outlet and doesnt have to look elsewhere. Hence it is a win-win situation on all sides.To sum up brand cannibalization is the art of brand extensions to benefit the brand owner, seller andthe end user. Brand cannibalization can be resorted to activate an existing parent brand by offferingindividual stronger sub-brands. Like Coke did in india with the launch of Minute Maid, Sprite etc.Brand Cannibalization is not exactly brand extension. However in both cases you are extending the lineof a given brand, in case of brand cannibalization you are actually eating away the market share of yourown existing brand. Brand Cannibalization can be deliberate or oblivious. In case of deliberatecannibalization, company actually try to phase out some old brand or try to grab the additional marketshare of competitors' along with its own. When cannibalization is not a well thought of strategy behindthe brand extension, company tries to eliminate it by repositioning new brand (mostly).

In today's world “premiumization,” “trading up,” are receiving the same attention as "commoditization"and "trading down".A strategy which might click in one part of the world might have to be executed incomplete opposite way in the other part.Economic downturns are now causing consumers to trade down, and many midtier and premium brandsare losing share to low-priced rivals. Their managers face a classic strategic dilemma: Should they tacklethe threat head-on by reducing prices, knowing that will destroy profits in the short term and brandequity in the long term? Or should they hold the line, hope for better times to return, and in the meantimelose customers who might never come back? Given how unpalatable both those alternatives can be, many companies are now considering a third option: launching a fighter brand. A fighter brand is designed to combat, and ideally eliminate, low-price competitors while protecting anorganization’s premium-price offerings.In its best applications, a fighter brand strategy can have evenmore impressive results.A fighter brand not only eliminates competitors but also opens up a new, lower-end market for the organization to pursue.But launching a fighter brand is like walking on a double edged sword. Great application might leap frog you way beyond competition and have your success stories illustrated in b-school cases however there arealso chances of misfire and lead to significant collateral losses for the companies that initiated them.

 Account For Cannibalization

Most fighter brands are created explicitly to win back customers that have switched to a low-priced rival.Unfortunately, once deployed, many have an annoying tendency to also acquire customers from acompany’s own premium offering, which is called cannibalization.You must ensure that it appeals to theprice-conscious segment you want to attract while guaranteeing that it falls short(in terms of  value/quality) for current consumers of your premium brand. That means you must match your fighter brand’s low price with equally low perceived quality.To prevent cannibalization, a company mustdeliberately lessen the value, appeal, and accessibility of its fighter brand to its premium brand’s targetsegments. It may even need to actively disable existing product features and withhold standard marketingsupport from the fighter brand.Managers need to weigh the effects of cannibalization before rolling out fighter brands. Because these brands are explicitly oriented toward the rivals that have stolen share from a company, the initial break-even calculations used to justify their launch often are oversimplistically derived from an estimate of thelost sales that can be recouped, which not usually the case.An accurate break-even analysis must accountfor cannibalization as well. How can you predict whether excessive cannibalization will occur? Test-marketing is the best way to ensure that a fighter brand can compete with low-price offerings withoutrobbing significant sales from its higher-price, more profitable sister brand.

The Gospel:

To calculate the effect of cannibalization, the Break Even Cannibalization rate for a change in a product is:New Product Unit Contribution / Old Product Unit Contribution.New Product is the planned addition to a product line (or change to a product within a product line), OldProduct is the product that loses sales to the new product (or the product line that loses sales). Thecannibalization rate refers to the percentage of new product that would have gone to the old product, thismust be lower than the break even cannibalization rate in order for the change to be profitable. Whenmaking changes to a specific product, cannibalization of other products may occur. To calculate the effectof cannibalization, the Break Even Cannibalization rate for a change in a product is