Cannibalisation

Cannibalisation is what happens if one part of a company grows by taking sales from another. For example, if a retailer opens a new shop close to an existing one, then the existing shop is likely to lose some sales to the new one.

Cannibalisation is most commonly a concern where a company is selling the same products though different channels or in different locations. An example of the former would be a retailer's web site competing with its own shops.

Cannibalisation reduces sales growth (as the benefits of growth in one place will be offset by a reduction elsewhere). It may also reduce margins if customers switch to a lower cost (for them) and lower margin (for the seller) sales channel.

Conversely, obviously, cannibalisation may encourage a switch to a higher margin channel (e.g. internet sales may cut out a middle man) or it may be a price worth paying to develop a new business.

Cannibalisation is often a problem. Its effect is often less significant than might be expected because most companies are already in a competitive environment: they compete with others, so the extra impact of also competing with themselves is often limited.

Competing with oneself may even be turned to a company's advantage by inducing customers to look at the same produce twice in different guises. This is why some companies (such as car manufacturers and food producers) often sell very similar products with different branding.

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