Growth is not always a win. Sometimes, your next big move can end up hurting your first success. You have a very successful flagship store, and that’s where all your business comes from. Then, seeing your exponential growth rate, you decide to open a new branch. Suddenly, all the business you anticipated generating in addition to the flagship does not materialize. Instead, you’ll end up losing the customer base from the flagship to the new business, stagnating your overall growth rate.

That is market cannibalisation.

Market cannibalisation happens when a new product or location pulls customers away from an existing one instead of growing the overall base.

This could be for various reasons:

• The new version is an upgrade, and customers prefer something shiny
• In the case of our example, this could be a result of proximity; the new location is closer to the customers.
• It’s planned: sometimes, brands plan to cannibalise older product models to stay relevant and compete efficiently.

What to consider:

While market cannibalism is not always bad, the goal of launching something new should be to add market share, not just shift it from what you already have. Market cannibalism does not help the bottom line. However, as a small or medium sized business, which is the case in our example, the business will need to consider the following:

• Increased overheads: These may stem from the new product/ location launch, the cost of staffing, electricity, and so on. If market cannibalisation happens, it will eat into the business’s ability to cover these costs and maintain profitability, leading to operational strain.
• Operational strain: This strain shows itself when the business owner struggles to move from one location to the other, train staff, oversee leadership, and ensure that the customer gets exactly what they come to the business to get.
• Overexposure: When a business opens multiple branches or launches too many products, it is hard for them to be taken seriously or valued in the markets by their customers because they are everywhere. The only time overexposure works is when it is part of the brand strategy to flood the market with their products or services. This cannot be done by higher-end brands or products that are supposed to be leveraging an experience.
• Decrease in profitability: Overextending or stretching in this manner can eat into already slim profit margins, making a once profitable business less profitable and, therefore, less attractive to investors. There is also the risk of watering down the brand experience by trying to replicate it across too many channels.

How to avoid:

In the case of locations, the business owner will need to make proper considerations when choosing the area, ensuring that proximity to the customer, while being high, doesn’t eat into the market share of the existing locations. This also applies to products or services unless the organisation’s strategy is to flood the market with its products. Your business should focus on delivering a core product perfectly rather than overexposing itself and delivering mediocre products.

A proper market analysis should be carried out to ensure that there is a customer base wide enough to be won over by the new product or location.

Proper branding and differentiation should be invested in so that a business can retain customers based on their needs. Each product should meet a different need for the customer base.

In some cases, market cannibalisation cannot be avoided. In these cases, a business will need to ensure it can cover the cost of running and operating the different brands or locations as necessary, so that the impact on the bottom line is not too great and does not affect the business’s ability to operate efficiently.

Growth is good, especially when it builds. Before you expand, ensure your foundation isn’t the thing you are about to destroy.