Hindsight, as we know, is a wonderful thing. Looking back on the great business failures of our time, the likes of Blockbuster and Kodak, and none of us believe that we would have made the same fatal errors of judgement. How could we? Their mistakes were so glaring that surely they would have been obvious before the fact, never mind after it. And yet they made them anyway – and so too would most of us in their position. Why? The enduring appeal of the most destructive idea in business: that “cannibalisation” is a bad thing.
In case you don’t know (and therefore must be expecting something very weird from this article), cannibalisation is the phenomenon where a company launches a new product which in some way erodes the sales of one of their existing products. Fear of this eventuality is frequently used as the “strategic” rationale for either hobbling new products, or killing them altogether.
Unsurprisingly given the nomenclature, you never hear the term used in a positive way. But that’s precisely what I want to do here, by proposing that not only is cannibalisation nothing to fear – it’s actually something to be sought and celebrated.
To explain why this is, we need to draw a line between the two different kinds of cannibalisation that a business can “suffer” – fragmentation and unification.
Fragmentation cannibalisation is the more common variety, and it occurs when a business increases its range of products, spreading its sales across them. A classic example of this would be the launch of Diet Coke, whereby Coca-Cola launched a new product whose utility overlapped with their existing product. Inevitably some regular Coke drinkers would prefer the new offering.
The benefits of this type of cannibalisation are so obvious that it feels almost embarrassing to explain them – I mean, who out there thinks that the launch of Diet Coke was a strategic misstep? – and yet businesses constantly nip similar products in the bud, so let’s dwell on them for a moment.
The fear of executives in this scenario is that if product A (their existing product) currently makes £100 of sales, then product B (their new product) might “steal” £30 of those sales, decreasing the sales of product A to £70. OK, fine, that may happen – but the business as a whole still has total sales of £100, so who cares how they are distributed across the range? And that of course is the worst case scenario. It’s far more likely that product B will have been created to bring new people into the brand, people who didn’t like product A, so in addition to the £30 of sales it “steals”, it may also bring in £20 of entirely new sales. The ultimate result is £120 of sales, and 20% growth across the whole business.
Like I said, pretty obvious.
Less obvious is the case for unification cannibalisation. Unification cannibalisation occurs when a business unifies its range of products, for instance perhaps selling two products and realising that it can improve one of them to such a point as to make the other redundant. A classic example of this dynamic could be seen between the iPhone and the iPod. The music capabilities of the iPhone essentially made the iPod unnecessary, more or less killing the latter product as it was absorbed into the former.
In a scenario like this you can at least make the case that, unlike with fragmentation cannibalisation, the business may end up with less sales overall. Clearly it would be better for Apple if everyone bought an iPhone and an iPod – not just one or the other. But this would not be a sound argument to deprive the iPhone of musical capabilities, because the market would swiftly punish such anti-consumer manoeuvring. Other manufacturers would be only too willing to remedy the flaw you so cynically engineered, thus ensuring that you still lose sales, only in this case to someone else.
This ultimately demonstrates the necessity of cannibalising your own products – it is the ultimate hedge against disruption. If you have a product idea that you genuinely fear will “eat” some of your current trade, then that simply means you have a good product idea; one which someone else will gladly activate if you don’t want to. A product range which can be cannibalised is vulnerable, and so surely you want to be the ones to exploit your own vulnerability?
It’s that or become like Blockbuster and Kodak – businesses who would rather die than take a bite out of themselves. So turn a predatory eye to your own products. Make plans to kill your darlings. And accept that all businesses will be eaten sooner or later. The only question is by whom.