Cannibalization in business refers to the practice of competing with an already established business model by creating a sales volume reduction or a reduction in the total market share. The cannibalizing that's going on is usually focused on attracting clients or customers. One practice cannibalizes the market that another practice is also focused on. Also known as market cannibalization, it can occur within a single business which provides two or more competing products or services, or it can occur among multiple competing industries. It may also take place between numerous chains of the same business or between companion product lines which have similar offerings.
Often, the phenomena of cannibalization occurs when a company's marketing strategy is based solely or partially on the assumption that a given marketplace is able to support multiple stores or multiple products. A good example would be if a retail store operation has a particular store that is doing extremely well in a specific area. The company might choose to open a second location within the same area assuming that the proven sales at the first store would support an additional store even if both locations do slightly less business than the existing single location. Just as a cannibal is known for eating the flesh of another, business cannibalization suggests that the new store might feed off the finite success of the first location. If cannibalization were to take effect, the first store would begin to see a market share reduction as the second store began to take away some of the sales revenue and thereby reduce the primary location's total sales figures. This, of course, assumes a finite customer base that wouldn't increase by virtue of the increased locations.
Although business cannibalization may seem inherently negative, it can be a positive thing. It sometimes involves a carefully planned strategy, and it also forces a company to think outside the box in order to evolve with the changing needs of both the marketplace and the consumer. In the world of e-commerce for example, some companies intentionally cannibalize their retail sales through lower prices on their online product offerings. Even though their in-store sales might decline, the company may see overall positive gains. While the retailer saves money on the operational costs of of a bricks and mortar location, the consumer automatically benefits from the retailer's cannibalization through a lower cost of goods.
