Cannibalization

Definition: Sales cannibalization is when one product decreases sales of another product. Price cannibalization is reducing your price to existing customers instead of selling to them at your old price or a higher price.

Sales cannibalization example: A new product may be better than an existing product, causing people to stop buying the existing product.

Price cannibalization example: Let’s say you usually sell your widgets at $100 but you lower the price to $90 to drive growth. If you normally sell 1,000 widgets, your profit dropped $10,000 ($100-$90=$10 X 1,000).

Why it’s important: The costs of these must be included in any profitability analyses of new products or price changes. Many people don’t include them and overestimate the profits of the new product or price change.