What is Cannibalization? Cannibalization results when the sales of a new product in part come from sales taken away from other products sold by that Firm. t commonly occurs when a Firm introduces a new flanker brand or line extension into the same product line in which it already has brand representation. For etergents, some sales for the new brand will highly likely come at the expense of one or more of P&G's existing brands of laundry detergent. In other words, the sales of P&G's existing brand of laundry detergents will b example, when Proctor & Gamble introduces a new brand of laundry detergent into its extensive line of e cannibalized to support sales of the new brand. The effects of cannibalization can be good or bad, depending on the overall effect on profitability for both the new brand and the cannib brands. Determining the effects on profitability are relatively easy mouthwash produc works. Assume two brands of Brand A is currently sold at $1.00 per . Let's examine a simple example of how it ed by the same Firm G?). Relevant price and cost data for these brands are below. Re unit with associated variable costs per unit of $.60. Brand B, the new brand to be introduced, sells for a little less, say $.95 per unit. Its costs per unit are the same as for Brand A i.e. $.60 per unit. Note that the resulting unit contribution for Brand 8 (price minus unit variable costs) is s which is s.05 less than the unit contribution for Brand A. This means that for each unit of Brand A that is cannibalized by Brand B, the Firm loses .05 in contribution. Brand A Price 1.00 Unit Variable Costs 0.60 Unit Contribution 0.40 Brand B $ 0.95 0.60 $ 0.35 Assume that management anticipates that when Brand B is launched, 20% of its sales will come from sales that would have been for Brand A. In other words, 20% of Brand Bs sales wil be cannibalized from the sales of Brand A. The net effect of this cannibalization on profits is easily found comparing the contribution (gross profit) assuming Brand B is not launched (and therefore no cannibalization occurs) with the contribution rofit) expected from the launch of Brand B with the expected level of cannibalization. is how the analysis proceeds. First, compute the expected contribution from the sales of Brand A with no cannibalization (i.e. Brand B is not launched). Assume that Brand A is s.40 per unit, the overall resulting contribution (gross profit) will be 1,000 $40 without the introduction of Brand B are expected to be 1,000 units. Since the unit contribution for Brand 400.00. Easy! compute the expected contribution dollars assuming th What is Cannibalization? Cannibalization results when the sales of a new product in part come from sales taken away from other products sold by that Firm. t commonly occurs when a Firm introduces a new flanker brand or line extension into the same product line in which it already has brand representation. For etergents, some sales for the new brand will highly likely come at the expense of one or more of P&G's existing brands of laundry detergent. In other words, the sales of P&G's existing brand of laundry detergents will b example, when Proctor & Gamble introduces a new brand of laundry detergent into its extensive line of e cannibalized to support sales of the new brand. The effects of cannibalization can be good or bad, depending on the overall effect on profitability for both the new brand and the cannib brands. Determining the effects on profitability are relatively easy mouthwash produc works. Assume two brands of Brand A is currently sold at $1.00 per . Let's examine a simple example of how it ed by the same Firm G?). Relevant price and cost data for these brands are below. Re unit with associated variable costs per unit of $.60. Brand B, the new brand to be introduced, sells for a little less, say $.95 per unit. Its costs per unit are the same as for Brand A i.e. $.60 per unit. Note that the resulting unit contribution for Brand 8 (price minus unit variable costs) is s which is s.05 less than the unit contribution for Brand A. This means that for each unit of Brand A that is cannibalized by Brand B, the Firm loses .05 in contribution. Brand A Price 1.00 Unit Variable Costs 0.60 Unit Contribution 0.40 Brand B $ 0.95 0.60 $ 0.35 Assume that management anticipates that when Brand B is launched, 20% of its sales will come from sales that would have been for Brand A. In other words, 20% of Brand Bs sales wil be cannibalized from the sales of Brand A. The net effect of this cannibalization on profits is easily found comparing the contribution (gross profit) assuming Brand B is not launched (and therefore no cannibalization occurs) with the contribution rofit) expected from the launch of Brand B with the expected level of cannibalization. is how the analysis proceeds. First, compute the expected contribution from the sales of Brand A with no cannibalization (i.e. Brand B is not launched). Assume that Brand A is s.40 per unit, the overall resulting contribution (gross profit) will be 1,000 $40 without the introduction of Brand B are expected to be 1,000 units. Since the unit contribution for Brand 400.00. Easy! compute the expected contribution dollars assuming th
