Cannibalization rate is a metric used to measure the degree to which the sales of one product are negatively impacted by the introduction of a new product or by changes to an existing product. It is a measure of how much one product is taking sales away from another product, within the same company.
The formula for Cannibalization Rate is:
Cannibalization Rate = (Sales of Product A before – Sales of Product A after) / Sales of Product A before
It is calculated by measuring the sales of Product A before the introduction of a new product or changes to an existing product and comparing it to the sales of Product A after the introduction of the new product or changes. The result is then expressed as a percentage.
For example, if a company sells 100 units of Product A per month, and after introducing a new product, the sales of Product A drops to 80 units per month, the Cannibalization Rate would be (100-80)/100 = 20%.
It’s important to track the Cannibalization Rate over time, compare it against industry benchmarks and historical data, to identify areas where the product development process could be improved. It’s also important to track the Cannibalization Rate by different segments, such as by different teams, products, or customers, in order to identify where the problem is and take action to reduce the Cannibalization Rate.
Cannibalization Rate is an important metric for companies that are introducing new products or making changes to existing products, as it allows them to identify trends in the impact of these changes on their existing products and to make informed decisions about product development and resource allocation.
It’s also important to keep in mind that the Cannibalization Rate should be aligned with the business requirements and the needs of the end-users, a high Cannibalization Rate can indicate that the new product is not meeting the needs of the customers or that the existing product is not competitive.
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