When parents have one child they pay all attention towards that child but when the second child is born parents are not able to pay same attention towards first child like before as their attention is divided between 2 children, in the case of companies also this thing happens and it is called cannibalization. Cannibalization is the term which is used in the context of marketing, it refers to the negative or adverse impact on the company’s current products due to the launch of new products by the company in the market.
In simple words, in the case of cannibalization, it results in competition within the company as the new product eats up the sales of current products resulting in sales of those products going down while sales of the new product continue to go up. Hence in a way, cannibalization does not increase the overall sales of the company which makes it a no profit no loss situation for the company. However many times company introduces new improved products so that it can replace those products which are losing their significance or which are likely to get outdated in future.
An example of cannibalization is mobile companies introducing every month new mobile with better features like improved camera, or a bigger battery, larger space and so on making current mobiles of same companies outdated which results in their sales going down due to the introduction of new mobiles by the company. Another example of cannibalization is when Car Company launches a new variant of its successful model of car or electronic company which is making LCD televisions launching a new range of LED televisions and so on.
Cannibalization does not happen with every company however when markets are competitive cannibalization is necessary as company cannot depend on one variant of product when there is cut throat competition and sometimes it has to sacrifice sales of current products for new products because if company does not offer new improved product and keep offering old products than it will eventually lose its customers to competitors also in the long term cannibalization helps the company in expanding the customer base and market share of the company.