How P&G managed product cannibalization
“If you don’t cannibalize yourself, someone else will.” — Steve Jobs (Walter Isaacson, 2011)
Every brand manager who has worked on a new product launch has faced that dreaded question from the finance team during launch meetings. “What’s the cannibalization assumed for this launch?” This is often the point in the meeting when the conversation can derail into a tangential discussion altogether, with different camps arguing whether an assumption is right or wrong. I have seen cannibalization discussions come back to haunt the brand multiple times throughout the life-cycle of the launch.
What exactly is cannibalization?
Let’s assume a shampoo brand launches a sub-line comprising two new variants designed for men. These variants will be an addition to the existing shampoo portfolio of the brand. For simplicity, we further assume that the current portfolio of the shampoo brand comprises just one shampoo, A. The current annual sales projection of A is 5 Mn units. The new sub-line is forecasted to bring in 8 Mn units in annual sales. What should the brand manager expect the overall annual sales of the portfolio to be after the launch of the sub-line?
As you can see from the graph above, the answer is not 13 Mn units, but a figure somewhere in the middle. That is, if all goes well, and the launch is a success.
Why does this happen?
When a brand launches a fresh portfolio addition, one or more of these five things can happen:
In reality, what happens is a combination of 1,2 and 3. Some competitive consumers will switch to our brand. Some current users of shampoo A will switch to shampoo B. Shampoo B may bring in some new users to the category. By carefully testing various factors like consumer value proposition, pricing, segmentation and launch support, one can optimize the outcome (net revenue or market share). And since the only strategy that matters is the one that the consumer sees, I would argue that the launch support is the most critical of these factors. It is also the easiest to get wrong, because brand managers need to ensure the launch becomes a success while also protecting the base business, and do it both with a limited budget. It’s a complex game
Like it or not, cannibalization is a truth of the business world. There’s just no getting away from it. The only way to prevent cannibalization is to not launch any new products at all. But that is also rather a dangerous strategy, since you will reduce yourself to a one-trick pony. Easy pickings for a competitor. Refer Steve Jobs quote from above.
In the world of CPG, cannibalization is an accepted truth. The earlier example I gave of a shampoo brand is actually an authentic life example, something I had worked on. Back in 2012, head & shoulders, the anti-dandruff shampoo sold by P&G, launched a lineup of shampoo meant only for men. However, since men were already using its existing lineup of shampoo, cannibalization was bound to happen. To manage this, I helped develop a marketing mix that focused on specific and actionable launch maximization activities. The mix worked, we kept the cannibalization within forecasted levels, grew market share in our key markets and delivered $16 Mn annual sales in the first year from the new launch.
How did we do it? — Mental model to approach cannibalization
Afterwards, I looked at the various activities we did during the launch support phase to see if I could develop a mental model for myself to help me through future launches. Here is the model I developed, along with a small explanation of how this model worked for the specific example I quoted above. Note that this is not the only model that can be used.
Also, you will notice that we capitalised on Lionel Messi as our brand ambassador for this launch. With his appeal amongst soccer crazy guys in SE Asia, this was a major boost for our launch, undoubtedly. This does not mean that your impact property needs to be strengthened by such overt relationships. What matters more is the relevance of the property in the context of your brand and audience. Having said that, I love Messi.
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