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Abstract
Purpose - Quantitative measures are not commonly available to identify and measure product cannibalization resulting from the introduction of new products, and existing forecasting methods such as ARIMA do not explicitly account for the phenomenon. This paper aims to present a methodology to build cannibalization effects into forecasting models as measured through product attributes. It follows on from a paper by the same authors in Vol. 23 No. 4
Design/methodology/approach - The contribution of product attributes to cannibalization is tested by a series of hypotheses, then integrated into the proposed cannibalization model. Results are compared with predictions from an ARIMA-based model and actual historical sales data.
Findings - The proposed model improves on the fidelity of ARIMA-based models, by between 16 and 42 percent.
Originality/value - Effective prediction of cannibalization losses will allow marketing planners to make better-informed decisions with respect to new product introduction.
Keywords New products, Quantitative methods, Forecasting, Market share
Paper type Research paper
Introduction
Estimating the impact of a new product on other products in a company's product portfolio is a critical management function (Chen and Yu, 2001; Nadler, 1997; Kerin et al, 1978). The need to study the effects of cannibalization has been well demonstrated in the literature (Hui, 2003; Meredith and Maki, 2001; Mason and Milne, 1994; Lomax et al., 1997; Mazumdar et al., 1996). However, issues regarding the performance of a new product and its impact on an existing product portfolio have not been addressed in the context of cannibalization (Carpenter and Hassens, 1994). Evaluation of the anticipated cannibalization effect of a new product is necessary for timing its introduction and promotion. Cravens et al. (2000) suggested the importance of studying the relationship between market share and product attributes before introducing a new product.
Product cannibalization
The concept of product cannibalization was documented almost thirty years ago by Heskett (1976), who defined it as "the process by which a new product gains sales by diverting sales from an existing product". Copulsky (1976) defined product cannibalization as "the extent to which one product's sales are at the expense of other products offered by the same firm". More recently, Meredith and Maki (2001) have defined upward cannibalization as the cannibalization of a premium brand in the portfolio by...