Cannibalizing Sales With New Products
Launching new products
and extending the lines of existing products are the most common ways
for businesses to grow. Sometimes though, businesses offer new products
only to realize later that the net affect of the new product is detrimental
to their ultimate profitability. The key is to make sure your bottom line
(profits) grows as well as your top line (sales).
Here are some mistakes
to avoid when considering adding new products or services.
1. The development
and launching of the new product diverts critical resources from running
or managing your existing business. As manager of the business, you must
be sure that everything continues to run smoothly even with the new product.
a staff person the task of launching the new product. You can continue
to supervise the project, but the staff person may be able to handle many
of the tasks. In addition, that person will probably be excited to be
involved in something new and may grow into a more valuable employee.
Delegating the new product can establish the person as the "new product
champion" and let you stay focused.
2. The new product
results in decreased sales of existing products. New products should add
to the top and bottom lines. Unless the new product replaces an existing
product, be sure to keep an emphasis on your existing successful products.
If you have a commission
sales force and want to offer an additional incentive for sales of the
new product, consider some commission arrangement that motivates the sales
person to try to sell both the new and existing products to the same customer.
This "packaging" concept can focus the sales person and strengthen
the customer relationship. In most cases, the more products a single customer
uses, the harder it is for that customer to switch. You may even want
to consider a special "package" price for the customer.
3. The profit margins
of the new product reduce your company's overall profitability. Pricing
a new product or service can be difficult. Development costs, production
costs and market forces must all be considered in arriving at a competitive
price. The old adage of selling something at a lower margin and making
it up with volume only works if the higher volume is actually achieved.
The term "cannibalizing
sales" describes the situation where a new product is easily substituted
for an existing product resulting in a lower total volume than what was
anticipated. In other words, the new product just replaces the old product
without adding significant incremental revenues or profits.
Avoid this potential
with your pricing strategy and your marketing efforts.