A Guide to Brand Cannibalization & the Halo Effect in Demand Planning

Introduction to Brand Cannibalization and the Halo Effect

Brand cannibalization occurs when a company brings a new product to market that has a negative impact on another product it currently offers.

Demand grows for the newly introduced product while fewer customers place orders for the older product. However, in terms of product marketing strategy, while the new product leads to a loss of sales of the earlier offering, the company does not necessarily experience a loss in overall market share. It’s possible that you will gain a larger share of the market. You need to pay attention to the possible impact of market cannibalism to stay on top of your demand forecasting.

Another aspect of introducing new products is the potential to generate the halo effect. The halo effect occurs when sales of the newly introduced product correlate to your older product. For example, you’ve seen steady, predictable sales of peanut butter over the past few years. Then, after doing some market research, you introduce a line of fruit jams. As customers start purchasing strawberry or apricot jam, they also buy more jars of peanut butter than usual. This can lead to enhanced customer loyalty as they appreciate that they can buy two needed ingredients for their sandwich from the same company.

Companies can correlate the halo effect to a boost in brand loyalty, as customers are buying more of each of the related products (the existing product of peanut butter and the new jams). As a result, you may need to adjust your marketing to account for a boost in brand loyalty and an increase in overall sales of a similar product, as it figures into how you balance your future demand planning cannibalization.

Examples of Brand Cannibalization and the Halo Effect

One example of brand cannibalization (also referred to as “market cannibalization”) in the tech sector is a company that sells laptop computers, making them increasingly thinner and lighter over the years to maintain a competitive advantage.

Then, the company develops a tablet computer. After releasing and marketing the new tablet, the company experiences a growth in sales of the tablet, as fewer existing customers purchase laptops. Purchasers are motivated by a desire to own the latest and most innovative product, and you can exploit this desire with more product differentiation.

In a retail environment, a company’s various cleaning products see steady sales, with one version used for cleaning metal surfaces and another product for cleaning wooden items. Later, the company releases an all-in-one cleaning product.

Shoppers attracted to the new offering may stop buying the individual cleaning products. The company retains its existing customer base while seeing total sales of its earlier products go down, a phenomenon known as sales cannibalization. But overall sales may stay the same since some people are buying more of the new items.

In the automotive sector, Hyundai launched its “Racing Midship” vehicle to introduce high-performance driving to the marketplace. This new car created a halo effect, as its popularity and press exposure led to more customers buying its mass-produced cars.

There is always a cannibalization risk. However, you can see how the halo effect can mitigate the negative impacts of brand cannibalization, as more customers are attracted to the newest offering, offsetting reduced sales of older products. Newer items with higher price points bring in bigger profits compared to the money made from earlier versions that are now seeing fewer sales.

Analyzing the Impact of Brand Cannibalization and the Halo Effect on Demand Planning

What is cannibalization in demand planning?

Prudent companies use demand forecasting so they can better predict how many units (or variations of products, such as size or durability) to produce in a given period. As they engage in brand cannibalization, it’s important to consider the halo effect on sales volume.

You may see higher revenue because your existing customers are excited about the new product you’ve just launched. To know this, you have to capture cannibalization rate data. Be prepared that your market share may remain the same as before introducing the new product.

But if the newer product takes off, you could see the halo effect increasing sales from established and new customers, so you take market share from competitors. Sometimes, companies engage in intentional cannibalization to see if they can capture a bigger share of the market by introducing a new product related to an older product.

Marketers will want to continuously gather metrics on sales of established products and new products so they can better assess the impact of the phenomena of brand cannibalization and the halo effect. You determine the cannibalism rate by dividing the older brand’s lost sales by the sales of the newly introduced product.

This data is crucial for your long-term product strategies. Using this information ensures more accurate demand planning, while also taking into account factors such as seasonal changes in demand for certain products and the strength of the economy, of course. You’ll adjust your digital marketing accordingly.

Strategies to Manage Brand Cannibalization and Leverage the Halo Effect

How can companies prevent brand cannibalization while benefiting from the halo effect?

For advanced product management, data is your friend. You should capture product cannibalization information via data on customer demand and sales and then analyze the information with the help of machine learning and AI. With predictive analytics, you can better plan for the effects of cannibalization. Ideally, you will harness the halo effect to boost sales and possibly give you a better market share.

For example, you can promote bundling of two related products. Customers loyal to your current product (peanut butter) may be more inclined to buy your new line of fruit jams when you bundle them together.

Another related approach to managing these dynamics is to test the cross-promotion of new and old products. As people buy your company’s new necklaces in retail stores, you can suggest they also consider buying bracelets or earrings in your latest promotional campaign.

Demand planning integrates insights from brand cannibalization and the halo effect. It’s wise to leverage demand forecasting models so you can better balance market share retention while fueling growth thanks to the new customers attracted to the latest product you’re offering.

The Role of Market Analysis in Identifying Brand Cannibalization and the Halo Effect

Feed data at the SKU level into your market analysis tools so you can gain real-time insight into the potential cannibalization of your brand, as well as halo effects driving more customers to purchase items.

AI and machine-learning-assisted predictive analytics will let you examine the torrent of sales data so you can forecast the performance of all products currently on offer. Doing so enables your marketing team to help you mitigate the potential risks of sales going down on older products as people flock to try out the new ones.

You might need to work with third-party consumer behavior analysis experts to gain more precise information to support your demand planning efforts. Such consumer insights will reveal how the halo effect impacts their decisions to purchase items.

Managing Brand Cannibalization and the Halo Effect

Brand cannibalization, whether it occurs naturally through consumer reaction to your new products or because you are intentionally trying to cannibalize brands, can help you boost sales overall, even if you see a decline in sales of earlier products. It’s important to understand brand cannibalization and the halo effect to better manage these phenomena.

Things will go more smoothly when you harness tools such as machine learning and artificial intelligence systems to address the data you capture surrounding customer demand and purchase patterns.

As you can see, managing brand cannibalization will take some effort in light of the halo effect.

You and your colleagues will want to use sophisticated demand planning so you can stay ahead of the competition. That’s why so many organizations turn to ketteQ for demand planning services. ketteQ’s demand planning solution is driven by our patent-pending PolymatiQ™ solver. It helps you forecast consumer desire with artificial intelligence for real-time adaptability to market conditions. You can take the guesswork out of addressing fluctuating demand.

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