The dynamic markets are distinguished for the high level of competence in the companies. This is the reason because the big firms are continually bringing to market new products or different varieties of the same product. Those products are often noticed similar to the previous models. If this incident happen, maybe the old sales transfer to the new product, without raise the overall sales.
In practice, we have the razors example: All the razors have the same objective, to shave
without irritation. There are few possibilities for the pricing. The cheapest razors will be the disposable and the most expensive the electrics with gel. If Gillette® brings a new razor blade (Fusion Proglide) gel battery and it took longer on the market with the same features (Fusion), it is possible that customers before spent money in Gillette Fusion, now the could buy Gillette Fusion Proglide without incurring an increase in the total demand for the two products at once.
There are two types of cannibalization, positive and negative:
- Positive: you want to sell a more expensive and advanced product influencing customer perception. For example, when computers get a more advanced chip.
- Negative: if your sales down when you bring a new model or the differential gain is less than the opportunity cost of invest in rates.
One example could be the iPad Mini VS iPad. You can see the illustration if you click here or accessing at: http://techcrunch.com/2012/10/31/the-ipad-minis-cannibalization-effects-overpowering-or-overblown/.
I wish you have understood the cannibalization effect and if you have any questions, you can ask me in the comments, Facebook or Twitter. You can find my contact clicking on About.