Unmask the Ghost of Cannibalisation this Halloween!
How to reduce the cannibalistic effects of promotions?
In the sector of fast-moving consumer goods, promotions are a pivotal component for elevating brand visibility and boosting sales. However, it is essential to plan these promotions meticulously to minimise unintended cannibalisation within the company’s product portfolio. The strategies to reduce the cannibalistic impact of promotions should include avoiding shallow discounts, stopping ‘one size fits all’ promotions, refraining from single unit promotions, and circumventing promotions leading to a downgrade in purchase weight or value.
How bad is it?
The most recent benchmark data from Accuris indicates that, in the UK, cannibalisation wipes out, on average, 17% of the additional sales volume created by promotions. The value of the products being cannibalized typically constitutes even 22% of the promotional uplift, as the volumes sold at a discount supplant those sold at full price.
Which categories are more effected?
Particularly susceptible categories to cannibalisation include pet food, fresh food, and frozen meals. Generally, frozen and chilled items are more vulnerable to cannibalisation due to inherent restrictions on display space.
Source: Accuris, Benchmark UK, January-August 2023
Which factors influence cannibalisation?
An analysis of the entire benchmark dataset reveals 6 factors that notably affect cannibalisation.
1. Large stores vs small stores
Cannibalisation poses a more significant challenge in larger stores compared to smaller ones. This is due to several factors: Firstly, shoppers in smaller stores, with their more limited product selections, have fewer chances to switch between items. Secondly, shoppers in larger stores tend to be on replenishment-focused shopping trips, increasing the likelihood of cannibalisation.
2. Replenishment vs fill-in shopping
Shoppers on a replenishment trip naturally explore various alternatives, browsing multiple store aisles, assessing product assortments, and comparing prices. Consequently, they are more inclined to substitute their preferred product for a closely related item when it's on promotion.
3. Planned purchases vs impulse shopping trips
Replenishment trips are typically more planned and tend to occur in larger stores. In contrast, impulse buying, which occurs on the other end of the spectrum, is less about substitution and more about spontaneously exploring offers. As a result, it leads to less cannibalisation compared to planned buying.
4. Multibrand vs single brand
The size of your own product range matters. Operators of multiple brands and pack sizes in any category will be victim to higher levels of cannibalisation.
5. Promotion Overlap
With a wide product range, there is a naturally higher chance of promotions overlapping. This means that promotions for different brands or variants may run concurrently, increasing the likelihood of cannibalisation as consumers choose between the discounted options.
6. Organisational complexity
Managing promotions for a diverse product range can be more complex. Different brands or pack sizes may have varying promotion strategies, making it challenging to align these strategies effectively and minimize cannibalisation.
Ways to reduce cannibalisation
Promotional cannibalisation is generally to be avoided. By definition, it is about replacing full margin sales with discounted sales and usually erodes profits. In certain cases, cannibalisation can be a force of good, as we will discuss in the next paragraph.
Promotional cannibalisation is very hard to erase entirely, especially in heavily supported categories in a mass retail environment. Still, we see that reductions by a quarter to a third are achievable. Promotions should always be discriminative between normal shopping behaviour and extra-ordinary behaviour. The entire promotional mix should be used to do two things:
1. Encourage loyal shoppers to buy and consume more;
2. Recruit new consumers to your brand.
There are various strategies to mitigate cannibalisation, although it is important to note that some of these approaches may inadvertently lead to other unfavourable consequences.
Avoid shallow discounts Promotions with shallow discounts are less likely to receive secondary display. Therefore, they are only seen by shoppers who visit the regular aisle. New shoppers are not reached. Only shoppers who already decided to shop in the category are exposed to the promotion. This limits the capacity of a promotion to create strong expansion effects and mainly makes shoppers consider alternative products in the regular shelf only. Switching between brands increases, but also switching between pack sizes or variants of the same brand.
Avoid single unit mechanics Cannibalisation will be higher when a shopper has the chance to spend less than what he or she had originally planned, by switching to a close alternative. However, if the promotion is only accessible by spending more, such as in the case of a multibuy, then shoppers are more likely to stick to their original choice of product and either buy multiple units and get the discount or pay full price for one unit. Single unit promotions generally do not enhance the overall value proposition of the entire range. Rather consider multibuy promotions – retailers permitting – or offers such as bundling complementary products or offering discounts on next purchases. This approach not only mitigates the risk of cannibalisation but also encourages consumer exploration and loyalty across the brand’s offerings.
Avoid ‘one size fits all’ Employing a ‘one size fits all’ promotional strategy often proves to be counterproductive, leading to internal competition and cannibalisation amongst major products. A uniform promotional offer does not consider the diverse needs, preferences, and purchasing behaviours of different consumer segments. Thus, it is more prudent to develop tailor-made offers that address the unique attributes and consumer bases of each product. A segmented and customized promotional approach ensures that each product receives the optimum level of exposure and appeal to its target audience without overshadowing or undermining the others in the portfolio.
Low frequency A low promotion frequency may encourage shoppers to switch between brands and sizes within your own portfolio. As their preferred product is not on promotion, they may substitute it for a close alternative that is (e.g. a different size). While this increases cannibalisation it is probably the lesser of two evils. A high promotional frequency may train consumers to wait for the next promotion avoiding paying full price ever.
Promoting an entire range of products Promoting multiple brands or products within a company is often viewed as a strategy to mitigate cannibalisation. This, however, does not help, it simply makes measuring cannibalisation more difficult.
Using promotional cannibalisation to your advantage.
There are two scenarios where cannibalisation may be beneficial and even a deliberate strategy.
Upgrade to a more premium product Cannibalisation is beneficial if the profit margin (or other benefit) of the product that causes the cannibalisation is greater – even when promoted – than the cannibalized product
Push a new or alternative product Cannibalisation is allowed or even intentional, to stimulate adoption of a new product that is designed to replace an older one.
Apart from these strategies, companies may temporarily accept cannibalisation for more tactical reasons. These can include boosting overall sales and market share, clearing excess inventory, or even as a market test or to collect shopper data on product preferences.
Tracking promotional cannibalization is crucial for businesses. It helps them understand how promotions affect their products and brands. By monitoring this, companies can take steps to reduce its negative impact and make their promotions more effective. Accuris offers many solutions to measure the impact of promotions, minimise cannibalisation and formulate strategies to gain market share and upgrade the category.
