Conceptualizing cannibalisation: the case of tourist companies

Conceptualizing cannibalisation: the case of tourist companies

Stanislav Ivanov, Ph. D.

International University College – Albena

3, Bulgaria Str., 9300 Dobrich, Bulgaria

telephone: +359 58 655612

fax: +359 58 605760

e-mail: [email protected]

Abstract:

Cannibalisation is an economic phenomenon which has attracted the attention of

researchers in recent years. In current paper we present a conceptual framework

for analysing cannibalisation – its types and sources. Seven types of

cannibalisation are identified – product, customer base, distribution channel,

corporate, intra-firm, resource and image cannibalisation. We also discuss

different techniques which can help companies avoid and fight cannibalisation.

Key words: cannibalisation, image, product, tourism, marketing strategy

Published in: Ivanov. S. (2007) Conceptualizing cannibalisation: the case of

tourist companies. Yearbook of International University College, ISSN

1312-6539, pp. 20-36

Conceptualizing cannibalisation: the case of tourist companies

Introduction

The progress in science is accompanied by diffusion of terms from one

branch of science to another causing the necessity to redefine the term in the

new context. One such term is “cannibalisation”.

In zoology, cannibalisation is “the eating of any animal by another

member of the same species” (Britannica, 2002). In economics, cannibalisation

is a well known phenomenon, usually understood as the cannibalising of market

share of one product by other products of the same company (Faria and Novak,

2001; Komninos, 2002; Lin, 2005; Riggins and Narasimhan, 2001; Zhang, Lu,

Liu, 2004). To a lesser degree, other types of economic cannibalisation are also

discussed in the literature.

Every tourist company encounters a situation in which it competes with

itself. A tour operator, for example, may introduce new package tours to Spain,

which may cannibalise its current sales of packages to Greece. Although, from a

tour operator’s perspective it can be considered as product development, this

action leads to drop in sales of one product, resulting from a competition of a

substitute product, offered by the same company. Furthermore, these same

products will compete not only for customers’ money, but also for managers’

and agents’ attention, sales force time, company’s resources, shelf space,

customers’ attention and memory. Therefore, product development strategy can

lead to a series of cannibalisation traps, which are the focus of current paper.

The general idea behind cannibalisation in current paper is that the marketing

strategy of the company in launching new products, allocation of resources,

selection of distribution channels, or similar, can cause a decrease in sales and

profits as a result of the expected or unexpected self-competition.

Although many researchers focus on cannibalisations, the issue has not

been discussed thoroughly, especially in the field of travel and tourism industry.

In this regard, the aim of the paper is to present a conceptual framework for

analysing cannibalisation as an economic phenomenon, to define the types and

sources of cannibalisation and to identify techniques for avoiding and fighting

cannibalisation. The theoretical concepts are backed by examples from travel

and tourism, but the conclusions are applicable to every industry or economic

activity.

Literature review

There seem to be two levels of analysis of economic cannibalisation in

the researched literature – company and industry levels. On company level,

researchers examine the phenomenon of cannibalisation for a wide variety of

products, companies and industries – cigarettes (Mason and Milne, 1994),

computers (Fligler, Fruchter and Winer, 2006; Ruebeck, 2005), automobiles

(Lin, 2005), detergents (Lomax, 1996; Lomax et al., 1997), pharmaceuticals

(Roberts and McEvily, 2005), newspapers (Deleersnyder et al, 2002), beverages

(Srinivasan, Ramakrishnan, and Grasman, 2005a), used vs. new books offered

for online sale (Ghose, Smith and Telang, 2005), in retailing (Shah and

Avittathur, 2006).

In field of tourism cannibalisation a neglected problem. It has been

addressed by Carpenter and Hanssens (1994) who measure the impact of price

on the overall size of the air travel market on specific flight route, and examine

the nature, pattern, and extent of cannibalisation using a set of econometric

models for overall passenger volume and for each fare class share. The authors

find that cannibalisation is very significant and highly asymmetric. Jarach

(2005) also deals with cannibalisation problems within the aviation industry, but

examines the cannibalisation caused by the overlapping of routes and gives

proposals for future strategic moves of the airport operators. Wansink et al.

(2006) examine the impact of wine promotions in restaurants. Authors show

that the wine promotions can cannibalise the sales of other nonpromoted wines,

beer, liquor and non-alcoholic drinks, generating revenues from low-margin,

low-profit promoted beverages.

The cannibalisation on company level is usually analysed in relation with

product (Chandy and Tellis, 1998; Nijssen et al., 2004) or technology

innovations (Cravens, Piercy and Low, 2002) which make existing products or

technologies uncompetitive and obsolete. Fligler, Fruchter and Winer (2006),

for example, examine the cannibalisation among products within a product line

and develop a genetic algorithm approach to mitigate it, while Komninos (2002)

identifies offensive and defensive cannibalisation strategies which companies

can use in different stages of product’s life cycle.

In a similar manner, Riggins and Narasimhan (2001) analyse the

cannibalisation that occurs when a company produces a product with two

different qualities and applies intertemporal price discrimination to high and

low type consumers (degrading the product’s quality and price in time). The

authors show that using personalisation technology and seller-sponsored value-

added online community access, the seller can achieve better understanding of

the wants, needs, and willingness-to-pay of potential customers. In this way he

can mitigate the cannibalisation problem, resulting in higher product quality

levels and earlier product introductions for goods aimed at low type consumers.

Furthermore, Roberts and McEvily (2005) show that extending a product line

may cause cannibalisation not only through self-competition for market share

but also for the limited resources of the company itself.

Lomax (1996) and Lomax et al. (1997) address the problem of

measurement of cannibalisation. They identify and measure cannibalisation

through testing gains/loss analysis, duplication of purchase tables and deviations

from expected share movements on consumer panel data relating to line

extensions in the UK and German detergent markets, and suggest the need for

managers to use multiple methods when evaluating the degree of

cannibalisation.

Deleersnyder et al. (2002) focus on the cannibalisation that arises from

the use of online distribution channels for the sale of newspapers in the UK and

The Netherlands. The authors conclude that the Internet does not need to be

disruptive to established companies and channels within analysed industry.

The second level of analysis of cannibalisation in economic literature is

the industry level with the “species” perceived to be the industry as a whole and

the particular companies working in it are considered the “members” of the

species. At this level, the competition among companies is for market share,

sales and profits. Faria and Novak (2001), for example, present a dynamic

model of interfirm cannibalisation in an oligopolistic industry. They assume that

there are two different types of firms, small and large. Large firms want to drive

the small firms out of the market, in order to decrease the competition inside the

industry, hence increasing their market shares and profits. Their model

generates a limit cycle between the market share and the number of competitors

within the industry, so that market shares and the number of competitors

oscillate through time.

Reiffen and Ward (2005), on the other hand, evaluate the potential for

pharmaceutical patent holders to strategically introduce generic versions of their

products just prior to patent expiration. They describe how such an introduction

can change the incentives of independent generic firms to begin production of

the generic drug. Authors show that the long-run equilibrium may entail higher

prices when a branded generic introduction is anticipated by independent

generic producers, compared to the equilibrium when branded generic entry is

precluded.

The division of the two levels of analysis is not strict as recent

publications combine them both (e.g. Ruebeck, 2005). However, in our analysis

below we focus on company level cannibalisation as it can be controlled by

company’s managers.

Theoretical aspects of cannibalisation

A cannibalisation is a situation when company’s marketing actions lead

to self-competition on the market and the ineffective and inefficient use of

company’s resources and personnel. Figure 1 presents the conceptual

framework for analysing the cannibalisation.

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Insert Figure 1 here

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Cannibalisation is possible when the companies offer at least two

products, which can be perceived as part of two different marketing mixes,

regardless whether the other elements of the mix (price, distribution channel and

promotion) are the same or not. The specific combination of these marketing

mixes in the corporate marketing strategy influences the customers and the

company itself and leads to different responses from them. It determines who

will buy the product (the customer mix), what products will be bought (the

product choice), where will these products be bought from (distribution channel

choice) and the customers’ perceptions about the company. For the company,

the marketing strategy influences the allocation of resources to particular

projects, the market value of the company, and the employees’ perceptions

about the company. It also leads to competition among offices for sales. These 8

responses of the marketing mixes’ combination determine 7 types of

cannibalisation, each of which will be analysed in the subsequent parts of the

paper:

customer mix → customer base cannibalisation: the substitution of

high value customers by low value ones

product choice → product cannibalisation: the new product competes

for market share and sales with the existing one

distribution channel choice → distribution channel cannibalisation: the

stimulation of a particular distribution channel squeezes the sales from other

channels

allocation of resources → resource cannibalisation: the introduction of

new products require the diversion of resources of currently more profitable

existing projects

competition among offices → intra-firm cannibalisation: company’s

offices compete among themselves for sales to the same customers

mergers and acquisitions → corporate cannibalisation: the

overoptimistic mergers and acquisitions do not lead to synergetic effects and the

market value of the combined company is lower than the sum of the market

values of the merging firms

customers’ and employees’ perceptions about the company→ image

cannibalisation: erosion of company’s image

In the short-run cannibalisation leads by definition to decreased revenues

and/or increased costs, which finally result in diminished profits (Figure 2.)

==============

Insert Figure 2 here

==============

In the long-run the situation is to some extend different. The company

must constantly innovate and systematically phase out its old products and

introduce new ones before the competition does that, if it wants to maintain its

market share (Kotler, Armstrong, Saunders, Wong, 2002). It is required that the

firm manages properly the new product developments and introductions

(Crawford, 1991). The exact timing of the new product launch has to be

carefully planned. If it is very early in the product life cycle of the existing

products (i.e. in the growth stage), the new products will replace the old ones

too quickly and the latter will not be able to pay back the investments of their

development. If the new product introduction is too late (the end of the maturity

stage or during the decline) the competitors might have already launched their

new products and captured market share from the company.

Cannibalisation influences the relative importance and magnitude of

Porter’s (1980) five competitive forces faced by the company. In product

cannibalisation, the introduction of new products increases the threat of

substitutes which satisfy similar needs and/or serve same target segments, but

this time they are produced by the company itself and not by the competitors.

The intra-firm cannibalisation (the competition among offices of the company

for same customers) artificially intensifies the rivalry within industry faced by

the firm as a whole and its office in particular. The presence of substitutes and

intense competition within the industry combined with low switching costs

increase the bargaining power of customers. If this is accompanied by erosion

of the customer base through substitution of high value customers with low

value ones (i.e. customer base cannibalisation) the company will face a fierce

downward spiral of both product sales and prices. Erosion of company’s

positive image (image cannibalisation) will negatively impact the relationship

of the firm with its suppliers, increasing their bargaining power. Therefore,

cannibalisation can significantly deteriorate company’s competitive position on

the market as determined by Porter’s five competitive forces.

Cannibalisation is a dynamic category. The introduction of a new special

offer by a hotel valid only for online bookings made by direct customers will

not cannibalise the sales through other distribution channels immediately as

consumers will need time to switch their buying behaviour. Later, when sales

from tour operators are hurt without the compensating effect of online sales, the

hotel will be forced to change its policy and mitigate the impact of

cannibalisation. On the other hand, if online sales are strong enough to over-

compensate the drop of revenues from other channels, the distribution channel

cannibalisation ceases to exist as the company receives higher revenues (and

presumably more profits) from the new distribution channels mix than the

previous one, before the promotion of online sales. Therefore, the extent of

cannibalisation is a relative category and tends to change over time (Lomax,

1996; Lomax et al., 1997).

Cannibalisation can be intentional (proactive) or unintentional. The

intentional cannibalisation is a result of innovation which makes specific

products, technologies, markets, organisational capabilities of the company

obsolete. The strategic rationale underlying this concept is offering a better

solution to a need currently being satisfied (Cravens, Piercy and Low, 2002). It

is usually denoted by the firm’s willingness to cannibalise. Vermeulen et al.

(2003), cited in Nijssen et al. (2004), identify three dimensions of company’s

willingness to cannibalise which lead to resource and product cannibalisation as

defined in the conceptual framework:

• Willingness to cannibalise previous investments – the introduction of a

new product that makes previous investments obsolete.

• Willingness to cannibalise organizational capabilities – the

introduction of a new product that makes current organizational

capabilities, skills, and routines obsolete.

• Willingness to cannibalise current sales – the introduction of a new

product that diminishes the sales of its current products.

Cannibalisation can be also expected or unexpected. The expected

cannibalisation does not cause any problems because tourist companies can plan

marketing actions to face it. To some extend it is a result of intentional company

efforts to cannibalise its products, before the competition does that. The

unexpected cannibalisation should be considered as a marketing planning

failure.

However, cannibalisation is inevitable and to some extent desirable. The

introduction of new products on the market is viewed as a way to keep the

competitiveness of the tourist company, especially considering the rapidly

changing preferences of tourism demand. Tourist products are easily copied and

differentiation, constant innovation and timely introduction of new and phasing

out current products is a key to company’s competitiveness. The development

and introduction of new products results in a changed balance within the

company – resources have to be reallocated, employees have to be persuaded to

accept the new products and then trained to sell them, distribution channels

must be motivated to include the products in their offerings, a communication

strategy must inform customers for the new products but in such a way, that the

image of the company is not hurt but enhanced and improved; finally, the

company has to change its price mix in order to extract the consumer surplus

and attract the appropriate customer mix, thus avoiding customer base

cannibalisation.

Types of cannibalisation faced by tourist companies

Tourist companies face different types of cannibalisation:

1. Product cannibalisation

Product cannibalisation is the most widely cited type of cannibalisation in

scientific literature (e.g. Fligler, Fruchter, and Winer, 2006; Ghose, Smith, and

Telang, 2005; Komninos, 2002; Lin, 2005; Lomax and McWilliam, 2001;

Mason and Milne, 1994; Meredith and Maki, 2001; Reiffen and Ward, 2005;

Riggins and Narasimhan, 2001; Ruebeck, 2005; Srinivasan, Ramakrishnan, and

Grasman, 2005a, 2005b; Zhang, Lu, and Liu, 2004) and is also examined for

tourism products (Carpenter and Hanssens, 1994; Wansink et al., 2006). Taylor

(2004:24) defines product cannibalization as brand clones that lack

differentiation versus core product and so eat volume (see also Kim and

Chhajed, 1999). It denotes the situation in which the increase in sales and

profits in one product is a result of the decrease in sales and profits of other

product(s) of the same company and, therefore, may be perceived as the

complete analogue of cannibalism as defined in biology (the product line being

the “species” and the products in it – the “individuals”).

Although product cannibalisation is defined as self-competition of

products of one and the same company, we may see it arising from competition

between brands in a co-branding agreement. DiPietro (2005), for instance,

addresses cannibalisation consequences of co-branding in restaurants and

comments that although “…at first glance, co-branding and multibranding may

seem to be a viable strategy for restaurant companies”, a cannibalisation may

appear “…when one brand gains but the other brand that shares the space loses

revenues or when decreased operating effectiveness and efficiencies for both

concepts sharing the same production facilities cause a decrease in sales for the

brands.” (p. 96).

Srinivasan, Ramakrishnan and Grasman (2005a) define 4 types of

product cannibalisation:

• Multi-product pack cannibalisation – multiple products are marketed

as one but could also be sold separately. The total price for the product

pack is usually lower than the sum of the prices of the individual

items, and thus, the pack will be bought rather than the separate items.

The company receives lower revenues compared to a situation then all

product items are sold separately. Although some product

cannibalisation may occur (the sales of the individual items may

decrease), combining different goods and/or services in a package

stimulates the total sales of all products included in it – the expansion

of package tours in tourism is an excellent example.

• Combo-product cannibalisation – multiple products are marketed as

one but could not be sold separately. The authors admit that it is

difficult to identify which product is being cannibalised because the

combined products can only be sold together and not separately (p.

363).

• Intra-product cannibalisation occurs as a result of a competition

between different products with same or similar functional

characteristics and same target market – e.g. a hotel chain that offers

one star hotel accommodation and campsites – the two products have

similar characteristics (low cost accommodation), price range and

target the same customers (children, students, transit groups on bus

excursions).

• Inter-product cannibalisation happens within the same product line.

For example, many tour operators offer charter flights to competitive

destinations. Charter package products “sea, sun, sand” to Greece,

Turkey, Bulgaria, Spain, or Tunisia are essentially the same in

content, quality standard, duration, price range and form one product

line in a tour operator’s portfolio (summer sea holiday packages). The

competition between these products can cause cannibalisation within

the product line. Of course, tour operators can avoid this by managing

the availability and prices of package tours to specific destinations. In

general such inter-product cannibalisation is desirable, because it

increases the customer choice and the probability that the seller (in our

case the tour operator) will offer a product that suits customer’s needs.

In a more practical aspect, the company can mitigate the impact of the

product cannibalisation within the product line through selective use

of persuasive advertising (see Lin, 2005).

Zhang, Lu, and Liu (2004) introduce time in the analysis of product

cannibalisation. The authors identify (pp. 6-10):

Cannibalisation in a simultaneous launch of two products with two

versions:

-The company introduces two products – one with higher quality and

higher price, and the other one with lower quality and lower price. In this

situation, the cheaper product eats out the sales and profits of the more

expensive one.

-The company launches a higher quality and a lower quality product, but

the differences in their prices is less than the differences in the production

costs, e.g. a 4 star hotel with a 3 star wing, or with different room types

with significant quality differences among them (standard rooms, deluxe

rooms, studios, apartments). The result is opposite to the previous

situation – clients will prefer to use the higher quality product which will

cannibalise the more profitable lower quality one.

Cannibalisation in consecutive launch of two products – the company

introduces a superior version of the product which cannibalises the sales of its

older versions. To a high degree this type of product cannibalisation is

intended and when well planned it should be considered a product

development strategy. It is an inevitable consequence of competition and

technological innovations. It forms expectations of a future product

improvement which cannibalise sales of the current version of the product

(Levinthal and Purohit, 1989, cited in Riggins and Narasimhan, 2001) –

customers postpone their purchases waiting for better and cheaper options.

The seller is able to mitigate this cannibalisation problem, in the case when

buyers are relatively more impatient than the seller, by offering the high

quality product in the first period (e.g. hard cover book) and the low quality

product in the second period (e.g. soft cover book) (Riggins and Narasimhan,

2001). A tour operator, for example, might start to offer tours to a particular

destination, by including in its brochures high class properties. This strategy

will attract the attention of the more affluent part of the market. Consequently,

the tour operator might include cheaper options, without excluding the more

expensive ones, thus widening its customer base. It is also possible that the

company applies market skimming pricing – the new superior product starts

with a high price, the price of old product is gradually being decreased until

phasing out, so that the two products do not compete on price and attract

different market segments.

2. Customer base cannibalisation

Customer base cannibalisation is the decrease in sales and profits

resulting from the lack of market segment targeting or targeting incompatible

market segments. In the first case, the company applies undifferentiated

marketing strategy and offers the product at one and the same price without

price discrimination to all customers. High value customers will pay the same

price as low value ones, resulting in lost revenues. Moreover, the fact that the

product is bought simultaneously by high and low value customers might have

negative impact on the perceived image of the product by the high value

customers (e.g. a high class restaurant decreasing its prices in order to attract

not so affluent public). They might stop favouring it and look for other

companies’ products.

Similar consequences the company will face if it targets incompatible

target markets. Many hotels try to attract every customer that contacts them in

their battle for revenues and market share. They accommodate at one and the

same time tourists from different market segments: leisure and business

travellers, teenagers and third age travellers, families with children and

homosexual holiday makers. The inevitable conflict between the segments leads

to the loss of one of the market segments – the business travellers might find the

hotel which accommodates also leisure travellers as too noisy and not creating

appropriate work environment and abandon they patronage for it. This could

hurt the image of the hotel as well, thus resulting in an even deeper image

cannibalisation – especially if the conflict between the segments is huge –

families with young children and holiday makers with abnormal sexual

behaviour.

3. Distribution channel cannibalisation

Usually tourist companies sell their product both directly to customers

and through a wide network of intermediaries – tour operators, travel agents,

global distribution systems, etc. Every company in the distribution network

contributes to the total sales and revenues of the tourist company, but it also

competes with other firms for its own sales. Distribution channel

cannibalisation happens when a company overstimulates one channel through

push strategy and this channel attracts bookings and sales for the same product

from other channels. For example, a hotel offers a special promotion valid only

for direct clients with a price level below, equal to or only slightly higher than

the net rates for the tour operators. The latter will have no stimuli to sell the

hotel and will most likely exclude the property from their brochures and online

reservation systems. The hotel will attract direct clients but will lose the

customers sent by tour operators. The balance between the gain and the loss will

define whether a distribution channel cannibalisation has occurred – if the

revenues have suffered than the cannibalisation is evident.

Usually distribution channel cannibalisation occurs when companies

introduce e-commerce options in their websites (see Deleersnyder et al, 2002;

Trotta and Hudick, 2003; Wu, Mahajan, and Balasubramanian, 2003). Their

managers are too confident in the ability of the Internet as a marketing

communications and sales tool and set promotional rates valid for internet

bookings only. And the result is that customers may relocate their bookings

among the distribution channels and to favour the company’s website.

Furthermore, cannibalisation among the organisation’s multiple channels leads

to intense inter-channel conflicts (Mariga, 2003: 135) and ruins the reputation of

the company. In this context, distribution channel management (Neslin et al.,

2006; Mols, 2001) becomes a critical instrument for revenue management. Its

goal is spreading sales among different channels in order to maximize the net

revenue of the company (sales minus booking costs). But sometimes corporate

strategies fall short of this goal and instead of increasing sales, the result of

distribution channel management is a drop in revenues – a distribution channel

cannibalisation has occurred.

Another version of distribution channel cannibalisation is the situation

that arises from oversaturating a given geographic area with retails outlets (e.g.

Fock, 2001), especially in the case of hotel and restaurant franchising. The goal

of achieving maximum market penetration combined with aggressive expansion

strategy could lead to overly optimistic forecasts for the product demand in/to

particular geographic area. As a consequence, the company opens too many

outlets which will not face enough demand to survive. They will compete with

the outlets of other companies and among themselves. The total sales of

company’s outlets in the area may be increased through the introduction of new

ones, but the average sales in one outlet could drop significantly.

4. Resource cannibalisation

The product line extension leads not only to cannibalisation between

different products in their fight for market share – they compete for company’s

scares resources as well. The introduction of a new product requires more

financial, human or material resources which the company might buy or divert

from its current products. The latter activity is defined by Roberts and McEvily

(2005) as resource cannibalisation. It arises from the inefficient usage of

resources as they are allocated into new projects which generate lower profits

than current ones – e.g., a tour operator specialised in selling hotel

accommodation and flight excursions now starts to organise bus excursions.

The personnel of the tour operator know and sell the current products well but

the introduction of bus excursions will divert employees’ time, attention and

effort from selling current products to selling the new product. This may be at

the expense of the current products – the new product “eats out” the resources

and sales of existing ones, especially if the corporate management has set

extremely high sales targets for the new product. Another example is the

introduction of new additional services in accommodation establishments which

generate small incremental sales but require time, attention and material

resources. However, if the profit from the new product is greater than the profit

from the old product, the resource cannibalisation ceases to exist and the

introduction of the new product is defined as a product development strategy. In

order to avoid resource cannibalisation, the resource capacity of the company

should correspond to it its product mix.

5. Corporate cannibalisation

Following the financial logic, mergers and acquisitions of companies are

desirable if the value of the combined firm is higher than the sum of the market

values of the merged firms (Pinches, 1990:593-595). When the market value of

the new company is lower we talk about corporate cannibalisation – the

aspirations of managers for corporate growth do not come up to shareholders’

expectations for wealth growth (in terms of higher stock prices). The aim of

managers is to create a mega-company, which will utilise the synergetic effects

from the merger and the decrease of administrative costs following the

elimination of duplicating job positions and functions. While true from a

theoretical perspective, in practice the motives behind this activity are

sometimes emotional and not very well financially grounded, so that the

shareholders and the employees find themselves in a losing position – the

former lose from the drop in the market value of the new company, and the

latter – their secure jobs.

Companies, that are looking to increase revenues and are involved in

merger and acquisition activity, may find that sales from the acquired company

are going down and not up, because of cannibalisation of revenue from other

channels. The merger creates an internal competition for revenue resulting in

lower sales (Trotta and Hudick, 2003:146), especially if the perceived

differences between the product brands of the uniting companies are small.

Furthermore, when two firms combine, the negative cash flows of some projects

cannibalize the positive cash flows of other projects (Joaquin and Khanna,

2000) – the more profitable company before the merger will cover the losses of

the other one1.

The tourism industry has witnessed recently a wave of merger and

acquisition activities with the latest mega-merger being between the two of the

largest tour operators in Europe – My Travel and Thomas Cook. The effects of

this event on the market value, sales, and profits on the combined firm are yet to

be seen.

6. Intra-firm cannibalisation

Every company faces the challenge of measuring the performance of its

employees and creating financial and other stimuli based on it. Practice shows,

that often the branches of one and the same company compete for the same

clients. In a small scale such internal competition is healthy and desirable. But

when it leads to demotivation of the personnel we define it as intra-firm

cannibalisation. For example, many multi-outlet travel agencies in Bulgaria

(like Alma tour, Astral holidays, Premier tours, Bohemia) allow the option to

reserve services through one office and to pay and receive travel documents in

another office. A problem arises when the salaries of the employees depend on

office’s sales revenues and the sale is accounted in the office where the

documents are issued and the payment is settled, but not in the office where the

bookings were made. The travel agency faces a situation in which the office

which has accepted the payment eats the revenues and bonuses of the office

which has made the booking and completed the sale. The consequence is a

demotivation of personnel, absenteeism, and high turnover. Therefore, the

internal accounting and appraisal systems of the company should take into

consideration the individual employee’s and office’s contribution to sales and

profits.

7. Image cannibalisation

The image cannibalisation is the most integral type of cannibalisation

because everything the company does reflects on its image in the long-run.

Product extensions influence the image of the company (see Pina et al., 2006)

and could cause product cannibalisation. The latter may grow to an image

cannibalisation if branding process is not managed properly. When the company

offers products under the same brand with different value positioning the lower

value products will “eat out” the positive or high value image the more

expensive products create. This will happen, for instance, if a hotel chain/tour

operator introduces an inferior product under the same brand name in a brand

extension strategy, or if there are service problems created by franchisees in the

chain. In both cases, the image problems created by one hotel, restaurant or

other outlet will have repercussions on the image of the brand as a whole. In

order to avoid such problems hotel chains usually hold a portfolio of different

brands, each of them targeted at specific market segment. Accor, for example,

holds the budget chains Motel 6, Etap, Formule 1, the economy Ibis hotels, the

upscale and midscale Novotel, Mercure and Suitehotel brands, and the upper

scale Sofitel hotel chain. Neither of the brands in the Accor’s portfolio has the

name of the holding group which eases the management of image and market

positioning of each brand in the portfolio.

On a destination level, image cannibalisation may be a result of

conflicting messages sent by the tourist companies and/or tourism

organisations/governing bodies. Offering high level products (luxurious 5 star

hotels) within a destination with an image of a cheap destination (e.g. Bulgaria)

will not be successful for the company at least in the short-run. The image of the

destination will cannibalise the image of the company and the firm will sell its

product cheaper than if the image of the destination was of an elite destination.

Further research is needed to assess whether the image of the destination serves

as an umbrella for the image of the tourist companies working in it.

Techniques for avoiding and fighting the cannibalisation

We have already discussed that cannibalisation is inevitable and

sometimes even desirable (in product innovations) for maintaining the market

positions of the company. In this section of the paper we turn our focus on

specific techniques for avoiding and fighting the destructive self-competition

for sales, revenues, resources.

Table 1 summarises the basic techniques for avoiding and fighting each

type of cannibalisation. The fact that cannibalisation impacts the company as a

whole, regardless of its type and causes, requires integrative approaches for

avoiding and fighting cannibalisation which extend beyond marketing

management. Corporate, human resource and operations management

techniques must also be employed.

Some of the techniques described in the table are easily implemented: the

use of different brands for different product groups, training of employees in

selling new products, the evaluation of the members of the chain on a regular

basis. However, other techniques require much more time and effort like the

distribution network management, the application of revenue management

techniques, the servicing of customers from incompatible segments in different

time periods. A third group of techniques puts attention to emotions and human

nature – change management in the organisation, performance evaluation,

diversification based on corporate skills. The set of techniques in Table 1 shows

that avoiding and fighting cannibalization is not a task only for the marketing

manager. It involves issues related to human resources, ethics, and general

corporate management as well.

Discussion and conclusion

Cannibalisation is a result of the inefficient and ineffective use of

corporate resources and failures in marketing planning. The company finds

itself in situation in which it competes with itself – its new products eat the

market share of its old products, high value customers are replaced by low value

customers, distribution channels with low net revenue per product unit replace

the distribution channels from which the company receives higher prices for its

products. The consequence is a decrease in the revenues and/or increase in costs

leading to drop in profits. But as we showed cannibalisation is inevitable and, in

the case of product cannibalisation, it is even desirable, because it sustains the

market position of the firm.

The paper presented a conceptual framework for analysing

cannibalisation in corporate marketing strategies. It showed the types and

sources of cannibalisation, the basic characteristics of cannibalisation and

pointed some techniques for avoiding and fighting cannibalisation. Further

research is needed in the field of resource, image, intra-firm, and customer-base

cannibalisation as these types of cannibalisation have not received much

attention in the scientific literature. Another focus should be the measurement of

the different types of cannibalisation and the criteria which identify the desired

level of cannibalisation for every cannibalisation type. A third direction for

research can be the incorporation of cannibalisation into a broader topic – the

irrational behaviour of clients and corporations, where the problem of

cannibalisation can be integrated which issues like kamikaze pricing (Holden

and Nagle, 1998), and the sale of special products satisfying some pseudo

tourist needs (see for example http://www.teddy-in-munich.com). Although the

theoretical concepts in the paper were supported by examples from the travel

and tourism industry, the conceptual framework is broader and universally

applicable to any industry.

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1 Faria and Novak (2001) also address the problem of cannibalisation resulting from buying other companies, but from the perspective of the industry as a whole, not from the viewpoint of market value of the company.

Product Price

Place Promotion

Mar

ketin

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ix 1

Product Price

Place Promotion

Marketing m

ix 2

Image cannibalisation

Company

Employees’ perceptions about the company

Customers’ perceptions about the company

Customers

Allocation of resources

Competition among offices

Mergers and acquisitions

Resource cannibalisation

Intra-firm cannibalisation

Corporate cannibalisation

Customer mix Product choiceDistribution

channel choice

Customer base cannibalisation

Product cannibalisation

Distribution channel

cannibalisation

Res

pons

esR

espo

nses

Type

of

cann

ibal

isat

ion

Type

of

cann

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ion

Figure 1. Types of cannibalisation – a conceptual framework



Distribution channel cannibalisation





Increased

costs

Decreased

revenues

Decreased

profits

Figure 2. Financial impacts of cannibalisation

Table 1.Techniques for avoiding and fighting cannibalisation

Cannibalisation type

Marketing managementProduct Price Place Promotion

Corporate management

Human resource management

Operations management


- use different brands for different product groups- create distinguishable differences among product brands- cannibalise your own products before the competitors do it- manage products’/brands’ availability

- position products in different price ranges

- match product with distribution channel

- use persuasive advertising to create significant perceived differences among brands


- introduce new products with new brand names for new market segments- create distinguishable differences among product brands

- apply price discrimination / revenue management techniques

- access incompatible market segments through separate distribution channels

- use different media channels- use persuasive advertising to create significant perceived differences among brands

- train employees to service different types of clients

- service different segments during different time periods (e.g. business customers in weekdays, leisure travellers in weekends)

Distribution channel cannibalisation

- match product with distribution channel

- one price guarantee – regardless of the distribution channel the final customer will receive one and the same price- best price guarantee – the customer has the right within a specified period of time to ask for a discount if he finds a publicly available cheaper offer for the same property, period of stay, type of room (e.g. Marriott)- apply high rack rates and deep discounts for distributors (tour operators, travel agents)

- manage growth of the distribution network

- do not use promotions valid for a specific distribution channel only (for online bookings, for direct sales, etc.)

- manage conflicts among firms in the distribution chain

Cannibalisation type

Marketing managementProduct Price Place Promotion

Corporate management

Human resource management

Operations management


- match new product launches with resource capacity of the company

- train employees to sell effectively and efficiently the new products- manage change in the organisation


- avoid setting overly optimistic sales targets for new products

- set clear and logical criteria for performance evaluation- do not evaluate performance in financial terms only


- acquire brands complementary to the existing portfolio

- diversify according to corporate skills, not on emotions and growth for its own sake- base mergers and acquisitions on sound financial ground


- use different brands for different product groups- create distinguishable differences among product brands- cannibalise your own products before the competitors do it- match product with distribution channel

- position products in different price ranges

- manage growth of the distribution network

- use all forms of marketing communications to create a positive, consistent and compelling image of the company- do not send conflicting messages to target audiences

-diversify according to corporate skills, not on emotions and growth for its own sake- evaluate the members of the chain on a regular basis (e.g. mystery guests)- manage conflicts among firms in the distribution chain

- train employees to sell effectively and efficiently the new products- train employees to service different types of clients- manage change in the organisation- set clear and logical criteria for performance evaluation

- avoid accommodating simultaneously customers from incompatible segments- apply service recovery techniques

Conceptualizing cannibalisation: the case of tourist companies

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