Cannibalization occurs when a new product or line reduces sales of existing offerings. What is a potential effect if not managed properly?

Cannibalization occurs when a new product or line reduces sales of existing offerings. What is a potential effect if not managed properly?

• A. It always increases overall profits
• B. It can erode profits by cannibalizing existing sales
• C. It has no effect on strategy
• D. It only affects marketing costs

Answer: (B)

Cannibalization occurs when a new product or line reduces sales of existing offerings. If not managed, it can erode profits because the incremental revenue from the new product may be offset by losses on existing products, especially if the new item has a lower margin or higher costs and doesn’t expand the overall market. That’s why the potential effect is erosion of profits by cannibalizing existing sales. The other options misstate the impact: cannibalization doesn’t automatically raise profits, it does affect strategy, and its impact goes beyond just marketing costs.

Cannibalization occurs when a new product or line reduces sales of existing offerings. If not managed, it can erode profits because the incremental revenue from the new product may be offset by losses on existing products, especially if the new item has a lower margin or higher costs and doesn’t expand the overall market. That’s why the potential effect is erosion of profits by cannibalizing existing sales. The other options misstate the impact: cannibalization doesn’t automatically raise profits, it does affect strategy, and its impact goes beyond just marketing costs.