EXAMINING THE IMPACT OF BRAND CANNIBALIZATION TO RETAILERS

CHAPTER ONE

INTRODUCTION

1. Background of the Study

There is no one generally accepted definition of cannibalization. Kerin et al. (1978) use Heskett’s (1976) definition: “the process by which a new product gains sales by diverting them from an existing product”. Mason and Milne (1994) use Copulsky’s (1976) definition and are less concerned with process than with magnitude. They define cannibalization as “the extent to which one product’s customers are at the expense of other products offered by the same firm.” But it is difficult for any manager to determine this – managers tend to take a more aggregate approach and look at sales volumes and shares, not at an individual’s buying patterns. It also oversimplifies the construct which can be viewed on a number of levels.

The work of Ehrenberg (1988) and others would suggest that any new product entering a market will take share from all the existing players in proportion to their size. Reddy et al. (1994) define it as a percentage of total category sales. Buday (1989, p. 29) suggests that: Excessive cannibalization is one of the common arguments against brand extending. Common branding implies a similarity: similarity invites replacement. The problem of the extension merely becoming a replacement purchase for the parent is only likely to occur where the products are substitutes, as was noted by Sullivan (1990). This is often assumed to be the case with line extensions

Bunten and Simmons (1993) cite the example of Alka Seltzer Plus whose sales volume was derived largely at the expense of the core brand. This effect can also be seen operating in the reverse direction. Birds Eye Walls’ rationalization of their Arctic Roll range, from two red berry flavors with strawberry and raspberry to one only, had a negligible impact on sales. Previous purchases of raspberry were replaced with strawberry.

Lomax, Hammond, East and Clemente (1997) describe cannibalization as the situation when a new product in a line extension becomes popular, but at the expense of other existing products within the category and this encourages the customer to buy the line extension and to stop buying the original product. It is stated by Reddy, Holak and Bhat (1994) that cannibalization is the risk that does not occur in brand extensions, but in line extensions the potential for cannibalization is severe. Speed (1998) says that the risk of cannibalization is larger when the new product offer superior benefits compared to the original product is still similar to the original product, and the risk is also higher if the price of the new product is lower than the original. He also adds that though, the risk of cannibalization is modest when the prices of the two are the same.

Brand cannibalization occurs when a company decides to replace an existing product and introduce a new one in its place, regardless of its position in the market (i.e. the product’s life cycle phase does not come into account). Reports have alleged that branded producers have used a variety of delaying tactics to avoid this “cannibalization” of their profits in the branded segment. One common means is for the branded firm to introduce and promote a new form of the concerned brand with strategic effects, or tactic effects.

1. 1. Statement of Problem

Definition of cannibal by Oxford dictionary is “A person who eats human flesh”. Generally this term is defined as “An animal that eats animals of his own kind”. Heskett (1976) is the first person who introduced this term in area of marketing. In view of Kotler& Keller (2009) cannibalization is a system in which a firm’s existing brand is competed by a new brand of its own. Chandy & Tellis (1998) claimed that cannibalization is a fundamental variable to determine why certain firms introduce new brands more profoundly than others. This creates a space of competition between brands of same firm in the market. Such competition sometimes proves damaging rather than brandive because the potential of the present brand declines because of introduction of newer and a more

Research Objectives

The main aim of the study is to explore the effect of brand cannibalization to retailers in Nigeria. The specific objectives would be as follows:

1. 1. To examine the relationship between brand cannibalization and market share retention in retail stores in Nigeria

   2. To examine the relationship between customer satisfaction and market share retention in retail stores in Nigeria

2. Research Questions

Based on the objectives set above, the study seeks to answer the following questions:

1. What are the relationship between brand cannibalization and market share retention in retail stores in Nigeria?

2. What are the relationship between customer satisfaction and market share retention in retail stores in Nigeria?

Significance of the Study

         The benefit to study a sound brand cannibalization in retail stores of developing countries like Nigeria cannot be over. Emphasize brand cannibalization has been seen to be the most importance competitive weapon to boost market retention of organization.  This study is aimed at adding to the existing body of knowledge in the area of brand cannibalization, and also aid fellow student and researcher, teacher and principal persons in the area of marketing in future research work also this research work would improve the knowledge of the managers, supervisors as well as the respondent as it has potential of widerning their horizon in modern business operation for profitability and continuity.

To general public, this research work would restore credibility and confidence in manufacturing activities and in manufacturing with banks.

To company′s management, it will assist them in their formulation and implementation of strategies aimed at satisfying customer.

1. 1. Scope of the Study

This study is carried out within Abuja metropolis this is where the organization selected for the study is situated. The study forcus on the retail stores in general. The sampling object or population element used in the study are employees, manager, customer and other stakeholder these categories are able to identify and ascertain the impact of customer relationship on market share retention the adoption indicators in the study include trust, empathy, promise fulfillment and bonding others ones can be used in other studies but these would make for easy measurement of market share retention.