Inter-size and inter-brand competition analysis within a product category: Scope of cannibalization effects

Abstract

The purpose of this article is to analyze the effects of price and non-price promotional incentives on market shares of brands within a product category, in an attempt to differentiate between cannibalization and competitive effects. The question is to what extent the growth in market share derived from a promotion comes at the expense of other product-sizes of the same brand within the category (cannibalization) or comes at the expense of the other brands within the category (competition). The article proposes a method to quantify these effects from sales data aggregated at store level, and describes an empirical application in a real context. The empirical results show that the modeling proposal is a useful analytical tool to reveal cannibalization and competition effects. Specifically, cannibalization effects across size-based formats of promotional incentives are higher than competitive effects in the product category analyzed, namely, soft drinks. This may be a result of a high degree of brand loyalty in this product category and/or a low degree of differentiation within the product line of each brand in this product category. At present, sales promotion is one of the marketing variables with the greatest scope and competitive potential. Measuring the difference between cannibalization and competitive effects is a major issue for manufacturers to be able to assess the suitability of a promotional campaign.