Product Cannibalization Research Articles

Designing product upgrades in the presence of online consumer reviews

AbstractWhen consumers decide whether to buy an experience good, they usually search for online reviews to reduce quality uncertainty. In this paper, we consider that consumers may strategically wait for the new generation product and consult reviews of the previous generation product in the same series while facing sequential launching products. We develop a two‐period analytical model analyzing how the presence of intergenerational reviews influences the firm's decision on product upgrades. Our analysis obtains three main findings. First, when online reviews are less efficient and consumers are more strategic, the firm should skip the old product due to the severe product cannibalization effect. Second, negative reviews discourage the firm from quality improvement, and positive reviews drive the firm to provide quality improvement at a high price. Third, the firm chooses a decreasing price path without online reviews. However, an increasing price path is preferred in the presence of online reviews when online reviews are positive, the efficiency of consumer reviews is high, and consumers are more strategic. Our study indicates that online reviews have important influence on product generation design, and the firm should carefully evaluate online reviews of the old product when designing its new generation product.

A Comprehensive Analysis of the Impact of Viral Marketing on Goods and Services and Its Correlation with Product Cannibalization

When COVID-19 spread across the globe, people everywhere are learning to cope up with a new way of living. Meanwhile, people are spending way more time online in their mobile phone/laptop/pc etc., than ever before, which still exists even after the downfall of COVID-19. Digital means has become a solution, a means to satisfy an individual’s basic needs such as food delivery from restaurant, buying products via e-commerce online shopping etc. but also to be in contact with friends and family, entertainment and acquisition of information, goods and services normally accessed physically and in person are now possessed by digitalized ways. However, the advent of lockdown has dramatically increased the size, availability, and profile of the digital audience, now bringing in those people more traditionally accessed offline. Not only that, it has also changed their buying behaviours, expectations, their consumption of content and the way they expect to be interacted with as customers. As more businesses enter the online marketplace, the competition for traffic becomes even greater. For this reason, digital marketing is critical in building brand recognition and increasing traffic to business websites a comprehensive digital marketing strategy starts with creating a search-optimized website and includes an active social media presence. The pandemic and lockdown of 2020 has strong-armed even diehard traditionalists into embracing digital, simply to remain connected to the outside world. The phenomenon of “Product cannibalization” also enters into the scenario secretly in order to exist and develop due to these strong digitalized usage of people across the globe. To “cannibalize” means to “eat its own flesh” but in the context of marketing it refers to the tremendous change in the goods/service on its own for its survivability, growth and to excellent profit.
 In the contemporary business landscape, characterized by the omnipresence of digital technologies and the aftermath of global disruptions, this research delves into the intricate dynamics between viral marketing strategies and the phenomenon of product cannibalization within the framework of the "New Normal." As organizations increasingly adopt viral marketing techniques to amplify their reach and engage with diverse consumer segments, understanding the nuanced implications on the product lifecycle becomes imperative.
 This study employs a multidimensional approach, combining qualitative and quantitative methodologies to scrutinize the intricate interplay between viral marketing campaigns and product cannibalization.
 The research aims to provide a comprehensive understanding of the evolving consumer preferences and purchasing behaviours in the digital era, with a focus on the unintended consequences of viral marketing, such as product cannibalization. By examining case studies, conducting surveys, and utilizing data analytics, the study seeks to unearth patterns and trends that can inform strategic decision-making for businesses navigating the complexities of the modern marketplace.
 Key findings are anticipated to contribute not only to academic literature but also offer actionable insights for practitioners in marketing, branding, and product management. The implications of this research extend beyond immediate business concerns, touching upon societal changes, technological advancements, and the ongoing transformations in consumer expectations, thereby providing a holistic perspective on the evolving dynamics of commerce in the New Normal

Robust tactical qualification decisions in flexible manufacturing systems

In some flexible manufacturing systems, such as semiconductor manufacturing systems, machines must be qualified, i.e. certified and eligible, to process a product. This paper investigates a tactical capacity planning problem that consists in minimizing the number of (product, machine) qualifications to ensure that the manufacturing system is robust against the uncertainty on the product mix. First, we propose a deterministic modeling of the problem, followed by a robust modeling based on the robust optimization paradigm when demand uncertainty is characterized by product cannibalization. Then, a mathematical model, also based on the robust optimization paradigm, to characterize the robustness of a set of qualifications is introduced. Finally, in the computational study on industrial data, we show that the price of uncertainty is small, often less than a few additional qualifications by machine whereas the robustness of the qualifications determined for the nominal product mix often lead to capacity constraint violations. We also show that a restricted number of new relevant qualifications out of all possible new qualifications is required to achieve the same robustness as the case where all new qualifications are performed. Considering demand uncertainty in qualification management is therefore critical since robustness is relatively cheap.

The limited potential of regional electricity marketing – Results from two discrete choice experiments in Germany

The German energy transition has led to a strong expansion of renewable energies in recent years. As a result, the German population is increasingly coming into contact with generation facilities. To increase local acceptance for new installations and to create new sales channels for energy suppliers, the legislature has established the “System for Guarantees of Regional Origin” in 2019, which allows the marketing of electricity from subsidized facilities as “electricity generated in the region”. However, regional electricity comes with additional costs on the procurement and sales side of energy suppliers, and it is unclear whether and to what extent consumers are willing to pay a premium for electricity generated regionally. This study investigates the willingness to pay (WTP) of residential customers based on two samples of 838 and 59 respondents, respectively. Our model results show that, on average, WTP for regional electricity generation is positive, especially among female, younger and better-educated customers, although differences in WTP between these sociodemographic characteristics are small. Factors that are more relevant are the current type of electricity tariff, differentiated into non-green and green, with the latter having a positive influence, but also the tariff switching behavior of the past, which is a proxy for price sensitivity. Although WTP is positive, it is severely limited, and only pertains to a subgroup of electricity customers. Hence, it is not surprising that our simulation shows that including a regional green electricity tariff in an energy supplier's portfolio is likely to lead to product cannibalization, meaning that mainly green electricity customers will choose this tariff. From an energy supplier's perspective, these results raise the question of whether offering a regional electricity tariff is economically viable. Future research could further investigate what underlying factors drive preferences for regionally generated electricity and how it can contribute to local acceptance.

Remanufacturing Mode Selection regarding Technology Development

We consider a Cournot game model between an OEM (original equipment manufacturer) and an IR (independent remanufacturer). The OEM manufactures new products and decides the quality level. IR remanufactures and obtains OEM’s technology through technology licensing or joint R&D. To prevent the cannibalization of new products by remanufactured products, the OEM may be reluctant to disclose latest technology to the IR. When the IR chooses the technology licensing mechanism, it will be in a rather disadvantaged position in the competition. In contrast, joint R&D can avoid this dilemma. The two mechanisms are comparatively analyzed under static equilibrium and complex dynamics from three aspects: (1) the output of new and remanufactured products, (2) the profits of the OEM and the IR, and (3) TEI (total environmental impact) under technology licensing mechanism and joint R&D mechanism, respectively. Based on the theoretical and numerical analysis, we derive that the joint R&D mechanism can achieve a Pareto improvement over the royalty mechanism under certain conditions. The stability, bifurcation, chaos, and largest Lyapunov exponent are analyzed in the dynamic model. Numerical examples show that chaos may cause the OEM and the IR to lose profits or even be in deficit. But from the perspective of TEI, chaos can be beneficial. Interestingly, some conclusions in the static setting are reversed in the chaotic state. We propose a feedback adjustment method to eliminate chaos.

Studying the Incubation of a New Product Market Through Realized and Alternative Histories

In this paper, we contribute to the literature on new market emergence by implementing a “history-friendly” simulation of the incubation period encompassing the decision processes that took place within General Motors (GM), Chrysler, and Ford during the design and development of the first U.S. minivan. Our work offers a “middle ground” alternative methodology for unpacking the “black box” of market incubation processes. Our middle ground approach is useful for exploring the complex interdependencies among four general mechanisms that shape market incubation: environmental shocks that open up new technological possibilities, firm-level capabilities that allow firms to differentially take advantage of these possibilities, various incentives (e.g., product cannibalization, rivalry) that influence a firm’s willingness to exploit new possibilities, and managerial beliefs about the viability of these possibilities. Complex nonlinear interdependencies exist among these mechanisms, and historical contingencies affect the way in which they interact. We identify important historical contingencies within and across GM, Ford, and Chrysler in their precommercialization managerial decisions prior to Chrysler’s introduction of the Voyager and Caravan in 1983. We use the historical details of actual market incubation to calibrate the simulation and develop plausible alternative (both near and hypothetical) histories of that incubation. Understanding why Chrysler, Ford, and General Motors made their respective product commercialization choices not only pertains to automotive history, but can also illuminate the complexities inherent in market incubation processes.

The interplay of brand-line assortment size and alignability in the sales of brand-lines and line-extensions of frequently purchased products

Assortment size is paramount for brand-lines, due to its impact on performance. However, recent experimental research suggests an interaction with alignability: large nonalignable lines might be unfavorable, due to increased complexity and regrets. Using panel data, we confirm this negative interaction for brand-line sales. However, size has a strong positive effect which overcompensates for its negative interaction with nonalignability. Increasing it is always beneficial, even for nonalignable lines. In comparison, store assortment size demonstrates a negative impact on sales, due to the increase in category clutter it causes. We also study size and alignability effects in the case of a line-extension (new product in the same category). Here, the positive impact of line size is thwarted by established brand-line product cannibalization, a phenomenon positively influenced by brand-line strength and alignability. Thus, depending on brand-line strength and alignability strategies, a large size is not always favorable to line-extension sales.

Remanufacturing for Sustainable Development

Sustainable development is the need of the hour as population booms on a planet with a finite resource pool. Employing the process of remanufacturing is essential in achieving this. Busting the myths surrounding the field of remanufacturing by studying the components and characteristics of this process and the obstacles faced by it in the market will ensure the absorption of this methodology in the mainstream, commercial sector. A key aspect of remanufacturing is the close association between remanufacturing opportunities and product cannibalization. This paper touches upon the challenges faced by this sector, like the End-of-Life Product cost, the hindrances in the reverse logistic chain, the perception of remanufactured product quality, to name a few. Acquiring a significant, profitable market share for remanufactured products is decided by elements like Product Acquisition Management, Reverse Logistic Collections, Supply and Demand of remanufactured products. The analyses of two cases, one from the cartridge industry and the other from the PC Monitors industry expound on these elements and their influence on the decision to remanufacture.

Sustainable Decisions on Product Upgrade Confrontations with Remanufacturing Operations

In recent decades, remanufacturing is perceived to be an environmentally friendly option due to the reduced consumption of materials, energy etc. It should be noted that whether the remanufacturing operations are undertaken by the original equipment manufacturers (OEMs) or outsourced to the remanufacturers, given the size and the growth of remanufactured products, many OEMs intend to fend off the potential cannibalization of new products sales through differentiating their quality levels from those of remanufactured ones by launching upgraded versions. To understand whether and how the product upgrading strategy impacts on optimal outcomes in the context of the remanufacturing operations undertaken by OEMs or third-party remanufacturers (TPRs), in this paper, we develop two models that highlight the OEM’s product upgrading strategy under the scenarios where (1) the OEM owns its remanufacturing operations in-house (Model O) or (2) remanufacturing operations are undertaken by a TPR (Model T). Among other results, we find that, from an economic performance perspective, it is more beneficial for the OEM to perform remanufacturing operations in-house; however, from an environmental sustainability perspective, such behavior is not always good for our environment. In particular, when the level of product upgrading is pronounced, the remanufacturing operations undertaken by the OEM are always detrimental to our environment, due to indulging in remanufacturing, as seen in Model O.

Choosing Organic and Healthy Food in Times of Economic Uncertainty: Evidence from Panel Data Analysis in France

Abstract Organic and healthy products are becoming more prevalent in markets worldwide, but limited research investigates how consumers choose among these products. This article considers relationships among price, product quality, assortment, and staff service that might affect consumer product choices, as well as a moderating role of macroeconomic conditions. The most important drivers of a choice of organic over healthy products are assortment and service. This study also reveals a distinction between organic and healthy products resulting from the interaction of marketing variables with macroeconomic contexts, such that crisis periods can prompt the cannibalization of healthy products by organic products.

Does the sequencing of related and unrelated export diversification matter? Evidence from Colombian exporters

How does related or unrelated geographic diversification affect future related or unrelated product diversification of exporting firms, and vice-versa? This question addresses an unresolved debate, and it is important for firms in developing countries that seek to expand their product and geographical markets. Our study contributes to a current debate by highlighting the relevance of the temporal sequence and the relatedness of international diversification. Expanding the classic transaction costs and the resource-based explanations, we argue that organizational learning as well as organizational and sales (in-)efficiencies (notably through resource and product cannibalization, negative transfer and coordination costs) affect the interrelationships between product and geographic diversification. Using a panel dataset of over 14,000 firm-year observations from exporters based in Colombia, we find that (1) related geographic diversification tends to increase future product diversification; (2) related product diversification tends to decrease future geographic diversification; and (3) unrelated product diversification tends to increase future geographic diversification.

Prospective Environmental Analyses of Emerging Technology: A Critique, a Proposed Methodology, and a Case Study on Incremental Sheet Forming

SummaryProspective environmental assessment of emerging technology is necessary in order to inform designers of beneficial changes early in a technology's development, and policy makers looking to fund projects and nudge manufacturers toward the most sustainable application of a technology. Existing analyses often have shortcomings such as failing to consider the environmental impacts in all stages of a product's life cycle; implicitly assuming that the emerging technology will be cost‐effective wherever it is technically viable; and assuming optimistic application scenarios that discontinue long‐established trends in human behavior. In this article, we propose a new approach, complementary to the prospective and anticipatory life cycle assessment literature, addressing the above concerns and attempting to make sense of the large uncertainties inherent in such analyses by using distributions to model all the inputs. The paper focuses on emerging manufacturing technologies, such as incremental sheet forming (ISF), but the issues examined are also applicable to new end‐use products, such as autonomous vehicles. This paper makes use of approaches (such as Bass modeling and product cannibalization considerations) familiar to those in the business community who anticipate market diffusion of a new technology and the effect on existing technology sales. The proposed methodology is demonstrated by estimating the potential environmental impacts in the U.S. car industry by 2030 of an emerging double‐sided ISF process. Energy and cost models of ISF and drawing are used to estimate potential mean savings of around 100 TJprimary and 60 million U.S. dollars per year by 2030.

Product cannibalization and the effect of a service strategy

Product cannibalization can push some consumers to shift their purchasing preferences from new to used products. This is a costly issue for manufacturers, who have to adjust their pricing strategies accordingly to mitigate the negative effect of cannibalization. In this paper, we characterize an atypical channel to examine the effect of product cannibalization within the DellReconnect project. In particular, we investigate how the presence of a Goodwill agency in a second-hand market impacts the business of a manufacturer (e.g., Dell) in a new market through cannibalization, and how the manufacturer reacts to mitigate its effects. We show that even if the manufacturer adjusts its price to decrease the negative effects of cannibalization, this effect is so severe that it always loses some profits. Nevertheless, when the manufacturer provides some additional services to new consumers, the negative effects of cannibalization can be partially overcome.

Optimal Policies for Selling New and Remanufactured Products

Because of environmental and economic reasons, an increasing number of original equipment manufacturers (OEMs) nowadays sell both new and remanufactured products. When both products are available, customers will buy the one that gives them a higher (and non‐negative) utility. Thus, if the firm does not price the products properly, then product cannibalization may arise and its revenue may be adversely impacted. In this paper, we study the pricing problem of a firm that sells both new and remanufactured products over a finite planning horizon. Customer demand processes for both new and remanufactured products are random and price‐sensitive, and product returns (also called cores) are random and remanufactured upon receipt. We characterize the optimal pricing and manufacturing policies that maximize the expected total discounted profit. If new products are made‐to‐order (MTO), we show that when the inventory level of remanufactured product increases, the optimal price of remanufactured product decreases while the price difference between new and remanufactured products increases; however, the optimal selling price of new product may increase or decrease. If new products are made to stock (MTS), then the optimal manufacturing policy is of a base‐stock policy with the base‐stock level decreasing in the remanufactured product inventory level. To understand the potential benefit in implementing an MTO system, we study the difference between the value functions of the MTO and MTS systems, and develop lower and upper bounds for it. Finally, we study several extensions of the base model and show that most of our results extend to those more general settings.

Avoiding the Pitfalls of Reverse Innovation

OVERVIEW:The economic benefits of reverse innovation are intuitively compelling, but this new innovation strategy presents several challenges to established firms, ranging from fears of product cannibalization to not-invented-here syndrome. French ophthalmic lens maker Essilor has experimented with reverse innovation over several projects; an examination of its experiences suggests how the specific challenges of reverse innovation may be anticipated and overcome to allow companies to better leverage the results of their global innovation efforts.

A two-period model of product cannibalization in an atypical Closed-loop Supply Chain with endogenous returns: The case of DellReconnect

In this paper we develop a two-period model of an atypical Closed-loop Supply Chain (CLSC) consistent with the DellReconnect project. In our setting, a manufacturer (Dell) sells new products in the first period and faces the threat of cannibalization in the second period from a Goodwill agency, which collects and refurbishes the manufacturer’s goods and sells them as used products. Surprisingly, and unlike the findings from the marketing literature, cannibalization does not lower the manufacturer’s sales in both periods; however, it does negatively impact the manufacturer’s profits and positively affect the Goodwill agency’s profits. We demonstrate that in an atypical CLSC, a reduction in the price of new products is never sufficient to counter the negative effect of cannibalization. We then introduce an advertising strategy, through which the manufacturer complements its pricing strategy, endogenizes the returns, and positively affects both the new and used product demands. Although the advertising strategy positively influences the product returns, it continues to be insufficient to counter the negative effect of cannibalization. Interestingly, we now find that cannibalization is detrimental even for the Goodwill agency, whose profits decrease when the cannibalization level exceeds a certain threshold. Finally, we show that when a “product resale value” option exists, the manufacturer can convert the cannibalization threat into a business opportunity and increase its profits, independent of an advertising strategy. Thus, the manufacturer should always collect through a Goodwill agency when sufficiently large resale value options exist.

NEW PRODUCT DEVELOPMENT CONSIDERING PRODUCT CANNIBALIZATION, DEVELOPMENT COST AND PRODUCTION COST

NEW PRODUCT DEVELOPMENT CONSIDERING PRODUCT CANNIBALIZATION, DEVELOPMENT COST AND PRODUCTION COST

Managing Cannibalization of Perishable Food Products in the Retail Sector

The paper discusses possible scenarios of cannibalization and how they challenge the retailer's operations. We focus especially on cannibalization of the same product in terms of quality and price. Scenarios of quality and price strategies are presented and based on these a conceptual replenishment model is developed. The paper concludes that the two main challenges for retailers are to optimize profit and to reduce waste. A possible strategy to obtain this may be to introduce dynamic pricing and replenishment decisions

PRODUCT LINE RIVALRY

ABSTRACTWe analyse how product line rivalry by multi‐product oligopolists is affected by market size and product substitutability. We show that the width and degree of overlap in competing product lines is determined by the tension between two effects: the drive to ‘be where the demand is’ and the desire to weaken competition and intra‐firm product cannibalization. Product lines are shown to be wider and more overlapped in large markets and when product substitutability is weak. Our analysis suggests that firms can increase their profits by agreeing not to overlap their product lines.

A zero-sum game approach for estimating cross-elasticity price effects

Too often, product cannibalization effects are ignored or neglected by modelers trying to forecast demand, quantify price elasticities and ultimately optimize prices. The main reason is that, although well understood, cannibalization effects are hard to measure – and even harder to include in optimization algorithms. Given data-scarcity issues with cross-elasticities, the following analysis proposes an alternative solution to the computationally intensive, commonly infeasible problem of dealing with cannibalization effects in price optimization problems. Although the proposed solution approximates cannibalization effects, it can deliver a result in reasonable computational time frames by leveraging a theoretical game framework for calculating Nash equilibrium in zero-sum games.