How and why companies cannibalize their own products?

Innovative culture is a risk-taking culture - Mike A.

Perhaps I can best answer this question by providing an example. There are two examples of product cannibalization that relate to this post. In 2008 Apple sold more than 22 million iPods.[1]  However the company cannibalized iPod by rolling out the iPhone. [2]  This iPhone strategy provided higher profit margins than their 2008 iPod product margin. In addition, cannibalization of iPod into iPhone and launching a smartphone strategy made Apple the world’s largest smartphone vendor in 4^th quarter 2011.[3]

  

The other example is Gillette. In 1998 they successfully introduced Mach3, the first three-blade razor. [4]  However in 2006 they released Gillette Fusion, a five-bladded razor. [5]  To promote their new product (Fusion) they effectively cannibalized their successful Mach3 series.[6]  The Youtube link below is a commercial produced by Gillette…notice the slogan at the bottom that reads “Why Fusion is better than Mach3”:

http://youtu.be/S8lzOlzJtV0

The link below is a more direct advertising to push Mach3 users to Fusion (showcasing Tiger Woods):

http://youtu.be/CicL-v4hHJM

Below are some questions that need to be asked and answered prior to initiating a product cannibalization: [7]

   

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[1] Dan Moren, Inside Apple’s iPod Sales Figures, Macworld.com, Jan 31, 2008, found online at http://www.macworld.com/article/1131874/ipodsales.html

[2] Adam Lashinsky, Inside Apple: How American’s Most Admired and Secretive Company Really Works, Hachette Digital, Inc., 2012

[3] Business Wire, Strategy Analytics: Apple Becomes World’s Largest Smartphone Vendor in Q4 2011, found online at http://www.businesswire.com/news/home/20120126006752/en/Strategy-Analytics-Apple-Worlds-Largest-Smartphone-Vendor

[4] Gillette - http://www.gillette.com/en/us/Products/Razors/mach3-turbo/mach3-turbo.aspx

[5] Gillette, http://www.gillette.com/en/us/products/razors/proglide/fusion-proglide-power-razor.aspx

[6] Charles W. Lamb, Joseph F. Hair, Carl McDaniel, MKTG 5, Cengage Learning, 2011

[7] Charles W. Lamb, Joseph F. Hair, Carl McDaniel, MKTG 5, Cengage Learning, 2011