Would it ever make sense for a firm to offer a new product line that they know would cannibalize an existing line? Explain your answer.

Expert Answers

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This is a very good question. There are a number of variables that you need to keep in mind.

First, just because a company offers a new product line, it does not necessarily mean that it will cannibalize an existing one. The reason for this is there are different price points and different types of consumers. Finally, there is a global market. Let me give you an example. The Iphone 4s might seem to cannibalize all other iphones, but it has not. The cheaper iphone 3 is still selling well, because not all people need to newest technology. So, what appears to be cannibalizing is actually profitable.

Second, the market might be incredibly competitive at a particular time. For this reason, the goal might be to gain customers even if it means taking a loss. We can see this in many technology/phone companies. They do not mind trimming profits and cannibalizing older models, because they need to gain people. The rationale is simple. When people join a carrier, they tend to stay with them. They can recoup losses later.

Finally, with technology as an example, new products always come out. To survive in an ethos where newer, smaller, and faster sells, you need to keep up or you will soon die as a company. Cannibalizing older lines is just part of the business.


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