What is cannibalization in the context of product sales?

Cannibalization in product sales refers to the phenomenon where a new product introduced by a business takes sales away from one of its existing products. This scenario often arises when the new offering is similar to or serves the same market segment as the original product, leading customers to choose the newer option instead of the established one. This reduces the market share or revenue of the original product, even though overall revenue for the company might remain stable as a result of the new product's launch.

Understanding cannibalization is crucial for businesses as it helps them assess the potential impact of introducing new products on their existing product lines, allowing for more strategic planning in marketing, inventory management, and product development. It can also highlight the importance of differentiating new products sufficiently to avoid undermining the performance of existing products.