THE IMPACT OF VALUE BASED LINE EXTENSIONS ON CROSS BRAND CANNIBALIZATION

Abstract

Simba, a salty snacks manufacturer, launched a line extension for low priced market segments. Volume growth was explosive but higher priced product volumes stagnated. A link was inferred between these events and the line extension was de-emphasized. The higher priced product volumes recovered. This study used cannibalization measurement techniques to search for correspondence between the sales execution of the product launch and instances of cannibalization. It was found that frequently the lower priced and higher priced products grew simultaneously, vindicating the segmentation thinking. Cannibalization was strongly associated with abuses of the compensation system and the misapplication of sales service methods. These highly localised but severe instances of cannibalization generated the overall stagnation of higher priced products. The identification of these antecedents to cannibalization enables more accurate execution of price segmentation strategies