Estimating Sales Shifts and Cannibalization

Cannibalization refers to the loss of existing sales which occurs due to the introduction of a new product or location. For example, if BMW introduces a new automobile, some new car sales will likely be directed away from the purchase of competitive brands, and other new car sales will likely be redirected from the purchase of other BMWs. In this latter case, BMW "cannibalizes" some of its sales from its other models.

Cannibalization can also happen with the introduction of a new retail location. This is the type of sales cannibalization that we discuss in this chapter. If BMW opens a new dealership, the company will probably pull some sales away from competitive dealerships in the area. However, the new dealership will also pull sales away from other BMW dealerships. Using the sales-distance models discussed in this chapter, the amount of cannibalization can be estimated.

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