Measuring reverse cannibalization: Strategic implications for category and product line management
An increase in competition and broader product lines has resulted in cannibalization of product categories. This waste of marketing resources concerns both manufacturers and retailers and has drawn the attention of marketers to the need for effective category management. One strategy to consolidate categories is product elimination. The questions that concern managers are where will the customers of the eliminated brand go and will the customers be captured by the same manufacturer? This dissertation seeks to provide an answer to this question by developing a metric and modeling approach to measure the level of reverse cannibalization and evaluate changes in competitive position as a result of brand exit. This dissertation develops a hybrid reverse cannibalization model that utilizes both customer background information and transactional data to measure changes in competitive position upon the exit of a brand.
A brand draw metric was developed as the ratio of the number of customers drawn by a brand from another brand's core group to the size of the competitor's core group. Bootstrapping experiments with 6, 8, and 10 brands were conducted to test the robustness of the brand draw metric.
A Multinomial Logit model was specified to examine the plausibility of the proportional draw market share model assumption. The violation of the Independence of Irrelevant Alternatives assumption provided support for the finding of asymmetries in brand draws.
The MNL and hybrid models suggest that some brands compete more strongly with sister brands than with competing manufacturer brands. Strategic implications of the model findings are discussed for each simulated brand exit.
The dissertation provides substantive contributions through an enriched understanding of category structures and brand draw effects. The reverse cannibalization model to predict brand choice in the event of a brand exit and the robust brand draw metric that captures asymmetric competitive effects are methodological contributions. The model makes a valuable contribution to marketing practice because it allows marketers to evaluate the potential for strategic changes to product lines through simulated exits.
0310: Business community