Cannibalisation: measure what the new offer actually displaces.
Answer:
Cannibalisation is not the percentage of customers who choose the new product. It is the economic value displaced from existing offers. It depends on transferred volume, lost margin, genuinely new customers, price, variable cost and the effect on retention.
Decision:
Launch, resize or defer a new offer according to its net contribution after internal transfers, rather than gross revenue.
Principles:
Separate new customers, frequency increase, reactivation and transfers from each existing offer. Value a transfer using the margin of the offer it leaves, not revenue. Measure the migration horizon: measuring too early can overstate durable cannibalisation, while measuring too late can hide established erosion.
Method:
Assign every sale to a mutually exclusive origin: new demand, transfer A, transfer B, purchase brought forward or recovered competitive volume. Multiply displaced units by the contribution that would have been generated without the launch. Deduct listing, production, support, launch discount and assortment-complexity costs. Then calculate the maximum transfer rate compatible with positive net contribution and compare it with a plausible range.
Worked example — 12,000 sales create only €26,600.
The new offer sells 12,000 units with €18 unit contribution. 35% come from offer A with €22 contribution, 15% from offer B with €15 contribution, and launch costs €70,000. Gross contribution is 12,000 × €18 = €216,000. Displaced margin is 4,200 × €22 + 1,800 × €15 = €119,400. After €70,000 launch costs, net contribution is €26,600. The launch stays positive but fragile: eight more points transferred from A would almost eliminate the gain, so deployment must remain gradual.
Decision rules:
Volume origins are exclusive and add up to 100%; each transfer uses the contribution of the abandoned offer; the maximum acceptable cannibalisation rate is published; the test measures new demand and retention as well as product mix.
Limits:
Intention surveys imperfectly identify what would have been bought without the new offer. Stock-outs, promotions and distribution changes can distort transfers. Long-term portfolio value can justify deliberate cannibalisation that a short-term calculation penalises.