When someone proposes a new product that is similar to an older one (“old reliable”), the question is always asked: “How much will this cannibalize ‘old reliable’?” Someone makes an estimate, and then the games begin. You see, the wrong question was asked. It should have been, “Who will cannibalize ‘old reliable’ and how soon?”
I saw how cannibalization can damage a powerful company when done wrong. Rubbermaid, circa the early 1990’s, was the leader in plastic housewares. It dominated many categories, especially at the mid and upper price points. Wastebaskets were one such category. But wastebaskets do not wear out very often. Still, Rubbermaid rightfully felt it must “cannibalize” its own dominant category with new and more fashionable designs. And it did.
The problem that occurred was that there is a finite demand for wastebaskets, and Rubbermaid was dominant in the market. Its new stylish designs cost more to produce and thus sold for higher prices than the older, more mundane products. When it sold new wastebaskets, they were often treated as additions to the retailers’ assortments at higher retail prices. The retail spots for older, plainer and cheaper products remained, but competitors who focused on low-cost functionality cannibalized these. In allowing this to happen, Rubbermaid lost considerable market share—and its dominant position.
In its zeal to cannibalize its own low end products, Rubbermaid ignored an important segment of the market—the low end, value price—to its detriment. Some years later, Harvard Professor Clayton Christenson generalized an explanation for this in his book, The Innovators’ Dilemma. This same problem afflicted many industries, including Christenson’s memorable example of steel making. Nucor steel started making the most mundane and low precision steel products and then methodically kept moving upscale gaining in competence until it virtually owned the U.S. steel market’s premier position.
Contrast this to Apple computer, a company that has masterfully contained proliferation and yet regularly “cannibalized” its products with newer, better ones. Apple, however, innovated in such a way that the “older product” was still “state of the art,” and the newer one, introduced at times just one year later—“advanced the state of the art”—just about the time competitors were trying to copy and compete with the old one.
The key point here is that cannibalization by older products is important, but how it is done, is even more important. There is an attractive trap in the product life cycle curve, which tracks a product’s life from inception to growth to maturity and then to decline. Wise companies begin to “knockoff” their own products before they have reached the late stages of maturity or, worse yet, moved into decline. Rubbermaid waited too long, and then ignored the part of the market it once “owned.” Apple timed its moved earlier, and in doing so, this forced competitors to always be playing “catch up.”
Consider how product life cycles have shortened as technology has accelerated and it can easily be sent around the globe to find the lowest cost, highest quality sources of supply, wherever they might exist. Plan that life cycle carefully, and never ignore the entry-level segment of the market. U.S. automakers conceded that part to the Japanese, and with this foothold, they simply moved up-market with remarkable speed. Like Nucor, they soon occupied leadership positions, and companies that erred like Rubbermaid and U. S. automakers like GM, never fully recovered.
I’ll close with a “formula” that will serve as a reminder of this: PP x 2 ≠ FF.
Translated, this means that Preserving the Past (PP) and Perfecting the Present (PP) does not equal Finding the Future (FF). In fact, the first two PPs consume the scarce resources of Time, Talent and Money, and there is not enough left to either Find the Future (FF)—or Fund the Future (FF).
Either “knock-off” (cannibalize) yourself, or someone else will do it to you!
John L. Mariotti is President and CEO of The Enterprise Group. He was President of Huffy Bicycles, Group President of Rubbermaid Office Products Group, and now serves as a Director on several corporate boards. He has written eight business books. His electronic newsletter THE ENTERPRISE is published weekly. His Web site is Mariotti.net.