One of the challenges of a mature market in the PLC is that, more than likely, eventually the firm will be faced with competition from new style of product. That is, the most significant competitors are going to introduce technology that is quite different in their design/features (while meeting the same underlying consumer need). For example, laptops became a new competitor against desktop computers, due to their advantages of flexibility and portability.
A firm should be aware of this potential new competitor threat from outside the existing offerings in the market. Therefore, it then becomes a strategic question of whether or not we should directly challenge ourselves and introduce new products that cannibalize our existing product range.
The challenge at Apple
This was the challenge that Apple faced when they first introduced the iPhone (which included music player capabilities of their highly established iPod products). At the time, Apple’s main income stream was from sales of iPods and associated revenue from iTunes. So you could imagine that some of the discussion at the time was whether or not it was financially viable to introduce a smart phone at Apple. (Note: Obviously the iPhone has since proved far more successful than probably anticipated, even at Apple at the time – but that doesn’t change the essence of the above discussion point.)
The question was whether or not the proposed smart phone would simply switch sales from the iPod to the iPhone without any significant increase in revenue, yet with an additional increase in the set-up costs of research and development as well as the costs of ongoing manufacturing and logistics.
However, it was reported that Steve Jobs – the then founder and CEO of Apple – famously said words to the effect “if we don’t cannibalize products then somebody else will”.
Note: Keep in mind that this is an organizational culture perspective, which you would generally find in many innovative style companies. However, some, more conservative organizations are more protective of their existing product “cash cows” and are less likely to be willing to cannibalize and challenge their existing product line-up.
This leads to an ongoing management challenge in some organizations, where there is an argument to maintain the status quo and therefore profitability, but at the risk of potential new competitor challenges. Obviously, in the Internet era, we have seen many established organizations significantly affected by their hesitance in adopting new business models – such as traditional newspapers.
Related topics
