 Detection and Measurement of Sales Cannibalization in Information Technology MarketsFrancesco Novelli Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL) Abstract: Characteristic features of Information Technology (IT), such as its intrinsic modularity and distinctive cost structure, incentivize IT vendors to implement growth strategies based on launching variants of a basic offering. These variants are by design substitutable to some degree and may contend for the same customers instead of winning new ones from competitors or from an expansion of the market. They may thus generate intra-organizational sales diversion – i.e., sales cannibalization. The occurrence of cannibalization between two offerings must be verified (the detection problem) and quantified (the measurement problem), before the offering with cannibalistic potential is introduced into the market (ex-ante estimation) and/or afterwards (ex-post estimation). In IT markets, both detection and measurement of cannibalization are challenging. The dynamics of technological innovation featured in these markets may namely alter, hide, or confound cannibalization effects. To address these research problems, we elaborated novel methodologies for the detection and measurement of cannibalization in IT markets and applied them to four exemplary case studies. We employed both quantitative and qualitative methodologies, thus implementing a mixed-method multi- case research design. The first case study focuses on product cannibalization in the context of continuous product innovation. We investigated demand interrelationships among Apple handheld devices by means of econometric models with exogenous structural breaks (i.e., whose date of occurrence is given a priori). In particular, we estimated how sales of the iPod line of portable music players were affected by new-product launches within the iPod line itself and by the introduction of iPhone smartphones and iPad tablets. We could find evidence of expansion in total line revenues, driven by iPod line extensions, and inter- categorical cannibalization, due to iPhones and iPads Mini. The second empirical application tackles platform cannibalization, when a platform provider becomes complementor of an innovative third party platform thus competing with its own proprietary one. We ascertained whether the diffusion of GPS-enabled smartphones and navigation apps affected sales of portable navigation devices. Using a unit-root test with endogenous breaks (i.e., whose date of occurrence is estimated), we identified a negative shift in the sales of the two leaders in the navigation market and dated it at the third quarter of 2008, when the iOS and Android mobile ecosystems were introduced. Later launches of their own navigation apps did not significantly affect these manufacturers’ sales further. The third case study addresses channel cannibalization. We explored the channel adoption decision of organizational buyers of business software applications, in light of the rising popularity of online sales channels in consumer markets. We constructed a qualitative channel adoption model which takes into account the relevant drivers and barriers of channel adoption, their interdependences, and the buying process phases. Our findings suggest that, in the enterprise software market, online channels will not cannibalize offline ones unless some typical characteristics of enterprise software applications change. The fourth case study deals with business model cannibalization – the organizational decision to cannibalize an existent business model for a more innovative one. We examined the transition of two enterprise software vendors from on-premise to on-demand software delivery. Relying on a mixed- method research approach, built on the quantitative and qualitative methodologies from the previous case studies, we identified the transition milestones and assessed their impact on financial performances. The cannibalization between on-premise and on-demand is also the scenario for an illustrative simulation study of the cannibalization. Date: 2015-02-04 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:dar:wpaper:74179 Access Statistics for this paper More papers in Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL) Contact information at EDIRC. |
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