Estimating Cannibalization Rates for Pioneering Innovations

Harald J. van Heerde (), Shuba Srinivasan () and Marnik G. Dekimpe ()
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Harald J. van Heerde: Waikato Management School, University of Waikato, Hamilton 3240, New Zealand; and CentER, Tilburg University, 5000 LE Tilburg, The Netherlands
Shuba Srinivasan: Boston University School of Management, Boston University, Boston, Massachusetts 02215
Marnik G. Dekimpe: Tilburg University, 5000 LE Tilburg, The Netherlands; and Catholic University Leuven, 3000 Leuven, Belgium

Marketing Science, 2010, vol. 29, issue 6, 1024-1039

Abstract: To evaluate the success of a new product, managers need to determine how much of its new demand is due to cannibalizing the firm's other products, rather than drawing from competition or generating primary demand. We introduce a time-varying vector error-correction model to decompose the base sales of a new product into its constituent sources. The model allows managers to estimate cannibalization effects and calculate the new product's net demand, which may be considerably less than its total demand. We apply our methodology to the introduction of the Lexus RX300 using detailed car transaction data. This case is especially interesting because the Lexus RX300 was the first crossover sport utility vehicle (SUV), implying that its demand could come from both the luxury SUV and the luxury sedan categories. Because Lexus was active in both categories, there was a double cannibalization potential. We show how the contribution of the different demand sources varies over time and discuss the managerial implications for both the focal brand and its competitors.

Keywords: new product; cannibalization; aggregate response models; time-series models; missing data; Bayesian methods; dynamic linear models (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:29:y:2010:i:6:p:1024-1039

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