Demand Group Lift (after Cannibalization) graph
The
Demand Group Lift (after Cannibalization)
graph shows cannibalization effects on the category for the selected metric for each discount level and promotional lever or demand causal indicator.
For example, a smaller discount applied to one product, causing a sales volume decrease of 1,000 units of that product, would lead to a volume increase in other products within the same Demand Group (cannibalization effect). The net volume loss within the category would be less than 1,000 items because of this cannibalization effect. The Cannibalistic graph is intended to provide a qualitative understanding of how discount changes of a given product affect the overall category.
Effects from cannibalization can produce negative curves for unit volume, revenue, or profit in the graph. The following are some examples in which these negative curves may occur:
Unit Volume lift due to promotion: This could be negative in the rare occasion that you promote a very large item (such as 24-pack water) with low promotional lift, which is in the same Demand Group as a small item (such as singles), and there is high cannibalization between the two items. An extreme example could be that a promotion increases the volume of cases by 100 physical units (2400 equivalent units) and decreases singles by 2400 physical units (2400 equivalent units). Therefore, the total Demand Group effect would be -2300 units for promoting this item. In reality, this should happen rarely, and if found, you should evaluate whether the 24-pack of water should be in the same Demand Group as the single servings.
Revenue lift due to promotion: This could be negative due to the example from the unit volume lift above, or when a very high priced item has a low promotional lift and is in the same Demand Group as a low-priced item, and there is a high level of cannibalization between the two. For example, a $10 printer cable is in the same Demand Group as a $100 printer cable. They are completely cannibalistic. You promote the $10 item (display only – no TPR) and get 100 units of lift (+$1000), but 20 of the items are cannibalized from the $100 cable (-$2000). The net effect would be a loss of -$1000. The effect can be more pronounced when TPRs are involved since the promoted item’s revenue becomes lower.
Profit lift due to promotion: This could be negative due to the above two effects, or could occur when a very high margin item is in a highly cannibalistic relationship with a low margin item. For example, a store brand disposable camera is in the same Demand Group as a branded camera. The branded item is $10, while the private label is $9. However, the branded item has a $1 markup while the private label has a $5 markup. If you promote the branded item by putting it on display (no TPR), you may get an increase of 1000 items (+$1,000 in profit), but 500 come from the private label item (-$2500), resulting in a net loss of profit. This effect is more pronounced in the presence of TPRs since a TPR lowers profitability of the target item.
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