Cannibalisation can occur when a new store or sales channel is introduced, which then steals (or cannibalises) customers away from an existing store, leading to a reduction in sales volume or market share of that existing store.
Understanding the magnitude of cannibalisation before a new store or sales channel is introduced is critical. There is little point in opening a new store if the majority of sales or customers are going to be cannibalised from existing stores.
At the same time, being too conservative can stunt network growth, and potentially leave a brand vulnerable to cannibalisation from competitors instead.
Cannibalisation Impact Assessments are Critical for the Franchise Sector
Cannibalisation is an important consideration for any business, but even moreso for franchised networks.
Franchisors that undertake due diligence, and provide supporting information on any decision that could impact on a prospective or existing franchisee become franchise systems of choice. Undertaking due diligence before a new store is opened reduces the likelihood of having disgruntled franchisees, or even worse, potential litigation.
Geotech Information Services have a proven method of undertaking cannibalisation impact assessments to estimate the magnitude of cannibalisation before decisions are made, and so that the right decisions are made. This can assist businesses get the balance right between having too many and too few stores within their network.
Cannibalisation Impact Assessments - Real Results, Proven Method
A few years ago, a major franchise system used to undertake costly and time consuming exit surveys to estimate the potential impacts of cannibalisation on their existing store network before opening a new store. This was done by surveying customers at existing stores and asking “If we opened a store in X, would you go there instead?” Results were then collated and estimates on cannibalisation were made. This was a very costly and time consuming exercise.
Geotech Information Services undertook a project for the major franchise, and built a cannibalisation impact assessment model, that was proven to be a lot more accurate in simulating and assessing real customer behaviour. There was also the added benefit of the cannibalisation impact model providing the answer in a third of the time, and for a small fraction of the cost of the exit surveys. The cannibalisation impact assessment model is now used every time they consider a new site, before the site is committed to.
Geotech Information Services can assist with prediction modelling and sales forecasting. This, coupled with a cannibalisation analysis, will assist businesses understand the full net gain from introducing a new store into the network.