Finance has become integrated part of human life Over period of time. Finance deals with all aspects of money such as earning, expenditure and investment of money. Money has emerged as main medium of exchange hence plays a vital role in human life. People purchase goods and services in exchange of money, also adopt different ways to earn it. Different concepts of finance inform us about how to maintain balance between earning and expenditure, wise investment of money in different instruments so that it earns maximum value and investment of money to fulfill future needs. Companies use finance to understand potential profit, forecast revenue and expenditure, understand and minimize business risk etc. Thereby, finance is essential for business as well as for individual. I studied various financial concepts during the semester but cannibalization is my topic of interest. This paper intends to discuss cannibalization and its utilization in my career.
Cannibalization could be described as a strategy that is utilized by a well-established company while launching new product or service in the market. Corporate cannibalization is utilized by the company while launching product that is similar to existing product, in order to increase its customer base, market share, and cater to existing gaps. Cannibalization also helps company by creating threat to the existing competitors. In cannibalization company launches product in the market that is similar to existing product and may cater to the same target market but yields positive results for the company. Company utilizes this concept with a belief that it will harm competitors not company’s own product or market. Cannibalization can also be considered as a gamble because company launches product that is quite similar to present well-establish products and may harm existing products. Despite this fact company utilizes this concept with belief that new product will perform better and generate good sales (Graham and Smart, 2012).
I am perusing graduation in design and management and want to establish my own business in near future. The potential business of my interest is art gallery. It is important for an entrepreneur to understand financial concepts in order to manage business successfully. Different concepts of finance play vital role in success of business as they help in planning, strategy development, operation and revenue management. Effective management of cost and expenditure, revenue maximization, balance-sheet and tax planning are important aspects of business which can be managed by learning finance.
Entrepreneur is responsible to manage all aspects of business including competition, customer’s expectations, and innovations to drive sales and maximize revenue. Cannibalization can be used to all these three aspects of business. In present scenario when no industry is left from competition it is essential to adopt new strategies to attract customers and maintain business growth. Similarly art gallery business is also full of competition and owner is required to adopt practices in order to maintain growth and beat competition (Graham and Smart, 2012).
I will use cannibalization by expanding business through opening art gallery in two to three locations in same city. This will help in tapping customers who do not prefer to walk to distance to purchase art objects. Opening art gallery in very close proximity may not help because of the nature of product. Art products are not meant for mass market, they have specific target market. However two to three locations in different parts of city will not damage sale of existing market but certainly it gives convenience to customers and threat to competitors. Use of Cannibalization concept by opening new store is considered as risk and it is important for leaders or entrepreneurs to take calculative risk in order to increase customer base and attract people who are not shopping at existing location.
Over a period of time e-commerce is gaining popularity due to advancing technology and changing consumer behavior. Customers now prefer to do shopping without leaving comfort of their home; hectic lifestyle and increasing cost of transportation are other reasons to shop online. I will also sale my products online by offering some discounts. This strategy may cannibalize sales of my existing gallery but it will tap all customers who either do not have time to go out for shopping or choose to shop sitting at their homes. Cannibalization due to e-commerce may result in increase overall sale of the company even if sale of outlet goes down.
Another way cannibalization influences business is promotional activities. All discount based promotional activities on art products will adversely impact the sale of non-discounted items. It is normal tendency of consumers to prefer discounted products over products that are of higher price but have same benefits. Such promotional activities are run for small time duration to attract and inform customers about products. Cannibalization due to discounted price brings momentary changes in customer behavior which results in higher sales and also sale of the items that are not sold during normal price (Graham and Smart, 2012).
After conducting above analysis it can be said that cannibalization is an effective financial concept. Cannibalization is very helpful for the people who run or planning to start their own business. Cannibalization influences business performance by adopting different techniques such as business expansion, introduction of e-commerce and promotional activities. All such activities also deal with increasing competition and support sustainable business growth.
John R. Graham and Scott B. Smart. (2012). Introduction to Corporate Finance: What Companies Do. Mason, OH: Cengage Learning.