Whenever a product line or a product family is extended, there is a risk of ________, which occurs when sales of an existing brand decline as the firm's current customers switch to the new product.

Question

BlackTom AI · Accepted Answer

When a firm extends a product line or family, the potential risk to watch for is cannibalization—the scenario in which the new offering draws sales away from the firm's existing products rather than expanding overall demand.
Option 1: product line contraction. This would mean reducing or shortening the product line, which is the opposite of extending a line and would not explain a decline in existing brand sales due to the new product.
Option 2: disintermediation. This term refers to bypassing intermediaries in distribution channels, such as selling directly to consumers, and does not specifically describe a sales decline of existing products caused by a new product.
Option 3: cannibalization. This option directly captures the described risk: the new product competes with and reduces sales of the firm’s current products among existing customers, leading to a net loss in the original brand’s sales.
Option 4: brand dilution. Brand dilution involves weakening brand identity or value due to overextension or conflicting associations, not the direct transfer of sales from one product to another within the same brand family.
Option 5: brand equity. Brand equity refers to the overall value of a brand and its customer perceptions, not to the adverse effect of a new product on existing product sales.
In summary, among the listed options, cannibalization is the phenomenon that best describes sales erosion of existing products when a new product is introduced within the same brand family.

Whenever a product line or a product family is extended, there is a risk of ________, which occurs when sales of an existing brand decline as the firm's current customers switch to the new product.

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