![]() Cannibalization RateĬannibalization rate is the ratio of the Revenue lost divided by Total Revenue added. ![]() The cannibalization rate is therefore a very important concept for companies going to launch a new product or a project. The impact of a new product is, therefore, necessary to estimate the profitability of a new product and to see whether it eats away the profitability or cash flows from another project. Business decisions must include the cannibalization effect into consideration because ignoring this may lead to huge losses sometimes.Ĭapital budgeting decisions are taken keeping profitability and market share of products and they should include a holistic approach.Ī new product or project must not negatively impact an already available product or project which is running profitably till the present time. ![]() That means, when a new project or product is launched, it may take the cash flow away from an already running product or project. Product cannibalization is the process in which a new project or product eats away the cash flows earned by an already existing product.
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