In the race to secure new customers and drive revenue growth, companies will often expand their marketing channels. When this happens, an unexpected outcome may arise – despite successful conversions from the new channel, revenue growth remains stagnant.
This phenomenon is known as channel cannibalisation. It occurs when a new marketing channel competes with an existing channel for the same customers. The new channel may experience increased revenue, but it will be accompanied by a proportionate decrease in revenue for the older channel.
It’s a common challenge for growing brands and the cause of consternation for marketing teams the world over.
To solve channel cannibalisation, you first need to understand what’s causing it.
The clash between two channels is most commonly caused by customers shifting their attention to a new channel that might better suit their purchasing behaviours.
A brick-and-mortar outlet that launches an online store, for example, might find in-person sales decreasing as existing customers favour purchasing online.
Cannibalisation can occur between digital channels as well. A company might find their conversions from paid advertising decreasing as its SEO strategy improves. In this situation, the two channels are competing for the same keywords and one is causing the other to be less effective.
The challenge of channel cannibalisation is more prevalent today than in the past as consumers demand an ever-increasing number of purchasing options.
Identifying channel cannibalisation can be difficult without the proper monitoring tools, but there are a few key indicators to look out for.
One of the most obvious signs is a decrease in revenue for an existing channel that coincides with the introduction of a new one. Other signs include a decrease in customer lifetime value or a shift in transactions from one channel to another.
Without proper attribution and sales tracking, however, you’ll find it extremely difficult to pinpoint cannibalisation. At a minimum, ensure your analytics suite can track sales, customer acquisition costs and customer lifetime value per channel.
Regularly monitoring those metrics and comparing them to total revenue is key to identifying channel cannibalisation.
It may be impossible to eliminate channel cannibalisation, but you can mitigate the issue.
Optimising your channel mix so that each channel serves a unique audience or role in the customer journey is one of the most effective strategies. If your SEO strategy is capturing sales from your search ads, for example, you can alleviate cannibalisation by changing your search ad keywords to target different audience segments.
Consider your marketing mix from an omnichannel perspective and you’ll start to see opportunities for your channels to provide unique value in your customer journey. As you alter your channels and reduce overlap, cannibalisation will also reduce.
Understanding channel cannibalisation ultimately comes down to having the right monitoring tools and understanding your customer buying behaviours. If you take a holistic view and regularly measure performance, you’ll be able to identify cannibalisation and maximise revenue across all channels.
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