Effect of New Product Advertisements to Existing Products

"When introducing a new product into the market, how does it influence existing products of the same company?"

Most companies deploy advertisement activities when introducing a new product into the market in order to achieve its target share or sales. However, a new product's share or sales is gained not necessarily from competitor's products in the market. There is a possibility that an introduction of a new product may indirectly influence existing products of own in a certain manner. For instance, if similar products already exist in the market, a new product may "devour" existing products' share, which is called "cannibalization". On the other hand, there may be cases where the sales of existing products increase by an introduction of a new product, which is called "Halo-Effect".

It is important to achieve the target share of the new product, but if it does gain from existing products of its own company, it can not be considered as a valuable contribution to the total sales. This text introduces an analytical study that illustrates how the introduction of a new product affects existing products in the market.

First, advertising effectiveness prediction models for three elements (entire brand, new product and existing products) were developed using a quantitative approach. Second, predictions are made for how a new product influences existing products. In this case, the indirect influence of the new product advertisement will be calculated through sales predictions derived from each model based on a simplified procedure ("entire brand" - "existing products" - "new product" = "effect of new product").

Subsequently, simulations were conducted by using the procedure and models. Based on an effective flight pattern for the new product, the existing products' sales predictions were calculated for both cases where there is and is no new product ad placement. As for the existing products, if they are affected by the new product, there will be a difference in the two scenarios (Fig. 1). In this case, when the new product is launched into the market, the annual sales of the existing products will decrease by 11% (Fig. 2). In other words, cannibalization will occur.

 

In this case, the result indicated as 11% decrease and the effect of the new product is evaluated to have a quite large impact to the relevant category/product. Therefore, when considering a flight pattern for the new product advertisement, it was crucial to be vigilant on its influence. If the new product advertisement brings "Halo-Effect" to the existing, an optimal flight pattern can be simply applied for the new product. However, the flight pattern was restructured to minimize cannibalization so that the total sales of the company can be maximized for this situation.

Only the flight pattern optimization of the new product was considered in the present study. In spite of the fact, it is also vital to consider other factors (seasonality, competitive environment, distribution, etc.) and marketing measures (the timing of introduction, the use of logistics channel, etc.) that may influence the share/sales in order to expand the company product market.

Written by SPI

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