By Leader Contributor Glenn Gould, CEO of MKJ Marketing
Market cannibalization is a loss in sales caused by a company’s introduction of a new product that displaces one of its own older products.
The introduction and growing popularity of e-commerce cremation arrangements have raised the question and discussion of cannibalization within the funeral profession. Many are wondering: “Will families that would have paid the funeral home’s traditional pricing for cremation opt instead for their online offering?”
In other words, why would you sell the same basic product for 75% less online than at your brick-and-mortar facility that uses the same staff, same vehicles, and same crematory?
Surprisingly, funeral businesses don’t often consider this issue when opening branch operations or discount funeral homes, in which case the service is much more similar than that of an online funeral home.
The question isn’t unique to the funeral industry; many businesses address this issue in the advancement of their business.
Special Considerations: When Market Cannibalism Is Unavoidable
Sometimes, market cannibalism cannot be avoided. Every major department store now operates an online store, knowing full well that its sales can only cannibalize its brick-and-mortar business. Their only other choice is to allow internet retailers to continue taking market share away from them.
Amazon is busy opening a chain of convenience stores called Amazon Go. Will the new stores cannibalize the website or Whole Foods? Absolutely, but this is just another step in the process of building a competitive business within every consumer goods market.
Fast-food restaurants, such as Shake Shack and Starbucks, open facilities very close to one another simply because that’s where their customers are. They could stop at one, but with the knowledge that another company will open a similar operation in the immediate area, they aim to be proactive.
Apple is an example of a company that has ignored the risk of market cannibalization in pursuit of larger objectives. When Apple announces a new iPhone, the sales of its older iPhone models immediately drop. However, Apple is counting on its new phone to capture its competitors’ current customers, which will increase its overall market share.
Who is Affected by Market Cannibalization?
Cannibalization fails when the sale of new products diminishes the demand for existing products but fails to increase market share despite sales growth for the new product.
Market cannibalization can occur when a new product is similar to an existing product, and both share the same customer base. Cannibalization can also occur when a chain store or fast-food outlet loses customers due to another store of the same brand opening nearby.
Nonetheless, companies will risk market cannibalization with hopes of gaining a bounce in overall market share. For example, a company that makes crackers may introduce a low-fat or lower-salt version of its brand, or a mayonnaise company may introduce a healthier, olive oil-based product. Some of their sales will be cannibalized from the original brand, but the company hopes to expand its market share by appealing to health-conscious consumers who otherwise would buy a different brand or skip the crackers altogether.
The point being, nearly every business, whether selling to consumers or other businesses, risks cannibalization as it attempts to capture additional market share. In fact, it’s nearly impossible to identify a business that doesn’t engage in marketing cannibalization.
When a funeral home builds a new facility within an 8-to-10-mile radius of an existing facility, they are engaging in marketing cannibalization with the hope of securing the market. In fact, the most successful, independent national funeral businesses have done exactly that. SCI will pay above-market value to acquire a business in a market where they currently have a facility in order to reduce the cost of operation of each by sharing staff, vehicles, and inventory and to secure the market for future business and growth.
But What About Customer Loyalty?
Contrary to what many funeral business owners believe and preach, the loyalty to funeral homes continues, with 60% of adults indicating a preference for a specific funeral home based upon their past experience with the firm. This is much stronger than consumer loyalty to any other consumer product – even to their current church.
The reality is that the traditional funeral consumer places value on meeting with a funeral director, collecting information, and making decisions as a family – none of which is possible with a cremation arranged online. Certainly, a family member may discuss their decision to arrange online, but the decision is already made when they are handing over their credit card number. In contrast, a family sitting together in a funeral home is much more likely to make every decision together.
The obvious fact of the matter is that the individual who will make cremation arrangements online and the individual who will choose to pay a funeral home’s cremation price for disposal are not the same people. Their expectations are different and so is their behavior. Further, there are many choices available. It’s not a matter of the full funeral home price or the e-commerce price; there are many discount options available in every market.
Why Focusing on Your Digital Presence Matters
Approximately 81% of consumers will research a major purchase online before selecting a provider. For most consumers, deathcare services represent a major purchase – if not financially, then at least emotionally.
Google searches with the phrase “funeral home near me” have increased dramatically over the past five years and represent the best growth opportunity for most funeral businesses. Internet searches are most likely to be conducted by true shoppers, whether they are new in the community or if they have a good reason not to return to the funeral home they used previously. They conduct a Google search because they are looking for a solution.
Search engine algorithms present the best matches. Search engine optimization and pay-per-click advertisements are how the algorithms find these sites. It’s true that some firms can rank high on Google searches without optimization; this occurs naturally when a particular firm will have a very high market share in a relatively small community.
Similarly, an e-commerce cremation arrangement website will rank higher on Google searches than a typical funeral home simply because the site is dedicated to a single service: cremation. Just like Google prefers websites that have a strong cellphone application, they also prefer a website that speaks directly to the searcher’s request.
Businesses in or near large cities need optimization to rank in Google searches. With so many direct disposal options available in every market, if the consumer wants a minimal service, they don’t have to look too far or too hard. If they do end up using an online business, then it’s a gain – not a loss.
Want to learn more about market cannibalization? MKJ’s 2020 Marketing Summit will teach you how to attract minimal cremation customers without cannibalizing your full-service business. It’s one of many topics that our expert speakers will cover. Whether you prefer the beach or the slopes, MKJ offers the Summit at two different upscale resorts so guests can experience their favorite location – or both. Click here to learn more.