Cannibilisation Effect

Question

In this case, we are required to calculate the total sales from eCommerce streams in France and Germany respectively.

We are also asked to factor in a “cannibilisation effect", which appears to be the extent to which the eCommerce streams reduce the current sales of the company through other streams.

For this client, we are given that the cannibilisation rate of this new venture into eCommerce is 33%. However, we multiply this 33% by the total sales from our eCommerce venture to get a cannibilisation-adjusted figure of our total gains when this cannibilisation effect is factored in.

However, I thought that the cannibilisation affects our non-online revenues. Therefore, we would need to have the non-online sales and multiply that by 33% first to figure out the loss in sales in physical retail stores and then add this figure with the potential gains from the eCommerce venture to get the total gain/(loss) in entering this new online eCommerce growth strategy venture.

This is evidenced in the Implementation as it mentions one action point as closure of the physical retail stores to facilitate the transition of sales to the e-commerce business. I believe that the cannibilisation takes place from the sales in the retail stores, not from the online stores (since that's the distribution channel that's being expanded and you can't cannibalise the same thing that you're expanding).

Is there something that I am missing in this case or is my point valid?

Answer 1

Dear,

I completely understand your perspective. In reviewing the case, I couldn't find information clarifying the definition of the reported Cannibalization Effect Coefficient in the table.

As a side note, it's always valuable in consulting to ensure clarity regarding the contents of prepared documents, including taxonomy, definitions, and descriptions. This precaution helps mitigate the risk of misunderstandings with clients and internal leadership.

In the context of this case, I interpret the coefficient as representing the percentage of online sales “stolen” from other channes. In simpler terms, if eCommerce generates $100 in revenue, the actual additional revenue generated would be $100 multiplied by (1 - the Cannibalization Effect), as the $100 multiplied by the Cannibalization Effect signifies the portion of eCommerce revenue previously generated by the company through other channels, now redirected to eCommerce.

Hope this helps! Feel free to DM for any further questions.

Best,

Antonio

Answer 2

Hi there!

I actually agree with your point. The case positions it in a rather confusing way.

Make sure that you clarify these points with the interviewer before progressing further with the case.

Sharing with you also a guide that contains all the common terms you're likely to come across during casing:

Expert Guide: The Must-Know Consulting Terms for Interviews

Best,
Cristian

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