It is hard to draw any useful conclusions on cannibalization or halo relationships based on the equilibrium sales alone. Both products are bought somewhat randomly, and the proportional sales of each product are affected by different factors, such as brand, price, and display. This system should be in a kind of equilibrium. Consider a system consisting of only one pair of products during normal sales periods (outside promotions) and with both products in stock.
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The second option for identifying the cannibalization and halo effect in your data is by examining SKU-store-level time series data. If two products are bought more frequently together than they would be separate, they are probably in a halo relationship. The same technique is straightforward for relationships involving the halo effect. The first option is to identify product substitutes and products frequently bought together from receipt-level transactions and loyalty card data using processes such as association rule learning.įor instance, if two products are never included in the same shopping basket or if the preference of a single customer seems to vary between two similar products arbitrarily, there is a high probability that the products are, in fact, substitutes and would, most likely, be in a cannibalization relationship with each other. In the retail business, two useful datasets are often available for this purpose.
Hence, the only practical option is to identify the relationships from historical data using machine learning techniques. Extra-lean ground beef probably cannibalizes similar products, but does it also cannibalize standard ground beef? How about organic extra-lean ground beef?įiguring out all relevant relationships using common sense is not quite as easy as it might first seem, and manually generating and maintaining a list for thousands of products is by no means feasible. The simplest, yet not very practical, way to recognize these correlations would be to rely on common sense and list the potential relationships manually. In order to take cannibalization and halo effects into account in demand forecasting, it is beneficial first to recognize relevant relationships out of millions of possibilities. Identifying the cannibalization and halo effects through sales data This consequence, in turn, is called the halo effect. Consequently, that same sales promotion might decrease or cannibalize the sales of a similar product.Īs an entirely opposite phenomenon, some products, like gin and tonic water, are frequently bought together hence promoting one product may increase the sales of its complement. If two products are almost perfect substitutes for each other, and one is on substantial discount, the promoted product likely ends up in the customer’s shopping basket. It is easy to think of these examples of how sales promotions affect shopping behavior. Will they pick the same brand they used last time or try something else in the hope of making an even better burger? Oh, never mind! Product X is at a 20 % discount, so they go straight to the savings and buy product X instead. When looking at the cabinet, they spot at least 15 options from different brands with varying fat content, all matching the vague criteria on their list.Ī few of the options are organic, and some of the options have already been shaped into burger patties and seasoned. Understanding the cannibalization and halo effects in consumer behaviorĬonsider this: a customer is standing in front of the fresh meat cabinet at their local supermarket with a hand-written sticky note - next item on the shopping list: 2 lbs. This whitepaper discusses these secondary effects of a sales promotion, often referred to as the cannibalization and halo effects and their causes and effects in demand forecasting.
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Disregarding these secondary effects leads to suboptimal planning and prevents planners from reaching the full profit potential of a sales promotion.
The sales promotion of one product may have significant secondary effects on the sales of other products not in promotion – a fact that is often forgotten or left with little attention. However, the successful execution of a sales promotion is possible if and only if the increase in sales volume is accounted for in all phases of the supply chain. Promoting a sale on a product often has a huge impact on the number of its sales overall.
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