Substantial Internal Cannibalization for Incremental Models

Excitement and anticipation usually accompany the launch of an all-new, incremental model. How many new customers will we get? What competitor(s) will we hurt? Wait until everyone sees our gorgeous new car/crossover! And so on.

Yes, incremental new models do add volume, their goal by definition. But how much? Soon after launch brands are quick to tout how many competitive owners have switched: "We are pleased to say that 70% of our buyers are from outside the brand," is a typical comment during launch.

IHS Markit reviewed new vehicle registration and loyalty data for twenty-one incremental models launched in the United States from 2017 through the first half of 2021. The data reveal that industry-wide, more than half of an incremental model's registrations in its first six months on the market are actually deliveries to same-brand owners, generally referred to as cannibalization (see table below). Specifically, 52% of conquests by incremental models in their first six months on the market are same-brand households, including 53% for mainstream models and 43% for luxury models. These high results are driven in part by brand advocates who frequently already have a vehicle from that brand in the garage and, having anticipated the arrival of a new car or light truck for months, are quick to visit the dealer and take delivery.

As these die-hards eventually all acquire the new product, brand loyalty gradually declines and eventually reaches an equilibrium that reflects natural demand for that product. As shown above, brand loyalty begins to decline in the second six-month period that the incremental model is available, with overall loyalty dropping to 51%, including mainstream models at 52% and luxury products at 40%.

Another characteristic of market dynamics during launch of an incremental model is that models contiguous to the new model in either size, price, body style, or a combination of these attributes usually suffer the greatest cannibalization.

Again, IHS Markit data demonstrate that this is the case. For all the incremental models listed on the table below except the sporty vehicles (Supra, Mach-E and Bronco Sport), the number one conquested model is positioned next to the new product.

Not only do the data mentioned above suggest that internal cannibalization by incremental products may be higher than one would think, but these data also provide benchmarks with which brands can compare the internal cannibalization of their upcoming incremental models and determine if they are at, above, or below, historical trends.

Posted 08 September 2021 by Tom Libby, Associate Director Loyalty Solutions and Industry Analysis, Automotive, IHS Markit