Beware Cannibalization

Let’s walk through a scenario where you have two methods that are bringing customers into your business.

First, if you have one method of bringing in business and let's say that it works reliably and productively, and it's very profitable, maybe bringing in new customers at a two to one or three to one or four to one front end profit (in other words, every dollar you spend, you get four back and you get a new customer).

And you have second method that brings in new customers pretty reliably, but it only brings them in at breakeven so that every dollar you spend, you get your money back, but you get a new customer.

Anytime you can acquire new customers at break even or better, you should dance in the streets. But the temptation is to only do the first one and drop the other, but that is a dangerous temptation, not a very smart temptation.

So any method that gives you a new customer at breakeven or better, you should keep doing it. As long as it's not cannibalizing the better one, and if they can all coexist without any cannibalization, you should do them all. And you should do as many of them as you can find.

I talked to another client once who was using broadcast fax to generate all his leads, which may be a bit old-school but he was creative, and his lead cost is way, way, way down. And he's very excited about all that.

So he stopped doing his trade journal ads, because it costs four more times as much to get a lead from the trade journal as it does with the broadcast fax. But it's profitable running the trade journal ads.

I said, “no, no, no, no, no” Keep doing that!”

Do the broadcast fax as much as you can, but don't stop trade journal ads because the other works better. Trade journal ads work. Okay, keep it working! And if you can have 10 things all with varying degrees of profitability, but all acceptable, then do all 10.

Let me give you an example of cannibalization and when it’s bad.

In short, if the higher cost method of getting business steals prospects from the low cost method, then, you'd have to think twice about doing them both. But if one is not treading on the other’s territory, then they're bringing you two completely different sets of prospects and you want to do both, even if there's little cannibalization.

There's also the issue of whether you wanna buy speed.

So here’s a corollary to this idea, because you should be testing the limits of your potential cannibalization. I had a client for years that ran full page ads in a collection of about a dozen magazines a month. And what we discovered is you could put two full page ads in the same magazine, separated by pages that looked different, and while you didn't get double the response, you got almost double the response. And both were profitable.

The same person answering both ads was under 10% of the total prospect base, so little duplication or cannibalization. So under those circumstances, would you do it or not do it?

Well, you’d do it. And the next thing you test is what happens if you do three ads, because you're not stealing money from yourself. Now, once you're stealing money from yourself, then you gotta think twice about that.

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