How to Manage and Mitigate SaaS Product Cannibalization

To control and reduce the effect of product overlap in SaaS products, SaaS organizations need to make changes and adjustments in the organization’s portfolio, the features provided, and the pricing models. Internal competition occurs when a new software product brings in users who are leaving one of the existing subscription tiers without adding new income. 

This guide provides an overview of a series of statistical methods that allow you to identify overlapping products, divide features, and grow the total addressable market.

In order to select the appropriate response strategy, the company should have an understanding of its growth model through its own evaluation. 

The company should understand what the main objective is: defensive market share maintenance or new Kundengewinnung.

When data suggests competitors are acquiring low-end users, implementing a cannibalization strategy could be relevant for market share. In contrast, in situations of market stability, the portfolio requires powerful competitive boundaries to stop the erosion of market share.

SaaS companies should reply to this question: Is there a new operating system being developed, or is it just about making an existing process cheaper? If the target customers and the purpose are already known, then it is enough to use different pricing and packaging instead of developing a new product.

A structured approach helps businesses to avoid developing too many applications whose total demand is taken up by one single user. This process involves observing the behavior of users, the functionality of the Funktionen, and the workflows surrounding the operations. Using these tools, the team collects information on how existing subscribers use the different modules.  Based on this information, it is easy to identify potential friction points, that is, areas where one application overlaps with the scope of another.

The goal is to create clear boundaries that separate functions into different applications that serve different markets.

To get this done, the product managers need to put together an internal correlation matrix that gives the relationship between the features and the user types. 

For this, it is a prerequisite to have all the logs about the activities of the users, which include the clicks, the duration of the session, and the Funktionen used.  

Organizations also have to consider the percentage of the accounts that are common with the one being added to see if the new product makes the total addressable market bigger or takes it from other existing customers.

Creating barriers between software layers helps in keeping in check the influence of subscribers who may want to downgrade their accounts in case new features are developed.

In this funnel, advanced automation, security, and infrastructure features are typically allocated to the premium pricing tiers.

Companies consider the Kosten der verkauften Waren (COGS) together with the customer’s Zahlungsbereitschaft (WTP) to establish a clear boundary between the prices. Pricing intervals that are very narrow may influence customer preference for alternative products; conversely, very broad intervals could contribute to a perception of a diffuse portfolio. Strategic pricing involves considering the margin of each application relative to the portfolio’s overall margin.

Every subscription plan should be clearly linked to a functional unit of measurement which can vary in the case of database storage, number of users, or the amount of the API.  More specifically, teams should create scenarios or cases where one of the methods is to cut the price or increase the number of features in the mid-tier and see what happens to the Durchschnittlicher Umsatz pro Benutzer (ARPU).

The availability of SaaS applications across multiple storefronts or regions introduces elements that influence revenue, categorized by Vertriebskanal und Kundenstandort. This step outlines a number of issues to avoid, namely the offering of discounts or geographic adjustment of prices to market areas where the full price is charged.

One of the methods used by organizations to control the flow of marketing campaigns designed for low-income areas is to examine their digital distribution channels. The movement of software assets across borders, in situations where operational details for the locations are not fully considered, can involve international users making use of geographic pricing variations. Strategic product tracking facilitates the operation of localized campaigns in conjunction with the main corporate catalog, rather than in a state of divergence. 

To achieve a global pricing harmony, the finance and accounting functions of a company need to convert the local currencies used in different areas of the business into the core margin base. This requires monitoring all payment paths to determine if there are any locations where secondary brands or discounted regional areas are making sales that belong to high-margin areas.

Unregulated grenzüberschreitenden Zahlungen often result in an average of 15-30% reduction in the value of standard contracts, as clients of the company go out of their way to route transactions through cheaper domestic markets.

To achieve a successful deployment of updates or new core systems, a number of factors should be considered, including the timing of their introduction and the retirement of legacy systems. This phase involves the gradual removal of legacy systems and promotion of the use of the new architecture.

Based on previous customer lifecycle factors, the organization can predict how long it will take different groups to move from the old to the new software. Should a company introduce a new product without an intermediate solution for the previous one, existing customers might retain the older software due to obstacles in migrating their data to the new system.

A lifecycle management approach influences profitability by addressing the segmentation of accounts that can occur following new product introductions.

Managers should create a specific SaaS-Produktlebenszyklus Richtlinie that takes into account the cost of the infrastructure with the need to add new features. This schedule outlines the phases in which engineering resources from legacy system product development are transferred to new platform development.

In order to understand if a product launch raises or captures new markets, one last step involves creating financial and usage models and then using them to determine if the new revenue streams are truly new or just replacing an existing revenue stream.

Dieser Prozess umfasst die Betrachtung historischer Verkaufsentwicklungen, Reaktionen auf Werbeaktionen und Muster der produktübergreifenden Migration, um die Leistung des gesamten Portfolios zu bewerten. Bleibt die Wachstumsrate trotz der bemerkenswerten Akzeptanz des neuen Produkts konstant, kann dies darauf hindeuten, dass das wachstumsfördernde Geschäft seine Aktivitäten hauptsächlich aus seinem bestehenden Kundenstamm bezieht. Kontinuierliche Messungen können ein Faktor für die Entscheidungen des Managements bezüglich der Umverteilung von Marketingressourcen weg von bestehenden Produkten sein.

To get the exact picture, the analysts follow the process of acquiring customers and use the standard formula for tracking:

A rate of 0.0 implies that the market growth is being generated by the activity of the entity alone, and a rate of 1.0 shows that the entity is taking over all the existing market revenues.  

If the cannibalization rate of a product is above 0.70  with no increase in the total number of users, then companies should consider removing it. If there are too many overlapping tools in the subscription list, they can be integrated into one product, or the poor-performing products can be phased out.