Cross-elasticity: cannibalization and the halo effect
Fabrice Decroo
Director of Consulting
August 16, 2026
A price change results in both cannibalization (of substitute products) andthe halo effect (on complementary products). Ignoring this mechanism is equivalent to measuring only half of the actual impact of a pricing decision.
On average, 22% of the increase in sales of a product on promotion comes from a simple shift from other SKUs in the same product line.
Lowering the price of a product doesn’t just affect its own sales—it shifts demand toward—or away from—other items in your catalog. This shift has a name—cross-elasticity—and two sides: cannibalization, which destroys value internally, andthe halo effect, which creates it. Ignoring this mechanism is like setting a price while assuming it exists in a vacuum on the shelf.
Three effects, one phenomenon
Classical price elasticity answers a simple question: If I change the price of product A, how do sales of product A change?Cross-price elasticity poses a more troubling question: If I change the price of product A, how do sales of product B change?
The answer has a sign, and that sign changes everything:
- Positive sign → substitutes. Two plain yogurts from different brands. Lowering the price of one automatically causes sales of the other to drop: this is called cannibalization.
- Negative sign → complementary products. A coffee machine and its capsules. Lowering the price of the machine can boost capsule sales: this isthe halo effect.
A single price change therefore simultaneously leads to cannibalization for certain products and a halo effect for others. Managing prices without considering both of these effects means measuring only half of a decision’s actual impact.
Cannibalization: When One Price Eats Into Another's Sales
Cannibalization is not a rare occurrence—it is the default behavior of a poorly isolated promotion. A study published in an academic journal (ScienceDirect) on the effects of retail promotions shows that, on average, 22% of the sales increase generated by a promoted product format comes from other formats of the same product—not from new customers, but simply from a shift in volume within the same product portfolio.
On average, the increase in sales of a product on promotion comes from other formats of the same product, not from new sales—a shift in volume, not the creation of value (ScienceDirect study on retail promotions).
In categories with high substitution rates (yogurt, laundry detergent, mineral water), the phenomenon goes even further. According to revenue growth management experts, a cannibalization rate of 15 to 35 percent is common in fast-moving consumer goods—and once it exceeds 50 percent, promotions merely shift volume among the company’s own products at a loss, without generating a single euro in new demand.
The catch: this figure never appears in a standard sales report. A 12% increase in sales of the promoted product looks like a success—until you look at the two comparable products, which each saw an 8% decline at the same time.
The Halo Effect: When a Price Cut Benefits Others
The halo effect is the positive counterpart to cannibalization. It occurs between complementary products—where the purchase of one makes the other more likely or more necessary:
- A printer and its ink cartridges.
- A barbecue and charcoal.
- A capsule coffee machine and the capsules themselves.
Lowering the introductory price (for the printer or machine) can generate a higher margin on complementary products (cartridges, refills) than the cost of the price reduction itself. This is one of the few cases where an aggressive introductory price is justified by the numbers, not just by marketing intuition.
Interpreting a cross-elasticity coefficient
The reading principle is simple once you have the sign and the order of magnitude:
- High, positive coefficient: strong substitution. A price drop for A will erode a significant portion of B’s sales—this should be treated as arbitrage, not as a net gain.
- Positive and low coefficient: moderate substitution. The two references coexist to a large extent; the cross-impact remains manageable.
- Negative coefficient: complementarity. This is a signal to use when developing offers or setting an introductory price, rather than one that needs to be corrected.
- Coefficient close to zero: the two products lead virtually independent lives—which is actually rare, except for categories that are very far apart in the catalog.
The most common mistake isn't misreading a coefficient—it's failing to calculate it at all, and treating each SKU as if it were the only one in the catalog—see also our article on how to interpret price elasticity.
How to Identify These Effects in Your Own Catalog
Mapping At-Risk Pairs
Identify products that share a shelf location, a use, or a customer need (such as the same types of yogurt, or a machine and its consumables) before even looking at the numbers.
Analyze cross-referenced promotional histories
Look at past promotions to see what happened with similar products at the same time—not just the promoted product.
Isolate the signal from the noise
Adjust for seasonality, stockouts, and weather effects before concluding that a sales trend is indeed the result of a cross-effect.
Document, not just calculate once
The relationships between products change as the product lineup evolves. A coefficient measured a year ago may no longer reflect the reality of the current catalog.
A Real-Life Example: U Cooperative
At Coopérative U, the platform combines sales forecasts, simple and cross-price elasticities, and cannibalization detection into a single pricing recommendation system—rather than treating each SKU in isolation. The stated goal was not merely to set a price correctly, but to achieve a threefold objective simultaneously: margin, competitiveness, and price image. A price that increases margin but cannibalizes two similar SKUs at a loss fails to meet this objective—even if it appears to do so in an isolated report.
Before approving a price reduction
- Have I identified the interchangeable SKUs that could result in lost sales?
- Have I identified any additional references that could benefit from this?
- Is the net impact (direct gain − cannibalization + halo effect) positive, not just the direct gain?
- Has this coefficient been recalculated recently, or has it been sitting in a table for a year?
Frequently Asked Questions
The questions we're asked most often before getting started.
Simple elasticity measures the effect of a product's price on its own sales. Cross-elasticity measures the effect of a product's price on the sales of another product in the catalog.
The sign of the cross-elasticity coefficient is decisive: if it is positive, the goods are substitutes (cannibalization is possible); if it is negative, they are complements (a halo effect is possible).
Not necessarily: cannibalizing a low-margin product in favor of a high-margin one can be a desired outcome. The problem arises when this isn't identified and skews the assessment of a promotion's success.
By identifying loss leader/complementary product pairs and setting the loss leader price not to maximize its own margin, but to maximize the combined margin of the two products.
No. Focusing first on high-impact pairs (high volume, close proximity in usage or on the shelf) yields the most value for a reasonable amount of effort.
Advanced pricing analytics tools model simple and cross-price elasticities based on historical sales data, but the quality of the results depends directly on the quality and depth of the available data.
Sources: “Estimating Cannibalizing Effects of Sales Promotions,” Journal of Retailing and Consumer Services (ScienceDirect) — sciencedirect.com · RGM Academy, “Cannibalization Rate” — rgmacademy.app · Business Case Booper × Coopérative U (customer case study published by Booper).
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