The loss, or cannibalization, of per-unit profit when a product is discounted.

The term cannibalization is used to describe a lot of different things but, for our purposes, it usually refers to a reduction in per-unit profit when the product is discounted.

Let’s say a florist has a very attractive signature design. The design is attractive enough they can build in a larger margin and sell it at $90, making a larger than usual profit on each unit.

They also know that they would sell more units if the design were priced at $75. Based on spending patterns at their store they know that more people would be willing to pay that lower amount for the design. Each unit would still be profitable, though less profitable than it would be at $90.

Lowering the price would be a good way to increase sales. But it would also mean losing, or cannibalizing, the extra $15 in profit from sales to the people that were already happily paying $90.