Does the “blockbuster” strategy still work in a recession, when consumers are counting their pennies and companies are conserving resources?
A pair of Harvard Business School faculty argue independently that, yes, companies that have thrived pursuing megahits shouldn’t stop now.
The blockbuster approach to product development is one in which you put most of your resources into developing a few huge sellers, whose returns carry the rest of the business. In other words, forget the balanced portfolio strategy.
Of course, this isn’t a winning formula for every industry. Egg producers can’t sell just a few great eggs to make a year’s profit. But blockbusters have proven a successful business practice particularly in the entertainment arena, where it is used by large movie studios, book publishers, and video game developers. One Dark Knight can make up for a lot of Love Gurus.
Hit — Or Miss?
So the question arises: As consumers begin to parcel their spending like Scrooge doling out coal to a fire, are big hits less likely to be produced? Are publishers crazy for handing out multimillion-dollar advances to relatively untested authors?
“Rather than putting all its eggs in one basket wouldn’t it be smarter for a publisher to place a larger number of smaller bets — particularly in today’s harsh economic climate?” questions professor Anita Elberse, writing in the Wall Street Journal. Her answer:
“Hardly. Despite its double-or-nothing daring, the blockbuster strategy remains the most sensible approach to lasting success.”
Professor John Quelch agrees, having also written recently on the power of megahits to drive a business.
“More risky than pursuing blockbusters is not to pursue them, to condemn your enterprise to a lifetime of slave labor harvesting the long tail of micro-opportunities rather than imagining, pursuing, and marketing the global solution to an important, widely shared problem.”
According to Elberse and Quelch, the advantages of a blockbuster strategy include:
- The cost advantage of big sellers is huge because the considerable upfront expenses can quickly be made up by the the marginal cost of reproducing and distributing media products.
- A top-selling product provides consumers a cue that they will spend their money wisely. “Because they are inherently social, people find value in reading the same books and watching the same movies that others do,” says Elberse.
- Retailers gain confidence about a product when they see that the company behind it is putting up a considerable investment. Likewise, top talent is attracted to companies willing to invest in people and products.
- In a globally integrated market, blockbuster brands that address common consumer needs are more important than ever.
So even as book retailers come under pressure and book publishers lay off staff, you won’t see the end of the “big bet,” says Elberse.
“Blockbuster strategies are certainly not free of risk, but, in the long run, they beat the alternative of more balanced investment strategies.”
