Excerpted from HBS Online, “Long-Tail Economics? Give Me Blockbusters!”, John Quelch
September 10, 2008
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The importance of blockbusters has been challenged recently by Chris Anderson’s long tail theory that you can make money in many creative industries by selling specialized products to niche markets identified via the Internet.
For example, the new CEO of GlaxoSmithKline, the pharmaceuticals giant … worries that a company is at risk if sales depend too much on one or two megabrands that could run into lawsuits from generic competitors or regulatory challenges.
On the other hand, the president of Warner Bros. (think Batman) aims “to take advantage of what has become a very global market by focusing on bigger films that require a bigger commitment.”
The pharmaceutical and entertainment industries are similar. R&D costs in both are high. Results are unpredictable. Drug research initiatives often result in dead ends but occasionally lead in an unexpected direction to a blockbuster result. Some big budget movies are flops, others are sleepers, still others meet expectations.
Of course, any company needs a portfolio of development projects, some with predictable sales results, others more risky. The former pay for the company’s daily bread and butter and fund R&D on future blockbusters.
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.
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What then makes a blockbuster? Here are the Five S’s, the five defining characteristics of blockbusters.
Sheer size. A blockbuster has a transformational impact on a company and an industry, often opening up new markets worldwide. Blockbusters break sales records and exceed expectations. Around 100 pharmaceutical brands exceed $1 billion in annual sales. Procter & Gamble has 23 such brands.
Speed. It’s not just the sales volume; it’s the speed of the sales trajectory. Remember that the original blockbuster was a bomb that could destroy an entire city block. Blockbuster brands address pressing consumer needs so well that they often enjoy vertical sales liftoff.
Scarcity. A blockbuster brand is often in such high demand that stock-outs and shortages occur in the market. Remember the consumer lines to buy the new iPhone?
Sustainability. A blockbuster brand is not a one hit wonder. It is a gift that keeps on giving. Look at the seven Harry Potter books and five companion movies. Adding DVD and merchandise sales, theme parks, etc., Advertising Age valued the Potter economy at $15 billion.
Sizzle. A blockbuster does not just address an important need. It does so in an exciting and accessible way. Pfizer’s Lipitor was not the first cholesterol reducer but superior marketing and sales made Lipitor number one.
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Full article:
http://hbswk.hbs.edu/cgi-bin/print?id=6014
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