Blockbuster Video - Failure of Traditional Forecasting
Introduction
From the 1990s to the early 2000s, Blockbuster Video was America's primary movie video rental location. The revolutionary way Blockbuster organized film genres was vital, with isles of movies to choose from and bring to the counter for rental. Blockbuster located its stores strategically to make it easy for its customers to rent a movie spontaneously. The stores had a massive selection of titles, so finding something every family member liked was possible on any evening. One major factor in Blockbuster Video's eventual failure was its failure to change with the times, as many disruptive technologies and changing consumer behaviors caused traditional forecasting methods to fail.
Traditional Forecasting
Traditional forecasting is a quantitative approach that uses historical models to extrapolate into the future (Schultz Financial Group Inc., 2021). While traditional forecasting may work in some circumstances, events can occur that have no similarities with past events and are not accounted for when using traditional forecasting (Schultz Financial Group Inc., 2021). Traditional forecasting is typically better for short-time horizon predictions since it is less likely that something will change dramatically from the past in the short term. In the case of Blockbuster Video, many dramatic exogenous events ate away at Blockbuster's market share (Almeida, 2011). If companies can identify potential exogenous shocks and treat them like opportunities instead of threats, it can change how they respond (Almeida, 2011).
Scenario Planning
Almeida (2011) identifies Blockbuster's decision to treat internet subscription services as a fringe competitor instead of an imminent threat to their survival as a particularly impactful and bad decision. Would proper scenario planning have led to a better outcome for Blockbuster Video? Tidd & Bessant (2020) lists scenario planning as a key success factor in innovation and effective risk management. Arguably, Blockbuster needed innovation and risk management to weather the storm and thrive after disruptive new technology appeared on the scene. Scenario planning would have allowed Blockbuster to consider many potential future outcomes and decide how they might respond to each.
Blockbuster's delayed entry into the internet movie rental subscription market allowed a competitor to gain an insurmountable logistics and competitive advantage (Almeida, 2011). "Initially, Blockbuster executives dismissed Netflix as a threat as they believed the DVD-by-mail business would not appeal to the largely impulse motivated majority of renters and it would only capture a small fraction of the rental market" (Almeida, 2011, p. 15). Scenario planning could have simply asked, "what if the market wants DVDs delivered to their home?" or "what if the market prefers an internet-based subscription service to brick and mortar?" to start the innovation process properly to address the risk that Netflix posed to Blockbuster's market share. Scenario planning could have started the Search phase of the innovation strategy model shown in Figure 2.
Forces Involved
Blockbuster's demise was impacted by technology and social change. On the technology front, the growing popularity of the internet and the strategic placement of distribution centers by Netflix allowed Netflix to deliver to most customers within a day of order by 2003 (Almeida, 2011). Blockbuster's marriage to its brick-and-mortar strategy for so long did not allow it to transition to a Netflix-like model effectively (Almeida, 2011). When Blockbuster finally attempted to deliver movies like Netflix, their logistics simply did not perform as well as Netflix's, leading to customer dissatisfaction (Almeida, 2011). Customers ultimately valued creating a queue of movie rentals with the internet-based Netflix more than they appreciated going into a physical Blockbuster store.
Conclusion
Blockbuster Video may have survived if it had performed proper scenario planning to recognize threats to its market share. Blockbuster needed to innovate to ride through the technology changes driven by the maturing internet; instead, it clung to its out-of-date business model and thought its customer base was too impulsive to do anything different. Scenario planning would have allowed them to play "what if?" with potential future scenarios and risks to give them a shot at addressing the issues and entering an innovation cycle to keep up with what the market wanted. If scenario planning considers the right questions, it can account for the social impact of change. For example, the social impact of the internet-based movie rental business was that the brick-and-mortar movie rental business became obsolete. Blockbuster needed to transition to a new model to survive.
I think scenario planning is essential when a business is uncertain about the future. It is very easy to allow technological advances to creep up on you and make your products obsolete, so it is necessary to keep innovating to stay ahead of the change and maintain market share. Scenario planning feeds innovation by presenting some possible future scenarios that may require new approaches. Recent technological advances in Artificial Intelligence may pose a significant risk to the market share of traditional search engines. It will be interesting to see who innovates, who sticks to the old business models, and who survives.
References
Almeida, J. F. C. R. D. (2011). Blockbuster: the fall of a giant [Doctoral dissertation, Universidade Católica Portuguesa]. UCP. https://repositorio.ucp.pt/bitstream/10400.14/8236/3/Blockbuster%2520Inc..pdf
Schultz Financial Group Inc. (2021, August 20). Scenario planning vs. forecasting. Schultz Financial Group Inc. Retrieved May 5, 2023, from https://sfginc.com/scenario-planning-versus-forecasting/
Tidd, J., & Bessant, J. R. (2020). Managing Innovation: Integrating Technological, Market and Organizational Change, Enhanced Edition (7th ed.). Wiley Global Education US. https://coloradotech.vitalsource.com/books/9781119713197