Brands Need to Embrace AI to Remain Relevant With Ever-Changing Consumers

Blockbuster serves as a stark cautionary tale

An unwillingness to adapt and embrace AI is what ultimately led to Blockbuster's demise and Netflix and Redbox's rise.
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At its peak in 2004, Blockbuster had over 9,000 stores in total. In 2011, the last store was bought by Dish Network, putting the neighborhood video rental company out of business. Redbox and, finally, Netflix won the market.

Blockbuster wanted customer growth as much as any other business. So why did Redbox and Netflix send them to the great beyond? Because Blockbuster didn’t want to change in the ways necessary to scale and reach a new kind of customer that wanted an innovative new rental experience.

You can certainly argue that they missed the internet boat. But there’s a more obvious point here: They scaled to the maximum possible size for retail rental videos and refused to grow into a new rental paradigm. It wasn’t impossible, but it did require change. It was perceived as too big of a leap.

Blockbuster is a classic case of the Innovator’s Dilemma and the truth that businesses rarely change. Markets change, customer preferences change, but businesses are bad at change.

AI allows companies to explore the new channels and initiatives, and even test at scale, without betting the entire business or sacrificing current successful strategy.

The challenge, of course, is how to cultivate innovation while holding on to leading market share. It’s a matter of scaling into new opportunities without risking the entire business, of being adaptable to changing market and customer demands lest they take you by surprise. With any successful, long-term company growth comes small moments where brands must make the leap to entirely new paradigms that match new market realities and customer needs.

At the most fundamental level, AI can help companies break free of the Innovator’s Dilemma, to shortcut it and turn market challenges into market opportunities. AI allows companies to explore the new channels and initiatives, and even test at scale, without betting the entire business or sacrificing current successful strategy.

Room capacity is full

In today’s technological landscape, consumer preferences are more dynamic than ever. Channel-switching is at an all-time high, and new avenues of engagement are constantly being introduced. Your customer base is going to grow naturally, if you let them.

In Blockbuster’s case, their customers made the leap first to the convenience of Redbox’s self-serve and Netflix’s home delivery models, and then to digital altogether. People didn’t stop watching movies, and the way they consumed them didn’t even really change that much. But the distribution model and customer expectations of convenience sure did.

Blockbuster’s refusal to move outside of the retail rental model meant that they could not only not meet their expanding customer base, but also that they lost the customers who had already moved on to the new paradigm. They failed to scale to the channels and points of experience, and by the time they began moving in that direction, their customers had already left them behind.

From Blockbuster’s point of view, these new business models that seem obvious to us today were only a few of many potential competitive threats. They had to make decisions on where to innovate and what channels to pursue. Today, though, those decisions don’t need to be so dramatic or inalterable.

AI allows companies to make incremental leaps at innovation—to iterate, test and experiment, but in meaningful ways. And the brands that will thrive in the AI era are the ones who are actively finding the places and moments that customers need them the most so that when the market does shift, the brand is already there leading the way.

De-risking the leap

Making these leaps, be it to different channels or new initiatives altogether, can be scary for any business. AI reduces the risk of making that leap to new market paradigms by eliminating the need to reassign expensive business talent to big initiatives.

There are plenty of creative ways to test new business or product ideas. The best way, inarguably, is to build the thing and see if they come. But despite all of the propaganda and business self-help advice, it can be intimidating to bet your brand on something new or untested.

Instead of the expensive restructuring, AI allows businesses to have small innovation teams to petri-dish new initiatives and grow them if they show promise. (Editor’s note: One of Hypergiant’s investors is Beringer Capital, the owner of Adweek.)

Consider if Blockbuster had been able to try their hand on new customer paradigms without ripping down their brick-and-mortar. They may have been able to lead in the movie rental distribution shift rather than be buried by it.

It doesn’t need to be rip and replace. To point to a more successful example, TGI Friday’s (full disclosure, they are a client) is leveraging AI to test a new mixologist and dip their toe further into the bar and nightlife scene. Are they betting their business? No. Are they creating the potential to meet customer needs, expand into a new market and scale deliberately? Yes.

The advantage of AI is that it allows for continual and rapid data inputs about your customers, such as how they want to interact with your brand and their expectations. It allows you to analyze and adjust initiatives quickly and at scale.

And as your business grows and inevitably expands into new markets, projects and customer segments, it becomes radically easier to deploy these initiatives with minimal risk and capitalize more quickly on success. Likewise, the data powering your AI interactions and solutions then becomes a powerful indicator of new market opportunities and possibilities that maybe haven’t even been recognized yet.

The businesses that fail to make these leaps at new junctures of scaling are the ones that get left behind and die. Blockbuster succeeded when they made the leap to DVD rentals. They succeeded with new models of rental schedules and payments. They failed when they refused to make the leap to a self-serve model and even further when they refused to give up their physical footprint for the reality of the digital-first world.

They reached the ceiling of the retail rental market, and they plateaued. Eventually, that model died entirely, and Blockbuster was left with 100 percent share of a nonexistent market.

Yet this Innovator’s Dilemma doesn’t need to exist in the age of AI. You can test new channels, anticipate new paradigms and pursue opportunities with minimal risk. Many will fail to take hold, of course, but even so, the data gathered through these initiatives executed through AI will be valuable. And most importantly, the diversifying and experimentation of AI prevents the need to risk your entire business model on market bets.

As a brand marketer in the age of AI, your job description necessarily changes. You have always been the steward of the brand, but now your role shifts from generating awareness to scaling with a dynamic and constantly evolving market.

Be brave. Be the innovator.