Thestar.com is Canada's largest online news site. Stay current with sports, business, entertainment news and more from the Toronto Star. BibMe Free Bibliography & Citation Maker - MLA, APA, Chicago, Harvard. Welcome to the Experience Economy. How do economies change? The entire history of economic progress can be recapitulated in the four- stage evolution of the birthday cake. As a vestige of the agrarian economy, mothers made birthday cakes from scratch, mixing farm commodities (flour, sugar, butter, and eggs) that together cost mere dimes. As the goods- based industrial economy advanced, moms paid a dollar or two to Betty Crocker for premixed ingredients. Later, when the service economy took hold, busy parents ordered cakes from the bakery or grocery store, which, at $1. Now, in the time- starved 1. Instead, they spend $1. Chuck E. Cheese’s, the Discovery Zone, the Mining Company, or some other business that stages a memorable event for the kids—and often throws in the cake for free. Welcome to the emerging experience economy. Economists have typically lumped experiences in with services, but experiences are a distinct economic offering, as different from services as services are from goods. Today we can identify and describe this fourth economic offering because consumers unquestionably desire experiences, and more and more businesses are responding by explicitly designing and promoting them.
As services, like goods before them, increasingly become commoditized—think of long- distance telephone services sold solely on price—experiences have emerged as the next step in what we call the progression of economic value. The Progression of Economic Value An experience is not an amorphous construct; it is as real an offering as any service, good, or commodity. In today’s service economy, many companies simply wrap experiences around their traditional offerings to sell them better. To realize the full benefit of staging experiences, however, businesses must deliberately design engaging experiences that command a fee. This transition from selling services to selling experiences will be no easier for established companies to undertake and weather than the last great economic shift, from the industrial to the service economy. Unless companies want to be in a commoditized business, however, they will be compelled to upgrade their offerings to the next stage of economic value. The question, then, isn’t whether, but when—and how—to enter the emerging experience economy. An early look at the characteristics of experiences and the design principles of pioneering experience stagers suggests how companies can begin to answer this question. Staging Experiences that Sell To appreciate the difference between services and experiences, recall the episode of the old television show Taxi in which Iggy, a usually atrocious (but fun- loving) cab driver, decided to become the best taxi driver in the world. He served sandwiches and drinks, conducted tours of the city, and even sang Frank Sinatra tunes. By engaging passengers in a way that turned an ordinary cab ride into a memorable event, Iggy created something else entirely—a distinct economic offering. The experience of riding in his cab was more valuable to his customers than the service of being transported by the cab—and in the TV show, at least, Iggy’s customers happily responded by giving bigger tips. By asking to go around the block again, one patron even paid more for poorer service just to prolong his enjoyment. The service Iggy provided—taxi transportation—was simply the stage for the experience that he was really selling. An experience occurs when a company intentionally uses services as the stage, and goods as props, to engage individual customers in a way that creates a memorable event. Commodities are fungible, goods tangible, services intangible, and experiences memorable. While prior economic offerings—commodities, goods, and services—are external to the buyer, experiences are inherently personal, existing only in the mind of an individual who has been engaged on an emotional, physical, intellectual, or even spiritual level. Thus, no two people can have the same experience, because each experience derives from the interaction between the staged event (like a theatrical play) and the individual’s state of mind. Economic Distinctions Experiences have always been at the heart of the entertainment business—a fact that Walt Disney and the company he founded have creatively exploited. But today the concept of selling an entertainment experience is taking root in businesses far removed from theaters and amusement parks. New technologies, in particular, encourage whole new genres of experience, such as interactive games, Internet chat rooms and multi- player games, motion- based simulators, and virtual reality. The growing processing power required to render ever- more immersive experiences now drives demand for the goods and services of the computer industry. In a speech made at the November 1. COMDEX computer trade show, Intel chairman Andrew Grove declared, “We need to look at our business as more than simply the building and selling of personal computers. Our business is the delivery of information and lifelike interactive experiences.” Today the concept of selling experiences is spreading beyond theaters and theme parks. At theme restaurants such as the Hard Rock Cafe, Planet Hollywood, or the House of Blues, the food is just a prop for what’s known as “eatertainment.” And stores such as Niketown, Cabella’s, and Recreational Equipment Incorporated draw consumers in by offering fun activities, fascinating displays, and promotional events (sometimes labeled “shoppertainment” or “entertailing”). In the travel business, former British Airways chairman Sir Colin Marshall has noted that the “commodity mind- set” is to “think that a business is merely performing a function—in our case, transporting people from point A to point B on time and at the lowest possible price.” What British Airways does, according to Sir Colin, is “to go beyond the function and compete on the basis of providing an experience.” (See “Competing on Customer Service: An Interview with British Airways’ Sir Colin Marshall,” HBR November–December 1. The company uses its base service (the travel itself) as the stage for a distinctive en route experience—one that attempts to transform air travel into a respite from the traveler’s normally frenetic life. Neither are experiences only for consumer industries. Companies consist of people, and business- to- business settings also present stages for experiences. For example, a Minneapolis computer- installation and repair company calls itself the Geek Squad. Its “special agents” costume themselves in white shirts with thin black ties and pocket protectors, carry badges, drive old cars, and turn a humdrum activity into a memorable encounter. Similarly, many companies hire theater troupes—like the St. Louis- based trainers One World Music, facilitators of a program called Synergy through Samba—to turn otherwise ordinary meetings into improvisational events that encourage breakthrough thinking. Business- to- business marketers increasingly create venues as elaborate as any Disney attraction in which to sell their goods and services. In June 1. 99. 6, Silicon Graphics, for example, opened its Visionar- ium Reality Center at corporate headquarters in Mountain View, California, to bring customers and engineers together in an environment where they can interact with real- time, three- dimensional product visualizations. Customers can view, hear, and touch—as well as drive, walk, or fly—through myriad product possibilities. Companies generally move from one economic stage to the next in incremental steps. In its heyday in the 1. IBM’s slogan was “IBM Means Service,” and the computer manufacturer indeed lavished services—for free—on any company that would buy its hardware goods. It planned facilities, programmed code, integrated other companies’ equipment, and repaired its own machines; its service offerings overwhelmed the competition. But eventually IBM had to charge customers for what it had been giving away for free, when a Justice Department suit required the company to unbundle its hardware and software. The government order notwithstanding, IBM couldn’t afford to continue to meet increasing customer- service demands without explicitly charging for them. Services, it turned out, were the company’s most valued offerings. Today, with its mainframe computers long since commoditized, IBM’s Global Services unit grows at double- digit annual rates. The company no longer gives away its services to sell its goods. In fact, the deal is reversed: the company will buy its clients’ hardware if they’ll contract with Global Services to manage their information systems. IBM still manufactures computers, but now it’s in the business of providing services. It’s an indication of the maturity of the service economy that IBM and other manufacturers now make greater profits from the services than from the goods they provide. General Electric’s GE Capital unit and the financial arms of the Big Three automakers are cases in point. Likewise, it’s an indication of the immaturity of the experience economy that most companies providing experiences—like the Hard Rock Cafe, the Geek Squad, or Silicon Graphics—don’t yet explicitly charge for the events that they stage. No company sells experiences as its economic offering unless it actually charges guests an admission fee. An event created just to increase customer preference for the commoditized goods or services that a company actually sells is not an economic offering. But even if a company rejects (for now) charging admission to events that it stages, its managers should already be asking themselves what they would do differently if they were to charge admission. The answers will help them see how their company might begin to move forward into the experience economy, for such an approach demands the design of richer experiences. Companies should think about what they would do differently if they charged admission.
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