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The term "Experience Economy" was first used in a 1998 article by B. Joseph Pine II and James H. Gilmore describing the experience economy as the next economy following the agrarian economy, the industrial economy, and the most recent service economy. The concept had been previously researched by many authors.

Pine and Gilmore argue that businesses must orchestrate memorable events for their customers, and that memory itself becomes the product: the "experience". More advanced experience businesses can begin charging for the value of the "transformation" that an experience offers, e.g., as education offerings might do if they were able to participate in the value that is created by the educated individual. This, they argue, is a natural progression in the value added by the business over and above its inputs.[1]

Although the concept of the experience economy was initially focused in business, it has crossed into tourism, architecture,[2] nursing, urban planning and other fields.

The Experience Economy is also considered the main underpinning for customer experience management.

Contents

History of the conceptEdit

This kind of behavior in a society has been observed and analysed much earlier by various authors and researchers. A good example can be found in the pioneering book of futurists Alvin and Heidi Toffler, Future Shock, first published in 1970, which Pine and Gilmore quote in their work. The Tofflers discuss rapid change in American society and explore ways for humans to adapt. In Chapter 10, The Experience Makers, they say that an economy is being created geared to the provision of psychic gratification, that a process of "psychologization" finds place and humans will strive for a better "quality of life". Manufacturers of goods will add a "psychic load" to basic products, the psychic component of services will expand and we will witness the raise of experience industries whose sole output consists of pre-programmed experiences, including simulated environments that offer customers a taste of adventure, danger, or other pleasure.[3]

In the early 1980s consumer behavior researchers had begun to question the hegemony of the information processing perspective on the ground that it may neglect important consumption phenomena like daydreams and emotional responses. Morris Holbrook and Elizabeth Hirschman argue in their paper "The Experiential Aspects of Consumption: Consumer Fantasies, Feelings, and Fun" for the recognition of experiential aspects of consumption. [4]

In 1992, German sociologist Gerhard Schulze researched inhabitants of the city of Nürnberg and did observe a new way of living where basic needs were covered and people merely were striving for a "nice living ("schönes Leben"), experiencing life ("er-leben"). Schulze did summarise his findings with the wordings "Experience Society" in his book Die Erlebnisgesellschaft, which was translated into English as "The Experience Society" in 1995.[5][6] In the experience society people behave differently as consumers. A transformation finds place from the need for goods that are generally useful or functional, to a need for goods that deliver an individual experience. Demand and offerings for these experiences meet at the "Experience Market" ("Erlebnismarkt").

In 1996, Danish researcher Rolf Jensen of the Copenhagen Institute for Futures Studies writes in his article The Dream Society for The Futurist that American society is yielding to a society focused on dreams, adventure, spirituality, and feelings where the story that shapes feelings about a product will become a large part of what people buy when they buy the product. Jensen framed this trend as the commercialization of emotions. "In 25 years, what people buy will be mostly stories, legends, emotion, and lifestyle."[7]

Experiences as a Commodity in the Internet AgeEdit

With the consumer trend of minimalism (of ownership) growing among millennials, they are investing more in satisfying experiences: vacations, live performances (concerts, sporting events, theater), adventure, educational activities, and volunteerism.[8][9][10] Those who market to millennials recognize that they are more interested in buying experiences than they are products.[11][12][13] Case Lawrence, an outspoken proponent of the emerging experience economy, says, "People want to do things. They want to have adventures, narrative, and meaning in their day and their activities."[14] One factor driving this demand is social media - specifically the interest in posting documentation of the given experience on social media sites.[15]

Stages of marketing a product or serviceEdit

A core argument is that because of technology, increasing competition, and the increasing expectations of consumers, services today are starting to look like commodities. Products can be placed on a continuum from undifferentiated (referred to as commodities) to highly differentiated. Just as service markets build on goods markets which in turn build on commodity markets, so transformation and experience markets build on these newly commoditized services, e.g. Internet bandwidth, consulting help.

The classification for each stage in the evolution of products is:

  • A commodity business charges for undifferentiated products.
  • A goods business charges for distinctive, tangible things.
  • A service business charges for the activities you perform.
  • An experience business charges for the feeling customers get by engaging it.
  • A transformation business charges for the benefit customers (or "guests") receive by spending time there.

Proceeding to the next stage more or less requires giving away products at the more commodified level. For instance, to charge for a service such as new car warranties, one must be prepared to give away new cars to replace "lemons". And to charge for transformations, one must be prepared to risk not being paid for the time one spends working with customers who don't "transform".

Pine and Gilmore draw on Walt Disney, AOL, Nordstrom, Starbucks, Saturn, Kanye West, IBM and many others as examples.

Staging experiences as a business strategyEdit

Pine and Gilmore illustrate the natural economic development of the evolution of products shown above in their model known as "The Progression of Economic Value”.[16]. As a product shifts up the ladder of evolution, as it becomes more customized and individualized to each customer, it simultaneously increases in value. Customers are willing to pay more for experiences as they have greater perceived value than commoditized goods or services [17]. With a growing focus on ourselves and our own enjoyment, growth and self-realization, customers want to do and feel than to have and own, to a greater extent than ever before [18] [19]. A meaningful experience can be multisensory, positive, comprehensive and memorable. Such experiences leave a long-lasting impression and thus lasts long after a product or service is consumed.

To stage memorable experiences, Pine and Gilmore developed their model called “The four realms of an experience” which highlights four different dimensions of which an experience can exist. The four dimensions are educational, entertainment, esthetic, and escapist.

  • Educational: participants in an educational experience wants to learn, gain skills and abilities. Educational experiences demand an active participant who absorbs the experience in order to gain the desired learning outcome.
  • Entertainment: participants in an entertainment experience wants to relax, enjoy and have fun. Entertainment experiences are usually absorbed from a distance while the participant remains passive and have little impact on the experience itself.
  • Esthetic: participants in an esthetic experience wants to “just be”, typically in an aesthetically pleasing setting. An esthetic experience is appreciated passively while being immersed[disambiguation needed] in an environment. Immersive experiences have an ability to surround the participant, as opposed to absorbing the experience, for instance through a TV or teacher, from a distance.
  • Escapist: participants in an escapist experience wants to go and do. An escapist experience has active participants who are immersed[disambiguation needed] in the experience.

An experience can consist of one or more of these dimensions and can be combined in a multitude of ways, for instance the phrase “edutainment”. To build a most comprehensive, rich and engaging experience, according to Pine and Gilmore, the experience must consist of elements from all four dimensions. This is defined as an experience’s “sweet spot”[20]. Such experiences entice customers to go and do, to acquire knowledge and skills as a result, to be themselves and enjoy their surroundings while having fun. Experiences of this kind has the biggest impact and creates long lasting impact and memories. Businesses may be able to charge more for such engaging experiences as they have a higher perceived value for the customer.


CriticismsEdit

Pine and Gilmore's thesis has been criticized as an example of an overhyped business philosophy that emerged from the dot-com bubble during a period in which a rising U.S. economy was tolerant of high prices and inflated claims and imposed no limitations of supply or investment. Detractors contrast it with other service-economy theses, such as that laid out in Natural Capitalism, which places a clear focus on making measurably better use of scarce resources, usually considered to be the basis of economics. They claim that service management should stress efficiency over effectiveness.

The thesis has also been criticized from within the fields of tourism, leisure, and hospitality management studies, wherein well-established theories on the role of experiences in the economy went unacknowledged by Pine and Gilmore. Although continuing to influence business thinking, the concept has already been superseded within the service marketing and management literature by the argument that the value of all goods and services is co-created or co-produced through the interaction between consumers and producers. According to this view, therefore, at one level of abstraction, all consumption can be understood in experiential terms.

ReferencesEdit

  1. ^ Pine, J. and Gilmore, J. (1999) The Experience Economy, Harvard Business School Press, Boston, 1999.
  2. ^ Lonsway, Brian. (2009) "Making Leisure Work: Architecture and the Experience Economy," Oxford: Routledge Press.
  3. ^ Toffler, Alvin & Heidi (1970). Future Shock. Toronto New York London: Random House (1970) Bantam Books (1971). p. Chapter 10. ISBN 0553101501.
  4. ^ Holbrook, Morris; Hirschman, Elizabeth (Sep 1982). "The experiential Aspects of Consumption: Consumer Fantasies, Feelings and Fun". The Journal of Consumer Research. 9 (2): 132–140. Retrieved 1 May 2018.
  5. ^ Schulze, Gerhard (1993). Die Erlebnisgesellschaft: Kultursoziologie der Gegenwart. Frankfurt am Main/New York: Campus-Verlag. pp. 52–54, 58–60, 417–457, 735 ff. |access-date= requires |url= (help)
  6. ^ Campus-Verlag. "Die Erlebnisgesellschaft". Campus-Verlag. Retrieved 30 April 2018.
  7. ^ Jensen, Rolf (May–June 1996). "Dream Society". The Futurist. 30 (3). Retrieved 30 April 2018.CS1 maint: Date format (link)
  8. ^ Stahl, Ashley (November 15, 2016). "How Millennials Spend Their Money (Hint: Experiences Trump Possessions)". Forbes.
  9. ^ Saiid, Uptin (May 5, 2016). "Millennials Are Prioritizing 'Experiences' Over Stuff". CNBC.
  10. ^ Rote, Miles (January 8, 2019). "Why Millennials are Choosing Experiences Over Things". Under 30 Experiences.
  11. ^ Randazzo, Steve (November 16, 2015). "How to Use Experiential Marketing to Reach Millennials". The Marketing Scope.
  12. ^ "Masrketing to Millennials - The Importance of Experiences". Bauer Media Group.
  13. ^ Kercher, Joey (June 20, 2017). "Reaching The Unreachable: How Experiential Marketing Targets Brand-Savvy Millennials". Forbes.
  14. ^ Scorziell, Luke (March 21, 2018). "The Experience Economy with Case Lawrence". Bills with Luke Scorziell.
  15. ^ Arnold, Andrew (December 23, 2017). "3 Ways The Internet And Social Media Draw Millennials To Live Events". Forbes.
  16. ^ Pine, B. J., & Gilmore, J. H. (2011). The Experience Economy. Boston: Harvard Business Review Press
  17. ^ Pine, B. J., & Gilmore, J. H. (2011). The Experience Economy. Boston: Harvard Business Review Press.
  18. ^ Pine, B. J., & Gilmore, J. H. (2011). The Experience Economy. Boston: Harvard Business Review Press
  19. ^ Pedersen, A. (2012). Opplevelsesøkonomi: Kunsten å designe opplevelser. Oslo: Cappelen Damm akademisk.
  20. ^ Pine, B. J., & Gilmore, J. H. (2011). The Experience Economy. Boston: Harvard Business Review Press

Further readingEdit

  • Pine, B. Joseph II and Gilmore, James, “Welcome to the Experience Economy,” Harvard Business Review, July 1, 1998
  • Pine, J. and Gilmore, J. (1999) The Experience Economy, Harvard Business School Press, Boston, 1999.
  • Schmitt, B. (2003) Customer Experience Management, The Free Press, New York, 2003.
  • Schmitt, B. and Simonson, A. (1997) In Marketing Aesthetics:The strategic management of brands, identity, and image The Free Press, New York, 1997.

See alsoEdit