The Experience Economy
Encyclopedia
The term Experience Economy was first described in an article published in 1998 by B. Joseph Pine II
and James H. Gilmore, titled "The Experience Economy". In it they described the experience economy as the next economy following the agrarian economy, the industrial economy, and the most recent service economy
. This concept had been previously researched by many other authors (see History of the Concept).
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.
Although the concept of the experience economy was born in the business field, it has crossed its frontiers to tourism, architecture, nursing, urban planners and other fields.
Experience economy is also considered as main underpinning for customer experience management.
Within the hospitality management academic programs in the US and Europe, Experience Economy is often shortened to Exponomy, and is of increasing focus.
, Future Shock
, which Pine and Gilmore quote in their work. In 1971, Toffler criticized how “economists have great difficulty imagining alternatives to communism and capitalism”, and how they could only envision the economy in the terms of scarcity of resources. He talked about the upcoming “experiential industry”, in which people in the “future”, would be willing to allocate high percentages of their salaries to live amazing experiences.
Later in 1982, Holbrook and Hirschman’s pioneering article "The Experiential Aspects of Consumption: Consumer Fantasies, Feelings, and Fun" in the Journal of Consumer Research (Vol. 9, #2), discussed emotional experiences linked to products and services.
Then in 1992, the German sociologist Gerhard Schulze argued for the idea of the “experience society” in his book "Erlebnisgesellschaft", which was translated into English as "The Experience Society" in 1995. In 1999, it was published at the same time a twin book of "The Experience Economy", that is The Dream Society by Rolf Jensen of the Copenhagen Institute for Futures Studies
, containing many of the same ideas.
. 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:
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 "lemon
s". 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, IBM
and many others as examples.
and a rising economy in the U.S.
that was tolerant of high prices, inflated claims, and no limitations of supply or investment
. Detractors contrast it with other service economy theses such as Natural Capitalism
, in which there is a clear focus on making measurably better use of scarce resources, usually considered to be the basis of economics
. They claim service management should stress efficiency more than effectiveness.
The thesis has also been criticized from within the fields of tourism, leisure and hospitality studies where theories as to the role of experiences in the economy were already well established prior to the work of Pine and Gilmore but were not acknowledged by Pine and Gilmore in their work. Although continuing to influence business thinking the concept has already been superseded within much service marketing and management literature by the argument that the value of all goods and services are co-created or co-produced through the interaction of consumers and producers. Therefore, at one level of abstraction all consumption can be understood in experiential terms.
B. Joseph Pine II
B. Joseph Pine is an American author.-Bibliography:*Mass Customization: The New Frontier in Business Competition, 1992*Do You Want to Keep Your Customers Forever?, B...
and James H. Gilmore, titled "The Experience Economy". In it they described the experience economy as the next economy following the agrarian economy, the industrial economy, and the most recent service economy
Service economy
Service economy can refer to one or both of two recent economic developments. One is the increased importance of the service sector in industrialized economies. Services account for a higher percentage of US GDP than 20 years ago...
. This concept had been previously researched by many other authors (see History of the Concept).
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
Education
Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
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
Value added
In economics, the difference between the sale price and the production cost of a product is the value added per unit. Summing value added per unit over all units sold is total value added. Total value added is equivalent to Revenue less Outside Purchases...
by the business over and above its inputs.
Although the concept of the experience economy was born in the business field, it has crossed its frontiers to tourism, architecture, nursing, urban planners and other fields.
Experience economy is also considered as main underpinning for customer experience management.
Within the hospitality management academic programs in the US and Europe, Experience Economy is often shortened to Exponomy, and is of increasing focus.
History of the concept
This customer behavior in the society has been acknowledged by various authors. An early example is the book of Alvin TofflerAlvin Toffler
Alvin Toffler is an American writer and futurist, known for his works discussing the digital revolution, communication revolution, corporate revolution and technological singularity....
, Future Shock
Future Shock
Future Shock is a book written by the futurist Alvin Toffler in 1970. In the book, Toffler defines the term "future shock" as a certain psychological state of individuals and entire societies. His shortest definition for the term is a personal perception of "too much change in too short a period of...
, which Pine and Gilmore quote in their work. In 1971, Toffler criticized how “economists have great difficulty imagining alternatives to communism and capitalism”, and how they could only envision the economy in the terms of scarcity of resources. He talked about the upcoming “experiential industry”, in which people in the “future”, would be willing to allocate high percentages of their salaries to live amazing experiences.
Later in 1982, Holbrook and Hirschman’s pioneering article "The Experiential Aspects of Consumption: Consumer Fantasies, Feelings, and Fun" in the Journal of Consumer Research (Vol. 9, #2), discussed emotional experiences linked to products and services.
Then in 1992, the German sociologist Gerhard Schulze argued for the idea of the “experience society” in his book "Erlebnisgesellschaft", which was translated into English as "The Experience Society" in 1995. In 1999, it was published at the same time a twin book of "The Experience Economy", that is The Dream Society by Rolf Jensen of the Copenhagen Institute for Futures Studies
Copenhagen Institute for Futures Studies
The Copenhagen Institute for Futures Studies is Denmark's and one of Scandinavia's largest Futures Studies think tank. It was founded in 1970 by Professor Thorkil Kristensen, former OECD Secretary-General, Danish Minister of Finance and member of the Club of Rome...
, containing many of the same ideas.
Stages of marketing a product or service
A core argument is that because of technology, increasing competition, and the increasing expectations of consumers, services today are starting to look like commoditiesCommodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
. Products can be placed on a continuum from undifferentiated (referred to as commodities) to highly differentiated
Product differentiation
In economics and marketing, product differentiation is the process of distinguishing a product or offering from others, to make it more attractive to a particular target market. This involves differentiating it from competitors' products as well as a firm's own product offerings...
. 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
Bandwidth (computing)
In computer networking and computer science, bandwidth, network bandwidth, data bandwidth, or digital bandwidth is a measure of available or consumed data communication resources expressed in bits/second or multiples of it .Note that in textbooks on wireless communications, modem data transmission,...
, consulting
Consultant
A consultant is a professional who provides professional or expert advice in a particular area such as management, accountancy, the environment, entertainment, technology, law , human resources, marketing, emergency management, food production, medicine, finance, life management, economics, public...
help.
The classification for each stage in the evolution of products
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
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 "lemon
Lemon (automobile)
A lemon is a car, often new, that is found to be defective only after it has been bought. Any vehicle with numerous, severe issues can be termed a "lemon", and, by extension, any product with flaws too great or severe to serve its purpose can be described as a "lemon".-Origin:The use of the word...
s". 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
The Walt Disney Company
The Walt Disney Company is the largest media conglomerate in the world in terms of revenue. Founded on October 16, 1923, by Walt and Roy Disney as the Disney Brothers Cartoon Studio, Walt Disney Productions established itself as a leader in the American animation industry before diversifying into...
, AOL
AOL
AOL Inc. is an American global Internet services and media company. AOL is headquartered at 770 Broadway in New York. Founded in 1983 as Control Video Corporation, it has franchised its services to companies in several nations around the world or set up international versions of its services...
, Nordstrom
Nordstrom
Nordstrom, Inc. is an upscale department store chain in the United States, founded by John W. Nordstrom and Carl F. Wallin. Initially a shoe retailer, the company today also sells clothing, accessories, handbags, jewelry, cosmetics, fragrances, and in some locations, home furnishings...
, Starbucks
Starbucks
Starbucks Corporation is an international coffee and coffeehouse chain based in Seattle, Washington. Starbucks is the largest coffeehouse company in the world, with 17,009 stores in 55 countries, including over 11,000 in the United States, over 1,000 in Canada, over 700 in the United Kingdom, and...
, Saturn, IBM
IBM
International Business Machines Corporation or IBM is an American multinational technology and consulting corporation headquartered in Armonk, New York, United States. IBM manufactures and sells computer hardware and software, and it offers infrastructure, hosting and consulting services in areas...
and many others as examples.
Criticisms
Pine and Gilmore's thesis has been criticized as an example of an over-hyped business philosophy arising from or in the dot-com boomDot-com bubble
The dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...
and a rising economy in the U.S.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
that was tolerant of high prices, inflated claims, and no limitations of supply or investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
. Detractors contrast it with other service economy theses such as Natural Capitalism
Natural capitalism
Natural Capitalism: Creating the Next Industrial Revolution is a 1999 book co-authored by Paul Hawken, Amory Lovins and Hunter Lovins. It has been translated into a dozen languages and was the subject of a Harvard Business Review summary....
, in which there is a clear focus on making measurably better use of scarce resources, usually considered to be the basis of economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
. They claim service management should stress efficiency more than effectiveness.
The thesis has also been criticized from within the fields of tourism, leisure and hospitality studies where theories as to the role of experiences in the economy were already well established prior to the work of Pine and Gilmore but were not acknowledged by Pine and Gilmore in their work. Although continuing to influence business thinking the concept has already been superseded within much service marketing and management literature by the argument that the value of all goods and services are co-created or co-produced through the interaction of consumers and producers. Therefore, at one level of abstraction all consumption can be understood in experiential terms.