Though the concept of managing customer experience has been around for ages, a framework to view the entire economy from an experience-point-of-view is quite a recent phenomenon. In an HBR article called “Welcome to the experience economy” (published in August 1998), Joseph Pine and James Gilmore revealed a very insightful framework to view and analyse businesses using experience as the key driver. I’m going to take a shot at summarizing the key take-aways from this article:

1. Experiences have emerged as the next step in what Pine and Gilmore call the progression of economic value. Leading-edge companies-whether they sell to consumers or businesses-will find that the next competitive battleground lies in staging experiences.

2. 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.

3. Commodities are fungible, goods tangible, services intangible, and experiences memorable.

4. In the full-fledged experience economy, retail stores and even entire shopping malls will charge admission before they let a consumer even set foot in them.

5. The Characteristics of Experiences - One way to think about experiences is across two dimensions. The first corresponds to customer participation.  The second dimension of experience describes the connection, or environmental relationship, that unites customers with the event or performance.

6. Designing Memorable Experiences –
Experience design will become as much a business art as product design and process design are today. Pine and Gilmore have identified five key experience-design principles:
  • Theme the experience – An effective theme is concise and compelling. It is not a corporate mission statement or a marketing tag line. It needn’t be publicly articulated in writing. But the theme must drive all the design elements and staged events of the experience toward a unified story line that wholly captivates the customer.
  • Harmonize impressions with positive cues – While the theme forms the foundation, the experience must be rendered with indelible impressions. Impressions are the “takeaways” of tbe experience; they fulfill the theme.
  • Eliminate negative cues – Experience stagers also must eliminate anything that diminishes, contradicts, or distracts from the theme.
  • Mix in memorabilia – Certain goods have always been purchased primarily for the memories they convey. These goods generally sell at price points far above those commanded by similar items tbat don’t represent an experience. (“If airlines truly sold experiences, more passengers would aetiially shop in the seat-pocket eatalogs for mementos of their flight”)
  • Engage all five senses – Tbe more senses an experience engages, tbe more effective and memorable it can be.
7. Companies that fail to provide consistently engaging experiences, overprice
their experiences relative to the value perceived, or overbuild their capacity to stage them will of course see pressure on demand, pricing, or both.
8. The growth of the industrial economy and the service economy came with the proliferation of offerings-goods and services that didn’t exist before imaginative designers and marketers invented and developed them. That’s also how the experience economy will grow: through the “gales of creative destruction”.
Other interesting snippets from the article:
  • 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 eakes from the bakery or grocery store, which, at $io or $15, cost ten times as much as the packaged ingredients. Now, time-starved parents neither make the birthday cake nor even throw the party. Instead, they spend $100 or more to “outsource” the entire event to Chuck E. Cheese’s, the Discovery Zone, the Mining Company, or some other husiness that stages a memorable event for the kids-and often throws in the cake for free. Welcome to the emerging experience economy.
  • The easiest way to turn a service into an experience is to provide poor service-thus creating a memorable encounter of the unpleasant kind.
  • Generally, it’s found that the richest experiences – such as going to Disney World or gambling in a Las Vegas casino – encompass aspects of all four realms, forming a “sweet spot” around the area where the spectra meet. But still, the universe of possible experiences is vast. Eventually, the most significant question managers can ask themselves is “What specific experience will my company offer?” That experience will come to define their business.

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