The Experience Economy by B. Josephine Pine II and James H. Gilmore
“Those businesses that relegate themselves to the diminishing world of goods and services will be rendered irrelevant. To avoid this fate, you must learn to stage a rich, compelling experience.”
As authors Joseph Pine and James Gilmore ask at the beginning of the book - What’s common between the Hard Rock Cafe, Disney World, and Starbucks? They are all successful companies – successful because they delivery something much more valuable than food or drink. They deliver something more intangible, called “Experience” and are based in the “Experience Economy”.
Why else would you part with $5 for a latte that costs pennies to make? Why would you pay $100 for a park admission into the Disney World for your child? Why would you pay top dollar for a room in a five star hotel, when a similar accommodation can be had in someplace else for a fraction of the price?
We pay more for the memories – not for the product or service, but for the memories. The experience. And this is the only way for companies that sell commodities such as goods and services to survive in today’s world. They just need to find a way to transcend from providing just goods and services to delivering experience.
Authors Joseph Pine and James Gilmore take the example of birthday parties. It hardly costs a few dollars for the ingredients used in a cake. But purchase the birthday experience, the cost will be over fifty times the amount.
Parents would be more than willing to pay much more than the actual cost of the cake if the experience offered is memorable and distinctive. It’s not the cake that a baker sells, but the experience, and the experience counts for a premium over the actual price.
This is the business model used by Howard Schultz to make Starbucks one of the biggest companies in the world as well. The coffee I had at Starbucks for $5 can be had elsewhere for under $1. But where else do you get the bright smile from the cute barista, perfectly clean surroundings, excellent furnishing and a free Wi-Fi connection as well? And you can take just as long as you like to have your coffee, there is no one forcing you out to make way for other customers either. Well, that’s what the Experience Economy is all about.
Companies that create experiences that are unique and different from their competitors usually do better than those who fail to do the same. Amazon did not succeed because it was the first bookseller on the internet. It succeeded because it provided more – an experience - personalized recommendations based on past purchases, customer involvement in the form of user reviews and wish lists, and an incredible product selection, which no retail store can replicate.
Creating experience is nothing new. Businesses have been doing that – create experience – for ages. The authors find similarities between businesses on the one hand and theater on the other and talk about how the basic code of events is the same for both. This is especially true when it comes to choreographing exchanges between sales, order entry, operations, and distribution. The performance is by itself the product delivered, a value which is created, and everything follows up from there.