The Experience Economy (Updated Edition) Read online

  Issues Surrounding the Experience Economy

  We want no misconceptions to prohibit progress. So let us formally address some of the objections we have heard over the years concerning The Experience Economy.

  Some object to the word stage to describe the primary work activity, or economic function, of experiences. One could substitute an alternative verb—orchestrate comes to mind—but only at the risk of diluting our emphasis on the importance of stagecraft in, well, staging engaging experiences. Stagecraft it is, and frankly, more businesses besides show business need to embrace theatre as a model for directing work. A related objection truly annoys us. Some readers balk at our use of theatre “as a metaphor” when we could not be clearer: it's not a metaphor but a model for human performance in staging experiences. We also wish others who agree that an economic shift is indeed under way would stop trying to advance alternative terms for this wave of economic history, pushing such terms as the “Knowledge Economy” or the “Attention Economy.” Economic eras have always been named based on the corresponding nature of output (Service Economy for services) or dominant domain of work (Agrarian Economy for commodities, Industrial Economy for goods), so the only legitimate alternative to the Experience Economy would rightfully be the “Theatrical Economy”—which seems less practical given the aforementioned theatre misconception. Yet others simply need to be more precise with their terminology. We have no objection to referencing the “Dream Society” or “Creative Class,” gladly recognizing and embracing these terms as properly identifying trends emerging alongside the Experience Economy. But it does not help to then occasionally make reference to a “Dream Economy” or a “Creative Economy.” Having dreams and being creative have fueled innovation in previous economic eras (but so much so, in today's era, that they may give rise to a new social class); what is new about this new economy is that experiences represent the basis of economic activity. People rarely if ever bought birthday parties, as one example, in previous economic eras; today they do so regularly.

  Beyond these language issues, other readers misread our intentions (perhaps reading in their own apprehensions as our aspirations). Some viewed experiences only as entertainment. Any careful reading of chapter 2 should dissuade readers from this mistaken notion. Indeed, we see the “four E's”—entertainment plus the educational, escapist, and esthetic realms of experience—as a means to avoid amusing ourselves to death. Showing full-length movies in the classroom, putting up PowerPoint screens in church sanctuaries, and showing non-sports-related video clips on ballpark scoreboards do not indicate thoughtful application of experience-staging excellence for teaching students, preaching to disciples, and connecting with fans, respectively. Another mistaken interpretation: assuming that all experiences must necessarily trend toward the inauthentic or the virtual. (We address these subjects in our subsequent books Authenticity: What Consumers Really Want and Infinite Possibility: Creating Customer Value on the Digital Frontier, respectively.) In fact, the Experience Economy allows for a vast array of alternative offerings, ranging from the more or less natural/artificial, original/imitative, genuine/disingenuous, real/fake, self-centered/other-focused—across all dimensions of time, space, and matter. Contrary to yet another objection—that we seek to turn “all of life” into “a paid-for experience”—we certainly recognize noneconomic spheres of social and personal experience. As undeniably more of life becomes commodified, we should all carefully examine our lives as citizens, donors, students, and worshippers—not to mention as parents and lovers—in terms of what we choose to buy and not buy, to sell and not sell, to experience and not experience. Yet for developed economies to remain prosperous, a shift to experiences must occur: goods and services are no longer enough to employ the masses. We would hope that concern about the possible deleterious impact of certain experiences (and, moreover, transformations) would prompt critics to enter the economic arena and offer more virtuous forms of these economic offerings.

  Two particular criticisms of The Experience Economy provide a very useful perspective, especially as they serve to propel further study into the nature of engaging experiences. The first comes in the form of emphasizing the role of co-creation in the formation of experiences—and viewing our work as lacking sufficient appreciation for the role of guests in creating their own experiences. The view is understandable, as our concern in 1999—and even now— focuses primarily on the supply side of experiences. Our primary goal has been to encourage the creation of new experiences. Therefore, we focus much more on the stager of experiences, while recognizing that to a degree all experiences are co-created, as they happen inside the individual person in reaction to what is staged outside that person. That said, we agree that a supply of new experiences indeed prompts many guests to want a more participatory role. Moreover, this desire spills over to the relationships between clients and providers of services, and between users and manufacturers of goods as well (something that Joe recognized in his first book, Mass Customization: The New Frontier in Business Competition). Alvin Toffler nailed it when he anticipated the rise of “prosumers.” No one approach, however, should be rigidly imposed on experience design. It would be a mistake to suppose that all consumers want openly co-created offerings in every circumstance and in every category of good, service, and experience (transformations in free societies are by their very nature co-created, with the company only guiding what customers, in the end, must themselves undergo; to treat transformation otherwise is tyranny). What should be considered is the degree of control afforded in any given situation. Even at Disneyland or Walt Disney World—places with a high degree of staging—guests themselves exert a great deal of control over where and when they roam between rides. And one of us (OK, it's Jim) takes particular delight in being just a little too enthusiastic in shows like Country Bear Jamboree, with his over-the-top hooting and hollering effectively co-ruining the experience for others. At issue is the intentionality of the stager and the adaptability for the guest in terms of the co-creation. We would welcome greater excellence in both dimensions.

  The second valid concern contends we place too much emphasis on experiences as memorable events. Let us share our twofold perspective. First, in envisioning engaging experiences, you can and should consider a multiplicity of dimensions. These include, but are not limited to, the multisensory nature of experiences, their level of personal meaningfulness, the way the experience is shared with others (if at all), the intensity and duration of various experiential elements, complexity (or simplicity), and untold other characteristics of how people spend time. Cultural considerations and national and local sensitivities, as well as the prior life experiences of guests, all impact how people perceive experiences. Our belief is that no matter how it's viewed, any dimension of enjoyment usually translates into the experience being more memorable—even if few or no details can be recollected. This takes us to a second aspect of the matter: recognizing the distinction between the memory of an experience and the enjoyment of the experience in the moment (apart from how memorable it later proves). Even here, people at least remember that they enjoyed the experience, even if they cannot recall or explain why. Of critical importance is how the experience concludes. Here, one new model added to this edition of The Experience Economy, the mid-nineteenth-century model of Gustav Freytag found in chapter 6, explains the structure of compelling dramas and offers considerable insight. In a nutshell, failure to adequately establish proper context, interweave building action, or allow for falling action and a dénouement adversely diminishes the audience's memory of even the most climactic highs of an enjoyable experience (and even more adversely magnifies the memory of an unpleasant one). Bottom line: no, a strong memory is not required for every experience, but the greater the (positive) memory created and the longer it lasts, the more value is created.

  With that, we now leave you to this, the updated edition of The Experience Economy. It updates many of the examples used to illustrate the plethora of models and too
ls we put forward to help executives see the world differently. In addition to reaching a new readership, we do hope those who read the original book read it anew, refreshing their memory of lessons learned. And we hope they will introduce the tome to many new readers. For in shifting to an Experience Economy, we can use fellow laborers. We wish all well and sincerely hope The Experience Economy speeds up the day when the Experience Economy reaches its full potential.

  —James H. Gilmore —B. Joseph Pine II

  Shaker Heights, Ohio Dellwood, Minnesota

  February 2011

  Strategic Horizons LLP

  P.O. Box 548

  Aurora, Ohio 44202-0548 USA

  +1 (330) 995-4680

  [email protected]

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  OVERSTOCKED! Undersold. Ten, 20, 30, 40 percent discounts. Half off everything! Buy one, get one free. Free financing for a year. Guaranteed lowest prices! Going out of business sale… . In a word: commoditized.

  This book offers an escape from the all-too-easy practice of competing on the basis of price. While customers love a sale, businesses perish from relying on low prices as a means of hawking their offerings. That approach worked for years, indeed decades, as economies of scale associated with mass producing goods and services resulted in a corresponding cost savings with every successive price reduction. But in industry after industry, that system of competition no longer sustains growth and profitability. You know it; we all know it. But what do we do about it?

  We wrote this book for those searching for new ways to add value to their enterprises—fully aware that executives and managers have been bombarded with business books with the same aim. We've all been continuously improved, reengineered, and downsized. We've embraced time-based competition and the one-to-one future. We're now demassified, informationalized, digitized, and, yes, even mass customized—perhaps self-organizing and thriving on chaos to boot. Every business competing for the future is customer-centric, customer-driven, customer-focused, customer-yadda-yadda-yadda. So what's new?

  This is new: experiences represent an existing but previously unarticulated genre of economic output. Decoupling experiences from services in accounting for what businesses create opens up possibilities for extraordinary economic expansion—just as recognizing services as a distinct and legitimate offering led to a vibrant economic foundation in the face of a declining industrial base. And a new base is emerging. Ignore the familiar hype: information is not the foundation of the “New Economy,” for information is not an economic offering. As our friend John Perry Barlow likes to say, information wants to be free. Only when companies constitute it in the form of information services—or informational goods and informing experiences—do they create economic value. Economic offerings, not forms of intelligence, comprise the substance of buying and selling.

  Recognizing experiences as a distinct economic offering provides the key to future economic growth, as shown in chapter 1. Economic pessimist Jeremy Rifkin is right to suggest that businesses will need fewer workers to deliver services in the future, just as in the past due to innovations and higher productivity they needed fewer factory workers to produce goods, and before that fewer farm workers to harvest agricultural commodities. But those who decry the loss of agricultural and manufacturing jobs are wrong in asserting that the total number of jobs available will soon go down. Future waves of economic activity based on new economic offerings will provide ample opportunities to generate more wealth and create new jobs—if only businesses remain free to compete, unencumbered by government's view of what constitutes appropriate economic offerings to promote or protect.

  Those businesses that recognize this dramatic shift and respond to it effectively—both are required—will forestall the forces of commoditization and create new economic value. (That is not to say that all companies must stage experiences to be profitable. Commodity companies can make money, at least on the up cycles. But watch out for those downturns!) Chapters 2 and 3 show how to stage engaging and compelling experiences using two frameworks we've gleaned from studying companies that have already successfully shifted to the Experience Economy. For those not yet ready to do so directly, a second route is provided by understanding that mass customizing automatically turns goods into services and services into experiences. Embracing the principles of Mass Customization articulated in chapters 4 and 5—and thereby helping customers experience less sacrifice in their interactions with you and your offerings—may first be required for many goods manufacturers and service providers to enter the Experience Economy. (And don't neglect to read the short Intermission for an extension of this route.)

  This new economy also demands new models for work. At every level in any company, workers need to understand that in the Experience Economy every business is a stage, and therefore work is theatre. That may sound strange, but it is true: chapter 6 makes the case that whenever a customer happens across your bare stage of business, the workers are acting. It then introduces techniques for performing accordingly. Chapter 7 goes through four forms of theatre and in what situations each should be applied, while chapter 8 sets down basic guidelines for those taking on each of the various roles required for any enterprise to stage experiences. All workers—from boardroom executives to frontline staffers—should be able to see themselves anew in this chapter, and those in human resource and organizational development departments should read it particularly closely to gain insight into changes required in the new economy.

  Of course, not everyone will agree that we are shifting to an Experience Economy or that such a development is a good thing. Consider Las Vegas, the experience capital of America (although Orlando, Los Angeles, Manhattan, and even Branson, Missouri, would win their share of votes in any poll). Virtually everything about Vegas is a designed experience, from the slot machines at the airport to the gambling casinos that line the Strip; from the themed hotels and restaurants to the singing, circus, and magic shows; and from the Forum Shops mall that recreates ancient Rome to the amusement parks, thrill rides, video arcades, and carnival-style games that attract the twentysomethings and give older parents a reason to bring their kids in tow.

  Of course, there is another side to the Vegas experience: the readily available alcohol, drugs, nudity-filled nightclubs, and prostitution. Unfortunately, these are every bit as much a part of the Experience Economy as any other entertainment or escapist fare. True, as we shift to this new economy, some people (perhaps more people) will make unwise and immoral choices due to the ready availability and slicker staging of prurient experiences. And most of the experiences mentioned above, while engaging and memorable, are certainly not virtuous. Further, many people object, with reason, to the artificiality of Disney World, the simulated nature of various motion-based attractions, and the techno-centric remoteness of the Internet (although these “artificial” experiences are counterbalanced to some degree by the concatenate rise of such “real” experiences as camping at Yellowstone National Park, donkey-riding down the Grand Canyon, kayaking on the Colorado River, and, more recently, a host of such “extreme sports” as rollerblading, snowboarding, skysurfing, and the like).

  Despite the great improvements in working conditions, health, life expectancy, and the standard of living associated with every previous economic shift, those shifts were not without their dislocations and negative effects; we should not expect otherwise in the shift from the Service to the Experience Economy. All the issues mentioned above are legitimate and worthy of debate. But it is clear that we cannot retreat from the impending reality of the Experience Economy already surrounding us. Commendable or deleterious, virtuous or immoral, natural or artificial—these are all choices we make as together we create this new economy.

  Those who decried previous economic shifts—two centuries ago to the Industrial Economy and in the past twenty years to the Service Economy—failed to stop the Progression of Economic Value to higher-echelon offerings. It happ
ened despite their protestations. Therefore, we believe that the moral emphasis should not lie on whether commerce should shift to experiential offerings. If societies are to seek continued economic prosperity, they must stage experiences to add sufficient value to their economies to employ the masses (goods and services are no longer enough). The moral emphasis must be placed instead on what kinds of experiences will be staged. The business executive, like everyone else, must in the end concern himself with the ultimate aims of man. That will be our focus in chapters 9 and 10, as we explore the business world when experiences become commoditized, and the fifth, and final, economic offering— transformations—comes to the fore. You won't want to miss these last two chapters, nor the encore, for the implications for your business, whatever it is today, may be profound. And we won't back away from stating what we believe when it is the right thing to do.

  We hope all readers discover a clear and compelling articulation of the new competitive landscape for the strategic options facing their enterprises. But even more, we hope you personally find the tools to begin staging compelling experiences and guiding vital transformations for your customers, present and future.

  —Joe Pine —Jim Gilmore

  Dellwood, Minnesota Shaker Heights, Ohio

  December 1998

  CHAPTER 1

  Welcome to the

  Experience Economy

  COMMODITIZED. No company wants that word applied to its goods or services. Merely mentioning commoditization sends shivers down the spines of executives and entrepreneurs alike. Differentiation disappears, margins fall through the floor, and customers buy solely on the basis of price, price, price.