The Experience Economy

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The term Experience Economy is first described in a book written in 1999 by B. Joseph Pine II and James H. Gilmore, titled "The Experience Economy". In it they describe the experience economy, as a next economy following the agrarian economy, the industrial economy and the most recent service economy. This economy is supposed to begun to sell "mass customization" services that are similar to theatre, using underlying goods and services as props.

Businesses must orchestrate memorable events for their customers, they argue, 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 urban planners, tourism and other fields.

Experience economy is also considered as main underpinning for customer experience management.

[edit] Five ways 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 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 service, e.g. 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 there being no payment 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.

[edit] 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 boom 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 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.