The Experience Economy, Updated Edition

B. Joseph Pine II, James H. Gilmore

• Publisher: Harvard Business Review Press
• Year: 2011
• ISBN:
  9781422143438
• Topic: Business
• Subtopic: Marketing
• Index: Business

In 1999, Joseph Pine and James Gilmore offered this idea to readers as a new way to think about connecting with customers and securing their loyalty. As a result, their book The Experience Economy is now a classic, embraced by readers and companies worldwide and read in more than a dozen languages.And though the world has changed in many ways since then, the way to a customer's heart has not. In fact, the idea of staging experiences to leave a memorable—and lucrative—impression is now more relevant than ever. With an ongoing torrent of brands attacking consumers from all sides, how do you make yours stand out?Welcome to the new Experience Economy. With this fully updated edition of the book, Pine and Gilmore make an even stronger case that experience is the missing link between a company and its potential audience. It offers new rich examples—including the U.S. Army, Heineken Experience, Autostadt, Vinopolis, American Girl Place, and others—to show fresh approaches to scripting and staging compelling experiences, while staying true to the very real economic conditions of the day.

* INTERMISSION *

A Refreshing Experience

WHEN SIR COLIN MARSHALL FIRST realized that British Airways was really in the business of orchestrating experiences, he thought that the “wear-out factor” for the BA brand was “somewhere in the five-year range. Now I am pretty convinced that five years is about the maximum that you can go without refreshing the brand.”¹ Actually, experience stagers must constantly refresh their experiences—change or add elements that keep the offering new, exciting, and worth paying money to experience all over again. Failing to do so devalues the offering. Rather than an experience that remains the same between visits, people would rather try a new one where they don't know quite what to expect and are sure to be pleasantly surprised.

That's why the repeat business at many eatertainment restaurants is poor: guests know exactly what to expect each time, both in the restaurants and in the retail stores. Restaurateur T. Scott Gross, who wrote a series of insightful books on what he calls “positively outrageous service,” describes a strikingly simple way to surprise diners. He tells of Philip Romano opening an out-of-the-way Italian restaurant named Macaroni's (now Romano's Macaroni Grill, a chain of hundreds of restaurants).² Rather than issue discount coupons to encourage new patronage (a ubiquitous, expectation-setting practice among many restaurant chains these days), Romano gave away free meals to every diner in the restaurant once each month on a Monday or Tuesday. The random practice was announced by a letter that arrived at each table in place of the check, saying how awkward it seemed to charge guests for a meal, so this one was free. Whereas most restaurants might extend such generosity only when customers have experienced poor service or a bad meal (when some recompense is expected), Romano's restaurant did so only after guests had been very well served with very good food (and guests expected nothing more than to pay their check). The surprise of the free meal created both a desire and a sense of obligation in guests to return again … and again … and again. Gross figured that surprising customers in this way cost Romano perhaps 3.3 percent of his monthly gross, but it had a much greater impact on customers than an ad budget of that size or a 3.3 percent discount across the board. It turned an already good dinner service into a memorable dining experience.

Staging Customer Surprise

Reducing customer sacrifice through Mass Customization requires an awareness of individual customer needs and the behavior they influence. This awareness lets companies deliberately and systematically take the next step toward more experiential offerings by instigating customer surprise, which is perhaps the single most important ingredient needed by any manufacturer or service provider to begin staging memorable experiences.

Contrasted with both customer satisfaction and sacrifice, when companies stage customer surprise they exploit the difference between what the customer gets to perceive and what the customer expects to get.

Rather than merely meet expectations (by providing satisfaction) or set new ones (by reducing sacrifice), companies deliberately attempt to transcend expectations, to go off in new (and unexpected) directions entirely. This doesn't mean trying to “exceed” expectations, for that would suggest an improvement along a known axis of competition, nor does it mean uncovering new dimensions on which to compete; those are the domains of satisfaction and sacrifice, respectively. Rather, it means staging the unexpected.

Creating such events still requires a platform of satisfaction and sacrifice. As indicated in figure I-1, without concerted and fruitful efforts to drive up customer satisfaction and drive down customer sacrifice, there will be no foundation on which to instigate customer surprise. Companies embracing the 3-S Model shown in this figure must go beyond “how we did” and even “what you want” to “what you remember.”

The most memorable flight experiences, for example, have nothing to do with the expectations of normal—good or bad—airline service but with events that occur outside the domain of expectations. These may include times you have read a particularly eye-opening book, have met a celebrity, or have become totally engaged in conversation with a seatmate.

Figure I-1: 3-S Model

The Reverend Jim Ignatowski. Recognize the name? On one episode of the old TV show Taxi, this usually atrocious (but fun-loving) cabbie decided to become the best taxi driver in the world. He did it by surprising his patrons with totally unexpected events: he served sandwiches and drinks, engaged them in sparkling repartee, conducted tours of the city, and even sang Frank Sinatra tunes over a jury-rigged intercom. So engaging was Iggy's use of customer surprise that the experience of being in his cab yielded greater value to his customers than the service of being transported by the cab from point A to point B. And in the TV show, at least, Iggy's customers happily responded with bigger tips. By asking to go around the block again just to prolong his enjoyment, one patron even paid more for demonstrably poorer service; after all, it took longer to get to his destination. The service Iggy provided—taxi transportation—was simply the stage for the experience that he was really selling that week.

Real-world entrepreneurs also employ surprise to turn mundane services into truly memorable events. Consider one of the most basic of businesses, the shoe shine stand. Based in the airport of Kalamazoo, Michigan, Aaron Davis—not only a great shoe shine man but a showman as well—uses customer surprise in many ways. In addition to his meticulous touch when applying polish and the syncopated snaps of his cloth—sensations rare but not unique to Davis—he introduces elements to the shoe shine experience that have little or nothing to do with polishing shoes. If he finds a loose thread on a stitch, Davis produces a pocket lighter to burn it off. And at the conclusion of the shine, he not only ties each shoe's laces but then gently pulls up the guest's socks. Davis also offers proverbs to guests in need of a pick-me-up. And should a hurried traveler who regularly gets a shine fail to stop by one week, the very next shine is, as Davis says, “on me.” From then on, such travelers make sure they leave enough time to take in a shine.

Unfortunately, larger enterprises often lack the surprise savvy of smaller businesses. But bigness is no excuse. Managers must stop setting routine expectations and start thinking creatively about how to leverage some service dimension to stage memorable surprises. Why do airlines upgrade only their most frequent current flyers to first class? That well-dressed college kid flying to New York for an interview with a consulting firm, for which he will fly every week in his imminent career, may be the best person to surprise with a seat in front of the curtain. A hotel could occasionally place a storage canister, the kind resembling a can of soda, in minibars so that a surprised guest may discover, say, a roll of fifty one-dollar bills inside with a note confirming that the guest may keep the money, compliments of the host. Wouldn't that create greater loyalty, more repeat business, and more guest referrals than issuing discount certificates via direct-mail campaigns?

Companies should also rethink rebates. Automobile manufacturers, for instance, further commoditize their own products via constant rebate promotions—buy this or that model, get this much money back—setting expectations that focus prospects purely on price. Some 90 percent of car owners claim to be satisfied, according to an Arthur D. Little survey, and yet car buyers defect by the millions each year. Only 40 percent buy their next car from the same manufacturer (let alone get the same model) that supposedly “satisfied” them the last time. Surprise payments sent unexpectedly to car buyers—after the purchase—rewarding them for their selections would do more to generate repeat sales. Rebates assume a one-period model in a multi-period world; surprise programs always help the company influence the buyer's next decision.

Consider, too, the many “frequent purchase” programs sponsored across a wide spectrum of businesses, from airlines to parking garages, from credit card companies to coffee bars. Designed to foster customer loyalty, these programs in fact have a fatal flaw: they encourage customers to expect free goods and services. While some increased purchasing frequency may be stimulated by giving away merchandise (in what's essentially a retailing equivalent of the old manufacturing line, “What we lose on each customer we'll make up in volume”), many customers join multiple programs within a given product category, and they all know that other customers can participate in the same programs. Customers are simply not engaged on a personal level, and over time, they take the benefits for granted; after all, they “earned” their free stuff. As with rebates, this serves merely to commoditize a company's offerings.

Instead of leading customers to expect free goods, companies could use the same money to create a memorable experience. Like Romano, these companies could give away the same percentage of items at random on certain days. Every fifteenth or twentieth item sold at the store could be free, for instance, or every fifteenth or twentieth customer could receive all his items for free. Alternatively, a store's register system could transparently inform the sales associate that this particular customer is highly valued and should be surprised with a purchase on the house.

Wait Until You Hear This One …

To truly differentiate themselves, businesses must focus first on increasing customer satisfaction, then on eliminating customer sacrifice, and finally on creating customer surprise. Taking these three steps will help shift any company up the Progression of Economic Value. But—surprise!—there's actually a fourth S in the 3-S Model. Once a company successfully stages customer surprise, customers start expecting to be surprised. There's nothing wrong with that, as long as the company then stages customer suspense as well. Built on a platform of surprise, customer suspense is the gap between what the customer remembers from past surprises and what he does not yet know about upcoming events:

One example should suffice to demonstrate customer suspense. Before Continental Airlines united with United Airlines, premier Continental flyers (those who traveled fifty thousand miles or sixty segments per year) received an elaborately packaged kit containing priority baggage check tags, upgrade coupons, a frequent flyer program guide, and other incidental reference material. The first year customers received this unadvertised package, they were indeed pleasantly surprised. In year two, Continental may have managed to surprise a few customers (those who forgot the previous package). But for Continental's consistently high-traveling customers, after three, four, or five years of receiving the same old kit … well, they not only came to expect it, they considered it a ho-hum occasion. Now suppose that Continental had cleverly changed the contents each year, one year adding a humorous letter from the CEO (à la Warren Buffet's annual stockholder letters), the next, a gift gleaned from knowledge about the past year's travel (for instance, a subscription to some magazine, a free dinner at a restaurant in the frequent destination city, a fine cigar or bottle of wine), and the next, maybe even a new piece of luggage to replace the one worn out by such frequent travel. Then Continental's very best customers would happily look forward to the next package rather than be bored by its inevitable arrival. This suspense, built on top of “how we did,” “what you want,” and “what you remember,” creates a sense of anticipation that encourages customers to actively look forward to doing more business with the airline—“what will happen”—just to make darn sure they maintain that premier status and get next year's package.³ (Time will tell whether the merger of Continental into United will focus the company solely on reducing internal operating costs or whether the new United will become a platform to respond anew to unique customer needs.)

Together, the four S's in the 3-S Model form a framework for enhancing customer relationships. When managed in unison, satisfaction, sacrifice, surprise, and suspense help companies encourage buyers to purchase goods and services for fundamentally new and different reasons. No longer do customers purchase goods merely for their functional use but also for the experiences created during purchase and use. Similarly, clients do not buy services merely for the sake of having a benefit delivered by another party but for the memorable events surrounding those services.

In the Experience Economy, companies should realize that they must make memories (and not goods) and create the stage for generating greater economic value (and not deliver services). It is time to get your act together, for goods and services are no longer enough. Customers now want experiences, and they're willing to pay admission for them. There's new work to do, and only those who perform that work so as to truly engage their guests will succeed in this new economy.

CHAPTER 6

Work Is Theatre

BARBRA STREISAND HAD NOT YET gotten her act together as an aspiring actress and singer when she tried out for Harold Rowe's musical I Can Get It for You Wholesale. In his book Audition, casting director Michael Shurtleff relates how he thought the then-unknown actress was ideal for the role of Miss Marmelstein.1 He was concerned, however, that Streisand's prominent nose would not get past producer David Merrick, who had told him, “I don't want any ugly girls in my show.” Despite the admonition, or perhaps because of it, Shurtleff scheduled Streisand for the last audition slot.

Streisand, draped in a gaudy raccoon coat and wearing mismatched shoes, walked in late, chewing gum. (She had found the “fabulous” shoes at a thrift shop on the way to the audition, Streisand explained to Shurtleff, Merrick, and director Arthur Laurents, but only one of each pair fit.) Curtly, she ordered a stool brought on stage. Once settled on the stool, she began to sing, but stopped unexpectedly after only a few notes. She started and stopped again, this time to remove her gum and stick it beneath the seat of the commandeered stool. Finally, she sang the full number and, as Shurtleff put it, “She mesmerized 'em.” She then sang two more tunes and left. After a heated argument, Merrick succumbed to the wishes of Shurtleff and Laurents: Streisand got the part. As the three prepared to leave, Laurents, who had taken a seat on the stool, ran his hand underneath it, because he had noticed that Streisand had failed to retrieve her gum. To his s urprise, there was no gum! Chomping so visibly—during the audition—had been an act of pure theatre. She wasn't chewing gum in order to calm her nerves but to create a specific impression on the potential buyers of her theatre skills.

One can only speculate as to why Streisand chose this particular set of behaviors to portray her character on stage. Perhaps she wanted to make the impression “I can sing it for you wholesale,” or “Appearances don't matter—it's the vocal cords that count,” perhaps even “It ain't over 'til the ugly lady sings.” Her tactics launched what became, by any measure, a remarkable career. Whatever her motivation, even during her humble beginnings, she understood the secret to her later success: recognizing that each and every action contributes to the total experience being staged, no matter what the venue. Businesses entering the Experience Economy must be no less deliberate.

Consider the business of baseball. The past twenty-five years have seen an unprecedented level of new ballpark construction; more than twenty of the thirty Major League Baseball franchises have built new stadia, and still others have undergone major renovations to enhance the fan experience. Yet the remarkable turnaround of one its franchises, the Cleveland Indians, attests to the benefit of also considering the value of theatre in deliberately staging events in these new venues. On April 4, 1994, the Indians played the Seattle Mariners in their first official game in Jacobs Field (since renamed Progressive Field), a new $175 million stadium built specifically to showcase professional baseball. Prior to ...