Summary of The Experience Economy (B. Joseph Pine II and James Gilmore)
Section 1
The Concept of The Experience Economy
Main Idea
There is an emerging Experience Economy which is growing out of the Services Economy (which in turn grew out of the Goods Economy which superseded the Commodities Economy).
In short, an experience offering occurs whenever an organization uses the delivery of services as a performance framework around which a rich, memorable and distinctive customer interaction is constructed.
Supporting Ideas
All economic activity, in its purest sense, revolves around the production and delivery of economic offerings:
- Commodities
- Goods
- Services
Yet this purest distinction fails to recognize that people are willing to pay a high premium for services that engage them in a personalized, memorable and distinctive manner. This goes beyond a service to an experience.
Companies that deliver experiences use their basic service offering (which is similar to that offered by competitors) as the stage onto which layer after layers of distinctive and unique features are added – creating a highly differentiated, pointedly specific user experience which turns every contact into a memorable encounter.
Organizations that wrap experiences around their goods and services:
- Achieve differentiation from competitors.
- Can charge higher prices and increase them over time because of the added value created for consumers.
- Are in a position to resell their services again and again – simply by altering some elements of the total experience mix.
- Do something memorable.
- Provide value that lingers in the memory of the individual.
An automaker is a goods provider when it manufactures a motor vehicle. It becomes a service provider when it provides after sales back-up and regular mechanical services. And it becomes an experience facilitator when using the car becomes part of the overall driving experience.
Any physical good can be translated to the type of experience the use of that good is part of. For example:
- A valve manufacturer may focus on improving the pumping experience rather than building a more efficient product.
- An apparel manufacturer could focus on the cleaning experience, the wearing experience or the storage experience of its customers.
When manufacturers start thinking in these terms, they move from focusing on physical attributes into the ways they can surround their products with layers of add-on services that create experiences customers will pay more for.
The difference lies more in the mindset than in any external factors. The perspective of looking at the overall usage experience instead of the much narrower product features viewpoint can make a significant difference.
This chart illustrates the progression of economic value. Experiences are more highly valued by consumers because they are relevant and specific to needs rather than generic. Furthermore, because experiences are highly differentiated, premium pricing can apply – consumers are willing to pay more for an experience than they would for a service, the goods themselves or the commodities which make up the goods.
Key Thoughts
“We need to look at our business as more than simply the building and selling of personal computers [that is goods]. Our business is the delivery of information [that is, services] and lifelike interactive experiences.”
– Andrew Grove, chairman, Intel
“Buyers of experiences value being engaged by what the company reveals over a duration of time. Just as people have cut back on goods to spend more money on services, now they also scrutinize the time and money they spend on services to make way for more memorable – and more highly valued – experiences.”
– B. Joseph Pine & James Gilmore
“The growth of both the Industrial Economy and the Service Economy brought with it a proliferation of offerings that didn’t exist before imaginative companies invented and developed them. That’s also how the Experience Economy will grow, as companies tough ou...