Welcome to the Experience Economy
Understanding the Shift to an Experience Economy
From the influence of digitalization and the way traditional business models are being challenged, to consumers making purchases based on a given company or brand’s value system, contemporary approaches to doing business are dynamic, to say the very least. For decades we’ve been told things like ‘the customer is always right’ or that ‘every business undoubtedly shapes their purpose, products and services in response to customer demands’, without much evidence to confirm that this was even the case. However, with seemingly endless amounts of data to draw from and the power the internet gives individuals who wish to share real-time feedback with one another in the name of making informed decision, consumers now have tons of influence over the companies trying to make an impression on them.
Along with the increasing power consumers are wielding over businesses, data has revealed that we are spending less money on buying things and more on doing things. It really comes down to reassessing the price and value of owning things, especially the traditional milestone purchases that many are now forgoing; like cars and houses. It seems increasingly clear that consumers are choosing access over ownership, which is really what the Experience Economy is all about. The term isn’t all that new, and was first used in the late 90s in a Harvard Business Review article by Joe Pine and Jim Gilmore, who went on to publish a book called The Experience Economy: Work Is Theatre & Everything is a Stage. The two describe experience as added value, and that businesses must engage customers through memorable events, allowing the memory itself to become the product, or experience.
There are obvious examples of purchases or services that can be grouped into the experience economy, like going to a band’s concert instead of just buying their album, or taking an impromptu long-weekend trip to take part in a craft beer festival instead of buying a bigger television. However, there are many everyday transactions that can add value by offering memorable experiences. As Pine and Gilmore point out, “Any transaction you’ve had with a business that involved a personal, memorable connection between you and the business makes you a bona fide member of the experience economy.” This can include a meal at a restaurant or the process by which you purchase something online. Experience, in this sense, doesn’t have to be earth shattering; it just has to be engaging in a way that is memorable and distinguishable from competitors.
From a business’ point of view, the authors note that, “An experience occurs when a company intentionally uses service as the stage, and goods as props, to engage individual customers in a way that creates a memorable event.” This approach to engaging potential customers has been successfully undertaken by a number of businesses that identify as being part of the experience economy. A great example of a business built around experience is Rent the Runway. The company brings its customers access over ownership in the realm of high-end fashion.
Conceived of and launched by Harvard Business School colleagues Jennifer Hyman and Jennifer Fleiss, Rent the Runway’s service initially let customers rent three items of high-end clothing/accessories at once for a cost of $139 a month. The service has since expanded and now offers customers different monthly options or one-time-use deals. From designer dresses that retail for several thousands of dollars to more professional wear, Rent the Runway offers an experience that most would not otherwise be able to afford. In a How I Built This podcast streaming on NPR, Jennifer Hyman recounts how her sister had bought an expensive designer dress to wear to a gala she had been invited to. When Hyman asked her sister why she chose to buy a new pricey dress instead of wearing something from her closet, she responded that she had already been photographed in every other dress she owned and that they were all essentially played out. This is when Hyman realized that the dress wasn’t the focal point; it was the experience the dress helps facilitate that mattered most. Once she made this realization, her business started to take shape and hasn’t slowed down since.
Even if the Rent the Runway business model is relatively niche, the idea of promoting an experience is what the company shares with any other business engaging customers through a promised experience. After all, experience is personal and individual. Though two people might have seemingly different experiences of an event like a concert, they also share in having experienced that particular concert in the first place. In trying to account for why experience takes center stage for today’s consumers, Mary Kyriakidi makes an interesting point, saying, “The reason for this is that experiences are the modern world’s social currency, so the more we fight for them the better we can market ourselves to others. And the more experiences we gather, the better individuals we feel we become.” Despite being somewhat superficial, Kyriakidi’s statement reflects the fact that we are progressing past simply measuring each other based on our respective collection of material objects. The major difference with this new social currency; however, is that experiences are intangible and don’t necessarily have to be flaunted on social media; they are valuable and gratifying in and of themselves.
Whether or not they should really count as social currency, there is a lot of data suggesting that experiences are now more coveted than material objects. Eventbrite conducted a study among millennials to gauge the experience economy, and came up with some fascinating results worth considering. The study found that 78% of Americans would choose to spend money on a desirable experience over buying something desirable, and 55% of respondents admit to spending more on events and live experiences than ever before. Moreover, 72% of those who took part in the survey said that they would like to increase their spending on experiences rather than physical things in the next year, and almost the same amount of people believe that attending live events and experiences make them more connected to other people, the community, and the world.
It’s not just millennials, either; the interest in experiences is increasing across the generational board. Given this, it’s now up to businesses to think outside the box and offer experiences to engage customers with, even if they use more traditional business models. Remember, a personal and memorable connection between a customer and a company is already grounds for experience, and using service as a stage and goods as props is a recipe for engagement.