Pine and Gilmore are co-founders of an outfit called Strategic Horizons LLP, an Aurora (Illinois) based company which they describe as a "thinking studio dedicated to helping businesses conceive and design new ways of adding value to their economic offerings".
The basic premise of their book is that society has entered a new era where experiences are the economic offerings that are in highest demand, and which thus generate the highest value returns. Pine and Gilmore argue that the progression of economic value has gone through three stages to date, and that we are in the process of entering a fourth stage: the experience economy. The earliest commodity economy was concerned with the extraction of various substances from the world around us. This type of economy dominated the world of the hunter-gatherer, where the primary job was extracting useful (and thus economic) materials from the environment. Next came the manufacturing economy, where the primary economic offering was the making of products. This did not, of course, totally replace the commodity economy, but rather added a new kind of economic offering to the mix. Next came the service economy, where the offerings of highest value were the delivery of intangible services. (We have heard much about the service economy in recent years as the 'post-industrial era'.)
Well now, maintain Pine and Gilmore, we find ourselves in what they call the experience economy, where the highest-value economic offerings are experiences. (This assertion, incidentally, has got to be taken on faith they provide no empirical evidence in the book that it is true.) In the experience economy, beyond merely providing services, businesses stage memorable experiences for customers (who are thought of as 'guests') that are entertaining and/or educational in nature.
The differences between these four different types of economy are summarized in the chart below:
Source: adapted from chart on pg. 6
The authors argue that companies that recognize that they are in the primary business of staging experiences are among the most successful today:
"The newly identified offering of experiences occurs whenever a company intentionally uses services as the stage and goods as props to engage an individual. While commodities are fungible, goods tangible, and services intangible, experiences are memorable. Buyers of experiences we'll follow Disney's lead and call them guests value being engaged by what the company reveals over duration of time...
The company we'll call it an experience stager no longer offers goods or services alone, but the resulting experience, rich with sensations created within the customer. All prior economic offerings remain at arm's length, outside the buyer, while experiences are inherently personal. They actually occur within any individual who has been engaged on an emotional, physical, intellectual or even spiritual level. The result? No two people can have the same experience period. Each experience derives from the interaction between the staged event and the individual's prior state of mind and being." (pp. 11,12)
Pine and Gilmore talk about how manufacturers should 'experientialize' their goods, and how service providers can turn the delivery of their services into engaging theatre. The quality of the experience provided (meaning the extent to which it is enjoyable, memorable, educational, useful, etc.) will then determine the price that can be charged which, the authors maintain, will be higher than what could be realized for the good or the service by itself alone.
The concept of manufacturers 'experientializing' their goods is explained by the authors as follows:
"Many goods encompass more than one experiential aspect, opening up areas for differentiation. Apparel manufacturers, for instance, could focus on the wearing experience, the cleaning experience, and perhaps even the hanging or drawering experience...Other industries might create the briefcasing experience, the wastebasketing experience, or the mask-taping experience. If you as a manufacturer start thinking in these terms inging your things you'll soon be surrounding your goods with services that add value to the activity of using them and then perhaps surrounding those services with experiences that make using them more memorable.
Any good can be inged. Consider a simple baseball. The Rawlings Sporting Goods Company of St. Louis, Missouri, exclusive baseball manufacturer to the Major Leagues, introduced a ball that makes play-catching more engaging. This "radar ball" has a microchip in it that digitally displays how fast the ball has been thrown after each toss. Retailing for more than $30, consumers pay much more for radar balls than regular baseballs, which generally go for less than five dollars each. Information about a ball's physical speed has long been available via radar guns, but those cost around $1,000 and few little league, high school, or American Legion teams own one. The radar ball makes it affordable to know a kid's throwing velocity. But the real value lies in the new social interaction generated between two people playing catch. Rawlings used simple information technology to make playing catch a richer experience." (pp. 16.17)
Many business enterprises, fully embracing this concept of the experience economy, have taken to providing themed experiences for their customers (or guests). The authors present five principles that in their view are critical to the staging of a successful themed experience for a customer:
Once a company realizes that it is in the business of staging experiences, there are four forms of theatre that it should consider using to do this. Pine and Gilmore have invented a portfolio approach to classifying these different forms of theatre, according to two dimensions: the first being whether the performance is stable (the same each time) or dynamic (changing each time), and the second being whether the audience itself is stable or dynamic (i.e. likely to provide feedback and input that must be incorporated into the performance) to guests. This generates the following categorization scheme:
These four types of theatre all have their place in the business world:
The authors end the book by discussing the next logical conceptual position in their framework (commodities, goods, services, experiences...) Eventually, they maintain, experiences will become like commodities (a situation that is currently exemplified by the expression "been there, done that"), and individuals will seek out the next level of economic offering. This next level, they say, is that of transformations, where the customer literally becomes the product. Companies will then be in the personal transformation business. For example:
"Another industry with the potential to get into the business of eliciting transformations is higher education. Consider the Harvard Business School. Its vast intellectual resources professors, classes for both graduate and undergraduate degrees, executive education programs, the Harvard Business Review and Harvard Business School Press, and various and sundry newsletters, videotapes, CD-ROMs, Web sites, and other teaching resources make it a perfect enterprise for transforming individuals into business executives prepared to face any strategic challenge. To do so, though, it would have to extend itself beyond selling book and magazine goods, information services, and educational experiences to viewing its business as changing customers...
Such transformation offerings will emerge across almost every industry that today views itself as part of the service sector." (p. 168)
The Experience Economy contains much thoughtful analysis, and is quite a philosophical statement on the nature and role of the business enterprise. If a little preachy at times, and if the categorization of businesses into the entertainment economy framework is a little forced in some cases, it nevertheless remains on balance a very insightful assessment into current business trends across many industries.
THE TCI MANAGEMENT CONSULTANTS RATING:
IF YOU HAVE ANY COMMENTS ON THIS REVIEW (I.E. DISAGREEMENTS, ADDITIONAL PERSPECTIVES, ETC.) OR SUGGESTIONS FOR FUTURE BUSINESS BOOK REVIEWS, WE'D LIKE TO HEAR FROM YOU! CONTACT US AT firstname.lastname@example.org
• • • •
TCI Management Consultants
Copyright © 2014, TCI Management Consultants. All rights reserved.