July-August 1998 > Welcome to the Experience Economy

Welcome to the Experience Economy

As goods and services become commoditized, the customer experiences that companies create will matter most.

by B. Joseph Pine II and James H. Gilmore

How do economies change? The entire history of economic progress can be recapitulated in the four-stage evolution of the birthday cake. As a vestige of the agrarian economy, mothers made birthday cakes from scratch, mixing farm commodities (flour, sugar, butter, and eggs) that together cost mere dimes. As the goods-based industrial economy advanced, moms paid a dollar or two to Betty Crocker for premixed ingredients. Later, when the service economy took hold, busy parents ordered cakes from the bakery or grocery store, which, at $10 or $15, cost ten times as much as the packaged ingredients. Now, in the time-starved 1990s, parents neither make the birthday cake nor even throw the party. Instead, they spend $100 or more to “outsource” the entire event to Chuck E. Cheese’s, the Discovery Zone, the Mining Company, or some other business that stages a memorable event for the kids—and often throws in the cake for free. Welcome to the emerging experience economy.

Economists have typically lumped experiences in with services, but experiences are a distinct economic offering, as different from services as services are from goods. Today we can identify and describe this fourth economic offering because consumers unquestionably desire experiences, and more and more businesses are responding by explicitly designing and promoting them. As services, like goods before them, increasingly become commoditized—think of long-distance telephone services sold solely on price—experiences have emerged as the next step in what we call the progression of economic value. (See the exhibit “The Progression of Economic Value.”) From now on, leading-edge companies—whether they sell to consumers or businesses—will find that the next competitive battleground lies in staging experiences.

An experience is not an amorphous construct; it is as real an offering as any service, good, or commodity. In today’s service economy, many companies simply wrap experiences around their traditional offerings to sell them better. To realize the full benefit of staging experiences, however, businesses must deliberately design engaging experiences that command a fee. This transition from selling services to selling experiences will be no easier for established companies to undertake and weather than the last great economic shift, from the industrial to the service economy. Unless companies want to be in a commoditized business, however, they will be compelled to upgrade their offerings to the next stage of economic value.

The question, then, isn’t whether, but when—and how—to enter the emerging experience economy. An early look at the characteristics of experiences and the design principles of pioneering experience stagers suggests how companies can begin to answer this question.

Staging Experiences that Sell

To appreciate the difference between services and experiences, recall the episode of the old television show Taxi in which Iggy, a usually atrocious (but fun-loving) cab driver, decided to become the best taxi driver in the world. He served sandwiches and drinks, conducted tours of the city, and even sang Frank Sinatra tunes. By engaging passengers in a way that turned an ordinary cab ride into a memorable event, Iggy created something else entirely—a distinct economic offering. The experience of riding in his cab was more valuable to his customers than the service of being transported by the cab—and in the TV show, at least, Iggy’s customers happily responded by giving bigger tips. By asking to go around the block again, one patron even paid more for poorer service just to prolong his enjoyment. The service Iggy provided—taxi transportation—was simply the stage for the experience that he was really selling.

An experience occurs when a company intentionally uses services as the stage, and goods as props, to engage individual customers in a way that creates a memorable event. Commodities are fungible, goods tangible, services intangible, and experiences memorable. (See the chart “Economic Distinctions.”) Buyers of experiences—we’ll follow the lead of experience-economy pioneer Walt Disney and call them “guests”—value what the company reveals over a duration of time. While prior economic offerings—commodities, goods, and services—are external to the buyer, experiences are inherently personal, existing only in the mind of an individual who has been engaged on an emotional, physical, intellectual, or even spiritual level. Thus, no two people can have the same experience, because each experience derives from the interaction between the staged event (like a theatrical play) and the individual’s state of mind.

Experiences have always been at the heart of the entertainment business—a fact that Walt Disney and the company he founded have creatively exploited. But today the concept of selling an entertainment experience is taking root in businesses far removed from theaters and amusement parks. New technologies, in particular, encourage whole new genres of experience, such as interactive games, Internet chat rooms and multi-player games, motion-based simulators, and virtual reality. The growing processing power required to render ever-more immersive experiences now drives demand for the goods and services of the computer industry. In a speech made at the November 1996 COMDEX computer trade show, Intel chairman Andrew Grove declared, “We need to look at our business as more than simply the building and selling of personal computers. Our business is the delivery of information and lifelike interactive experiences.”

At theme restaurants such as the Hard Rock Cafe, Planet Hollywood, or the House of Blues, the food is just a prop for what’s known as “eatertainment.” And stores such as Niketown, Cabella’s, and Recreational Equipment Incorporated draw consumers in by offering fun activities, fascinating displays, and promotional events (sometimes labeled “shoppertainment” or “entertailing”).

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