Experience Economy 

written by Hassan Chakir, Taru Jytilä and Flóra Lang

1.Introduction

Adam Smith made an statement two hundred years ago in The wealth of nations, that services are “unproductive labour”. Services could not be counted and they did not leave any history that work had been done. (P. Bine & H. Gilmore, 12)

Aim of this essay is to define the terms for experience economy and demonstrate how this economy is currently behaving.

2.1. Introducing the experience economy

In 1994 Pine and Gilmmore stated that the ones understanding that experiences are a distinct economic offering , will succeed. A shift from services to experience economy had started. Previous economic shift had been from Industrial economy to Service economy twenty years ago in the 1970’s. Mass customization will turn goods into services and services into experiences. Goods and basic services are no longer serving the people, they are graving for more and more. The economy of experience will require the workers to think of the business as a theater play in which they are the actors in it. Already in the 90’s, Las Vegas was known as the experience capital of America. Slot machines, gambling, theme hotels and virtually everything is designed for experience. There is the down side of the Vegas experience as well, such as alcohol, drugs and prostitution. Unfortunately all of these are part of the experience economy as any other form of entertainment. ( P. Bine & H. Gilmore Preview ) 

Greatest difference between a service and experience is that when buying a service, there are some activities being done without the client, on their behalf. When buying an experience the client pays for being included in the activity. Humans are developing and since all of our human basic needs are being handled, we start to grave for more, its called a natural progression.  (P. Bine & H. Gilmore, 2. ) 

“As the experience economy unfolds, many experience stagers won’t stay in business” – P. Bine & H. Gilmore 

2.2. Experience economy example

Parents don’t take their children to Walt Disney park because of the event itself, but that they can share that special experience in their conversations for weeks , months or even years. They have a shared experience that they can talk about. (P. Bine & H. Gilmore, 13) 

3. Economic offerings

3.2. Commodities

Product has been taken to the same level with other producers and the only difference the client sees is the price difference. For the consumer the products are the same. ( W, Kenton. 2022. ) 

Coffee is highly commoditized , but there are 4 different value levels for how to sell it. You can harvest and sell it fresh, grind it and pack it up and sell it, coffee shops might sell it or the last and the fourth way is to add value to it and sell it as an experience in a five-star restaurant. The value of the commodity can expand magnitude by two orders. ( P. Bine & H. Gilmore 1 ) 

True commodities are fungible, which can not be differentiated. They are being sold on simply on supply and demand. Profit can be done, but only when the demand exceeds supply.  ( P. Bine & H. Gilmore,  6 ) 

3.3. Goods

Goods are made from raw materials. Companies are producing goods, which are sold to customers from the shops shelfs. Price for goods is being determined with the cost of manufacturing as well with the differentiation between the manufacturers. Good examples are computers, cars or soft drinks.   ( P. Bine & H. Gilmore 7 ) 

Greate example on turning goods in to a empiric brand is Nike. How were they able to make 20$ sneakers worth of 100$? They have nailed the advertising and creating experiences with their goods.  Although Harley Davidson has also been felicitous, I mean people are tattooing the brand logos to themself. ( P. Bine & H. Gilmore 17 ) 

3.4. Services 

Services are intangible activities that seller is doing for the client. Good example could be getting a tattoo or even a hair cut. Currently services, dominates the employment rates. Technological and operational innovations have reduced the workers’ amount in harvesting and in making goods. People desire service. People are cutting down costs in commodities and good in order to buy better services. Decisions are being more done based on price and availability.  ( P. Bine & H. Gilmore, 9) 

3.5. Experiences

Company uses their premises as a stage and offers goods as props to engage the client. Cliens want experiences which they will remember. Clients are guests. They want to be included in the activity that the service provider is providing. Whereas individuals have already cut down on commodities and goods. They are now preferring to use their money for experiences rather than in services. They want sensations created in the customers. Experiences are personal, how the individual is receiving them. The individuals receiving the experience might have totally different experiences. Some claim that experiences are just submerged from services to make the clients buy the product in today’s fast changing world. Experiences are not something that you could later on purchase, only a memory of an individual. The companies brave enough to capture this economical value, will not only acquire a spot in consumers mind but also will capture their hard earned money.  Experiences can be sensation of emotions, spirits, physical or intellectual level. (P. Bine & H. Gilmore, 12 ) 

4. The 3-S Model

Customer may experience joy and make memories,  if they feel surprised, which is the most powerful component in creating experiences. The three S:s comes from surprise, sacrifice and satisfaction. When placing the customer in a surprising situation, between sacrifice and satisfaction, the explicit outcome is what they were expecting to receive and what they actually perceive. 

Customer surprise  =  What customer gets to perceive – What customer expects to get

Companies try their best of reaching the expectations of customers and by going above them, using the phraze “ Staging the unexpected”. It is not easy to rise the customer satisfaction and not let the customer feel like they sacrificed a thing, in order to even start to think of  surprising  them. Question to customers will be: What would you remember? 

4.2. Example of the surprising element

The surprising elements on plane could be for example, an interesting conversation with a seatmate, might make you remember that flight. Just because, something extraordinary from a usual flight had happened. Instead of imposing normal expectations, managers need to get creative in their thinking and consider how they might use certain service dimensions to create memorable surprises.

(P. Bine & H. Gilmore, 12. ) 

4.3. What Makes An Experience?

In the experience economy, according to Jim Gilmore and Joe Pine, time is the currency of value. Consumers see value either in time well spent or in time well saved.

“Consider what turns a house into a home, and turns any space into a place.” (Pine & Gilmore, 2011). This quote represents well the kind of aim that companies should have in order to make an experience, or maybe say, to make a memorable experience for the customers. Therefore, the companies are required to design an experience before charging for it. At this point the innovation and perceptiveness will play a role in revenue. However, experiences (goods or services) can be challenging with their different characteristics and mannerism.

Many businesses may consider that by adding any sort of entertainment, they could have entered the experience economy, and increase the pricing because of it. But staging experiences is not about entertaining the customers as it is more about engaging them. (Pine & Gilmore, 2011)

5. The four realms of an expereince

5.1 Introducing The four realms of an experience

Jim Gilmore and Joe Pine constructed four dimensions to stage an experience (view figure 2). On one hand, think of an experience in a horizontal line, on one edge of the line, there is an active participation. On the other edge, there is a passive participation, in which customers do not the performance (Pine & Gilmore, 1998). For example, people who watch TV, read this essay, listen to music, are on the passive participation side. For the active participation, in which customer play key role in the performance of the experience, an example can be joining a Paja, or a class.

On the other hand, a vertical axis exists in addition to participation line. The vertical line is describing the kind of connection the customers have with the environment of the event. At one end of the spectrum, you see absorption. And immersion at the other end. For example, A movie theatre experience with an audience, a huge screen, and stereophonic sound is more immersive than watching the same movie at home.

Figure 1 The Four Realms of an Experience (Pine & Gilmore 1998)

Experiences may be classified into four major groups based on where they sit on the two-axis spectral spectrum. And these groups are known as entertainment, educational, escapist, and esthetic.

5.2. Entertainment experience

Entertainment, it is one of the earliest sorts of experience, as well as one of the most common and advanced. Entertainment arises as a type of experience when people “passively absorb” events through their senses. As the experience economy flourishes, people seek for novel and exclusive experiences. Nonetheless, some encounters include entertainment, making others laugh, or simply having a nice time. (Unur & Seker 2022)

5.3. Educational experience

Similar to entertainment experiences, educational experiences also require a guest to “absorb” the events. However, unlike entertainment, educational experiences require a person to participate “actively” because they aim to inform and enhance people’s knowledge and skills through active mind and body engagement. Tourism agencies offerings can include educational aspects in order to expand the knowledge of tourists. (Unur & Seker 2022)

5.4. Escapist experience

Pure entertainment is not the same as escapist experiences, it is the opposite. Experiences for escapists include a far higher level of immersion than do events for amusement or Education. Visitors to escapism events are fully submerged as engaged participants in them. Examples of essentially escapist environments can include gambling at casinos, playing a video game. (Pine & Gilmore 2011)

5.5. Esthetic experience

The esthetic is the final and fourth experience domain to examine. In these kinds of experiences, people are fully present in an event or scene, but they barely have any influence over it, hence the surroundings remain mostly unaltered. (Pine & Gilmore, 2011) It is just like going to an underwater restaurant that is offered by ConradMaldives. People do enjoy the experience of having their food in a different environment, in which they immerse but they can’t affect it at all.

The best experience a business can give to its guests is the one that combines both the places and tools that shape the memories. Its entire structure encourages people to step inside and come back time and time again. And that’s what Jim Gilmore and Joe Pine called “the sweet spot”.

At last, experiences they need to meet the requirements or the expectations of the customers. They have to be properly designed; they have to be as immersive as possible. It is the same thing as designing, researching or developing a product or service.

6. Experience economy in entrepreneurship

6.1. Disembedding and reembeddig ideas

Based on Hjorth and Kostera (2007, 21-24) the experience economy is a result of entrepreneurial activities with the usage of the model of translation and by translate ideas. The translation process is the exhibition of new ideas, whether they work or now. The translation proceeds in an alternating way between “disembedding” and “reembedding” between ideas and applications. Disembedding happens when the idea is let free to be transferred into new contexts, while reembedding is when it returns to the source and is implemented in some shape or form through entrepreneurship or management.  

The reason for translation will vary depending on the desired outcome. The goal may be uniqueness, such as creation of art (unique experience). Or it can be an improvement, like coming up with something more beautiful for an already existing solution (mediation experience), thus creating a better experience the users. Last but not least it may be the experience that gets its value from being part of a bigger entity, has many parts or is mass produced (massexpereince). 

6.2. Unique experience

Lindquist (2007, 27-29) compares art to entrpereneurship. The individuals who could and can renew what’s going on around them, can revolutionaize the market and create a better experience. This change may happen by the using different resources, using resources differently, and “endure social pressures for conforming the norms” are part of both the  artists’s and entrepreneurial mindset. The ones with this mindset are ready to assimilate to the new conditions and are creative to come up with such conditions and situation themselves, thus being groundbreakers.

6.3.Mediation experience

Mediation experience can be observed in many ways when it comes to entrepreenruship, but it anyways refers to the development of an already existing experience. The reason for development may come from the changed environment, usually technology. Examples of mediated experiences include virtual reality (VR) simulations, augmented reality (AR) applications, live streaming events, online gaming environments, and interactive multimedia content. However, mediation experience does not need to be virtual, for it to be connected to technology. For example Batho (2007, 77) mentiones film festivals as an example. Nowadays, movies are very easily available, so taking away the new technologies creates a mediated experience by watching films together with others in a public space. “The force that drives the process is that of desire”

6.4 Mass-experinece

In the experience economy, the concept of mass experience pertains to the replication or repetition of a singular experience within a larger context. This can involve the continuous staging of events, the mass production of standardized goods such as furnitures, or the replication of a consistent encounter across various locations or settings such as restaurant or hotel chains. The emphasis is on ensuring uniformity and consistency in the delivery of the experience, often catering to a broader audience with a standardized offering. “The motivating force here is that of repetition.

7. Conclusion 

All in all, the experience economy highlights a profound shift in consumer preferences, emphasizing the prioritization of experiential engagements over conventional products and services. This transformation brings out the need for classification of economic offerings into categories: commodities, goods, services, and experiences, each catering to specific consumer desires and expectations.

Significantly, experiences occupy a unique position, fostering intimate connections with consumers and forging enduring memories that transcend the boundaries of traditional consumption patterns. Through the 3S model, it becomes apparent that surprise acts as a keypoint in shaping customer experiences, underlining the imperative of surpassing expectations to craft memorable and impactful encounters.

Furthermore, the segmentation of experiences into the four realms—entertainment, educational, escapist, and esthetic—illustrates the diverse scope of experiential interactions and their varying degrees of customer participation and immersion.

In the realm of entrepreneurship, the concept of the experience economy aligns closely with the translation of ideas, wherein the development of unique, mediated, and mass experiences reflects the adaptive and innovative aptitudes of businesses in response to evolving consumer demands. 

Overall, a comprehensive comprehension of the dynamics of the experience economy is critical for businesses to strategically conceptualize and deliver compelling experiences that not only meet but exceed the expectations of contemporary consumers.

Resources

Ferhan, S. & Kamil U. 2022 The experience economy analysis of distinct destinations. https://dergipark.org.tr/tr/download/article-file/2184091 

Hjorth, D. & Kostera, M. 2007. Entrepreneurship and the Expereince Economy. Published 2.7.2007. Read 20.10.2023.

Pine B. &  Gilmore H. 1999. The Experience Economy.

Pine B. &  Gilmore H. 2011. The Experience Economy, updated edition.

Pine B. &  Gilmore H.1998. Welcome to the Experience Economy. Harvard Business Review.  https://hbr.org/1998/07/welcome-to-the-experience-economy

Sanat, R. 2021. Winning In The Experience Economy. Forbes. https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2021/04/07/winning-in-the-experience-economy/

Will Kenton, 2022. Commoditize: Definition, Examples, Business Strategies. Investopedia. Last updated 13.12.2022. Retrieved 19.10.2023 https://www.investopedia.com/terms/c/commoditize.asp