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“Experience Economy” The Final Stage of Consumption

Have you ever thought there are thousands of companies who offer the same services? Then why do you always opt for a particular one every time you are about to purchase a service?

For instance, in Bangladesh, there are many super shops such as Agora, Shopno, Meena Bazar, etc. But let’s assume your favourite super shop is Unimart. The products these shops stockpiles are more or less the same. Then what is it about Unimart that makes it your favourite super shop? You may answer by saying, “Every time I go to Unimart, I have a good experience.” To elaborate on this statement, the reason a service stands out to you is the experience it offers. This right here is the central concept of the experience economy.

Experience economy also helps us to understand how non-essential services survive in times of recession. Let’s take a coffee shop for an example. Now, it is not technically an essential service provider, but for some people, it has become a part of their daily rituals. Therefore, they continue to purchase their products even when, logically, it makes sense to cut down on non-essential purchases. And the reason behind this is the experience the coffee shop provides transcends its service value. Meaning, when you assess their value merely from the service it provides, you overlook its special ingredient- the experience it stages.

What is the Experience Economy?

  1. Joseph Pine II and James H. Gilmore offered an eye-opening example in the opening chapter of their book “The Experience Economy.” They used coffee to showcase the four stages of ‘economic offerings.’ Coffee beans, a true commodity, are traded to markets by the companies that harvest them for a little more than 75 cents per pound which translates into 1 or 2 cents a cup (the pricing may be a little different now than at the time when this book was originally published in 1999). When the same coffee beans are roasted, grounded, packaged, and sold in a grocery store by a manufacturer it is no longer a commodity. The beans have transformed into goods now, and the price per cup jumps to between 5 and 25 cents, depending on brand and package size. Take those beans and brew them to sell by a hawker or in a roadside cart, vending machine, or a small restaurant. And now it has transformed into a coffee-making service, costing each cup 50 cents to a dollar. But serve that same coffee in a bistro or a five-star restaurant, or a branded café such as where the ordering, creation, and consumption of the cup embody a heightened ambiance or sense of theatre, and consumers gladly pay two dollars to five dollars a cup. Businesses that ascend to this fourth stage of value establish a distinct experience that envelops the purchase of coffee, increasing its value over the original commodity. To quote Pine and Gilmore,

“Indeed, in a world saturated with largely undifferentiated goods and services, the greatest opportunity for value creation resides in staging experiences.”

Both B. Joseph Pine II and James H. Gilmore see this creation of experience as the next stage of economic growth. They proposed, the experience economy is just like the agrarian economy or the industrial economy, but bigger and better. If we assess economic growth through Rostow’s perspective, then the first stage of growth is an agrarian economy, the second stage is an industrial economy, and then it transcends into a service-led economy, and lastly, in the age of mass consumption, our economy transfers into an experience economy. Now, the claim of Pine and Gilmore is not exactly similar to that of Rostow’s, but some similarities can be found in their argument on the ‘economic offerings.’

The above box shows four distinct economic offerings in different stages of the economy. But just knowing the names of the four economic offerings is not enough; you must understand the thin line that differentiates ‘commodities’ from ‘goods,’ ‘goods’ from ‘services,’ and finally, ‘services’ from ‘experiences.’

The Distinction between the Four Economic Offerings

Commodities: “True commodities are materials extracted from the natural world.” This means commodities are directly linked with farming and harvesting. After mining, collecting, or harvesting, the commodity companies try to yield a certain characteristic to it and then store it in bulk to further transport it in the market. One of the fundamental characteristics of commodities is that they are tangible and therefore interchangeable. Commodities cannot be differentiated; for example, you cannot differentiate a potato from another one. Because they cannot be differentiated, traders sell them in nameless markets where the price is determined by supply and demand. After the Industrial Revolution and the phenomenon known as the American System of Manufacturers, automation took over the world of manufacturing by storm. And as a result, all advanced economies irrevocably shifted to ‘goods.’

Goods: Goods are tangible products that are sold to largely anonymous customers. Commodities are used as raw materials for goods, and then they are transported to super shops or contained in large inventories. Because manufacturing processes convert the raw materials into goods, leeway exists to set prices based on the mode and cost of production as well as product differentiation. To the customers, goods are placed at a higher value than commodities because they can be put into immediate use, such as quenching thirst, writing, getting from one place to another, etc. On the one hand, the innovation in technology had gradually reached such a level that the number of workers required in manufacturing goods eventually began to decline. On the other hand, the vast wealth generated by the manufacturing sector and the number of physical goods accumulated increased the demand for services. And now, globally, service jobs have eclipsed traditional jobs in manufacturing and agriculture.

Services: Unlike commodities and goods, services are ‘intangible activities customised to the individual request of known clients.’ Service providers use goods to perform operations on a particular client (e.g., medical operations, haircuts, etc.) or on his/her property or possessions (automobile repair, lawn-mowing). Services are regarded higher by the customers because they help them to accomplish a specific task that they are unable to perform, whereas goods merely supply the means. Even though services as an economic offering are a mark of an advanced economy, we must remember economic growth is dynamic, technologies are advancing every day, and once what was thought to be a blessing has started showing signs of trouble. Service providers are currently facing three key challenges: 1) commodification trap, 2) disintermediation, and 3) automation.

In a Service Economy, the lack of differentiation in customers’ choices will make them choose goods solely based on price and availability. This price competition is not helpful in the long run for any manufacturer as it poses a greater risk to their profit margin. This situation is known as the commodification trap.

Disintermediation is when big companies sidestep retailers, distributors, and agents to connect directly with their end buyers. Both automation and disintermediation have hit the service sector with the same intensity that technological progress had hit employment in the goods sector during the twentieth century. All these signs point in one direction: the Service Economy has peaked, and now is the time for a new economy.

Experiences: Experiences are the fourth economic offering. Pine and Gilmore have tried to draw the line between services and experience in the following manner:

“When a person buys a service, he purchases a set of intangible activities carried out on his behalf. But when he buys an experience, he pays to spend time enjoying a series of memorable events that a company stages – as in a theatrical play – to engage him in an inherently personal way.”

The beginning of the experience expansion is traced to one man and he is Walt Disney. Disney accelerated his career by opening Disneyland in 1955. Rather than creating an amusement park, Disney created the world’s first theme park, which offers the guests, not customers, not only entertaining rides but also immerses them in different amusing stories. The cast members, not employees, stage a complete production where guests interact using all of their five senses. And as a result, each time, the guests experience a different show, and therefore, every experience is unique.

To this day, Disney is evolving with new offerings to apply its experiential expertise, and as a result, Disney is able to sustain itself even in this growing competition. All thanks to its revolutionary leap towards the experience economy.

Aurora- Nayeema Nusrat Arora

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