The raw beans to make a cup of coffee (a commodity) cost 1 or 2 cents. When a manufacturer roasts, grinds, and packages the coffee transforming it into a good, the price increases 25 cents. A brewed cup of coffee at a quick service restaurant (a service) can increase the value to between 50 cents and 1 dollar. If the coffee is served in an environment specialized in preparing special beverages in an environment that is enhanced with design furniture, music, free internet access, like Strabucks, the price goes up to 2 to 5 dollars for a cup.
A reason why experiences have become so important to businesses is that they are profitable. Compared with commodities, goods and services, the consumer price index shows that people are paying increasingly more for experience.
How did we get here?
Pine and Gilmore (The experience economy) argue that experiences are an economic force just like services and goods which can be intentionally produced or designed, consumed and measured. As competition in various industries increases, companies are seeking higher profit margins by turning their services and goods into experiences, which adds value and gives higher profits.
The experience economy is a new stage of economic offering. Economic development can be divided into several stages. An agricultural economy is based on commodities. People buy raw materials like wheat to bake their own bread, or wool to make their own clothes. With the industrial revolution people moved from countryside to cities to work in fabrics. There wasn’t time to make your own goods which now where produced for you. The era of mass manufactured goods had arrived. Further economic prosperity has increased automation and wages and decreased working hours. The available free time now is used to spend the available money in services: restaurants now cook your food, serve your meal and clean the dishes. Services are customized goods and have become so rooted in economy that services are becoming commodities, just as goods did. In order to differentiate, companies are moving from services into experiences.
Below is a TED talk by Joseph Pine where he talks about experience economy.
What do we mean by experience?
Experiences must provide a memorable offering that last for a long time (Pine and Gilmore). In order to achieve this, the company has to appeal to the customers’ sensations and emotions. Emotional engagement doesn’t happen overnight; like in all relations it is a result of bonding and trust. The result is the customers’ quest for authenticity as a way to verify if the product or service is worthy of their trust.
In the shift to an experience economy companies must orchestrate memorable events for their customers and that memory itself becomes the product. Customers are more and more willing to pay greater amounts for the experience and often prefer a product or service because of the better experience they receive from it. The added value drives sales and allows companies to differentiate themselves in a highly competitive market.
The Experience Economy by James Gilmore and Joseph Pine II
Why we fail by Simon Lombardi