WHY COMPANIES ARE MOVING INTO THE EXPERIENCE ECONOMY

One of the by-products of living in a fast-paced world, is that there is little time to reflect, connect, explore and share. For many of the Boomer

jumping on the fast moving ‘conveyor-belt of life' and sticking on it, no matter the velocity, was just what you did, albeit occasionally reluctantly. Ticking off the milestones of adulthood along the way (owning a house, a car etc) was central and acquiring possessions was an inevitable part of that journey. Those acquisitions were the markers of wealth and success.

For the younger generation, those generally labeled as Millennials, life is shaping up differently, with them questioning the 'conveyer-belt' of their Boomer parents and their lifestyle possibilities. For them, happiness isn’t as focused on possessions and career status, 'experiences' trump possessions. This focus on ‘experiencing life’ is driving the growth of an economy based on the consumption of experiences.

Put simply, the value ascribed to an experience is greater than a purchase e.g. you get more pleasure from a ski trip weekend than purchasing a new ski hat, given you can replay the memories of the trip and recount to others the weekend’s adventure.

THE EXPERIENCE ECONOMY IN A NUTSHELL:

Recognition of the emergence of the Experience Economy was championed by Joseph Pine and James Gilmore and with their best-selling book ‘The Experience Economy’ [1994]. They refer to the ‘Experience Economy’ as the progression of economic value. Unless companies want to be in a commoditized business, they will be compelled to upgrade their offerings to the next stage of economic value.

The Experience Economy concept sees the economy as ever evolving, with offerings moving from low-value tangible things to high-value intangible things.

Let’s look at an example close to the hearts of Melburnians – coffee.

Pine & Gilmore: “When I prepare coffee at home, the beans cost me about 20 cents per cup of coffee. When I want to drink those same coffee beans in the restaurant nearby, I pay 2 euros. Ten times as much. But I am not complaining, because the restaurant buys and prepares the coffee. That is service industry. However, when I want to drink those same coffee beans at, say, San Marco Piazza in Venice, I pay 20 euros per cup of coffee. That is Experience Economy. You do not pay for the coffee bean. You pay for the Experience. And you are prepared to pay hundred times as much compared to drinking the coffee at your home. Welcome to Experience Economy.”

So, what does that mean?

Here's another example oft cited: Many years ago, a birthday cake would be made from scratch with ingredients [commodities] – for a few dollars. (Some of us still do this!).

Later, the time-poor were able to short-cut the process via cake mixes (remember them?). [consumer good]

Then the speed of life moved into higher velocity. We were exhorted to nip into a cake shop on the way home from work and purchase ready-made. An expensive purchase, but hey – time is money. [service].

These days we recognize that the birthday cake is only part of the experience – we upscale and outsource an event, a party, a fun experience - at many multiple times the cost. Memories are everything after all...... [experience]

The birthday cake example is a good illustration of climbing economic value.

Image: Pine & Gilmore : Harvard Business Review

In essence:

Commodities are fungible, elemental
Goods are tangible
Services are intangible
Experiences are memorable
WHY IS THE EXPERIENCE ECONOMY EMERGING?

Consumers are looking for more than products and services. They are seeking to buy irreplaceable memories, not things

'Things' are losing their caché:

For centuries, economic prosperity has been equated with a consumerist society that has ownership at its core. In today’s hyper-connected world however, we know there are changes afoot, with the sharing economy, as expounded by Rachel Botsman, reshaping our values. Ownership is no longer being necessarily seen as pivotal to a quality lifestyle.

Personal experiences help build your brand:

Consumers are seeking experiences that are ‘personal’ that often help them add to their personal branding. In fact, via apps and social media they are able to become their experience co-creators. Standardized, commoditized product is not for them. Via the new social platforms, they are able to share their ideas along the path-to-purchase, [dreaming, researching, purchasing, experiencing], reflecting their personality.

It's all about FOMO:

Fear Of Missing Out is also another key driver. Again, social media makes visually exciting life-sharing events very powerful. The fear that these events might otherwise pass one by is a catalyst to action. Experiences are harder to compare than material goods and can mean less anxiety.

Humans rule:

More than ever in the ‘connected world’, an age where technology means that consumers have more virtual relationships than face-to-face relationships, human connection is important. We see the urge for travellers - both young and ‘not so young, to ‘travel and live like a local’. This is well recognized by the hospitality industry, which is designing its new highly targeted hotel brand experiences to offer local experiences, with local people.

Home ownership is out of reach:

This is a hot topic that attracts tense inter-generational opinion as to the 'real' reason for the challenging house affordability. Nonetheless, ownership is generally seen as being out of reach by many Millennials. Others simply do not want to be encumbered with large debts to buy a home, preferring to spend their money on “experiences” such as entertainment, eating out and extreme sport, and perhaps living and working overseas. Between 1982 and 2011 in Australia, the home ownership rate for young adults aged 25 to 34 years dropped from 56 per cent to 34 per cent.

Happiness comes from doing:

Doing things, not acquiring things make you happier. This is a hallmark of Millennial generation behaviour and a strong influence in the emergence of the Experience Economy. Instead of buying things, the aim is to do things. Adherents to this philosophy are found in other generations also.

Immersive experience are shareable experiences:

Millennials really crave immersive experiences. The experiences are seen as a way of ‘bonding with their tribe’ of creating irreplaceable memories. They are willing to spend more money on them; from concerts, dining and other social events, to athletic pursuits and cultural experiences.

“72% say they would like to increase their spending on experiences rather than physical things in the next year, pointing to a move away from materialism and a growing demand for real-life experiences”. Eventbrite

This focus on ‘experiencing life’ is what is supporting the growth of an economy based on the purchase and consumption of experiences.

Technology is the enabler

The rise of the internet and mobile adoption is a game changer; a tectonic shift in how we experience the world. The growth of online ecommerce platforms and recommendation apps for restaurants, hip bars and cool events, means consumers who are living in the moment, are well informed and easily connected to events and experiences. We are seeing more spending on these experiences via their smartphones.

In essence:

Internet maturity | Smart Phone Apps | Cloud Technology | Big Data | Mass personalization | Long tail media in the form of targeted content | Highly appealing visual platforms - [Instagram, Video, AR technology, Live-streaming etc.] | Ecommerce platforms

are all helping to deliver the level of choice, personalisation, immersive experience, shareable-moments and easy purchase for which today's consumers hanker.

The following sectors feed easily into the Experience Economy concept: