The Experience Economy


Today’s business climate is all about competition-we’re lean, we’re mean, but competing on price is not where it’s at. How do you create a lasting identity and relationship with your customer through your processes from marketing, sales and supply chain to keep them loyal?


The Interview: Having an “Experience” with Joe Pine

ChainLink: Joe, please tell us a little about yourself.

Joe: Well, I’ve always been a bit of a geek. Worked on computers since elementary school in the 1960s, obtained an Applied Mathematics degree, went to work for IBM analyzing the performance of computers. But I soon found I liked being a generalist more than a specialist, and so angled myself toward jobs where I could have influence over a wide breadth of activities. I left IBM over ten years ago, and as co-founder of Strategic Horizons LLP still work on influencing a wide breadth of companies. My personal mission is to figure out what is happening in the business world that few executives or managers have yet to see, and then develop ideas and frameworks to help them understand what’s going on and what to do about it.

ChainLink: You have authored/co-authored several books. What motivated your first book, Mass Customization?

Joe: It began with a project at IBM where I managed a group that brought customers and business partners into the development process of the AS/400 computer system. As we cycled customers through Rochester, Minnesota- even in the depths of winter- to help us debug the system, enhance its capabilities, and ready applications for its announcement, I realized that every one of these customers was unremittingly unique! They all wanted to use the system in different ways, while we had designed a multipurpose minicomputer for a large, homogeneous marketplace that simply didn’t exist.

So, moving to Strategic Planning, I happened upon Stan Davis’ 1987 book Future Perfect, where he coined the term “mass customization”. He talked about how technology was bringing down the cost of customization, and then eventually we’d be able to give customers exactly what they wanted at a price they were willing to pay. I realized that’s what we needed at IBM, and when the company sent me to the MIT Sloan School of Management to get my Master’s degree, I dedicated that entire year to working on the subject, eventually turning my thesis into the book Mass Customization: The New Frontier in Business Competition, which came out in 1993. What was an oxymoron 17 years ago and a new frontier eleven years ago is now the imperative for companies in industry after industry.

ChainLink: Obviously, your thinking has evolved over the years to the Experience Economy. How did that come about?

Joe: In speeches, workshops, and executive education sessions, I had often said how mass customizing a good automatically turned it into a service. If you look at the classic economic distinctions, goods are standardized, while services are customized- done just for a particular person. Goods are inventoried after production, while services are delivered on demand. Goods are tangible and service intangible- and part and parcel of Mass Customization is the intangible service of helping customers figure out what they really want.

So in one session this guy raises his hand and says, “You talk about service companies mass customizing as well. What does it turn a service into?” I immediately shot back, “Mass Customization automatically turns a service into an experience!” Never said it before, never thought of it before, but I knew it sounded great. So I said, “Hold on a second. I have to write that down. . . .” And as I thought more and more about it, I realized it was true- and that meant that experiences must also be a distinct economic offering, as distinct from services as services are from goods.

And that meant that as goods and services increasingly become commoditized, we would move to an economy based on experiences- the Experience Economy. Today, so many pundits and politicos express dismay at the offshoring of service jobs (particularly in the technology sector), but that’s simply the natural manifestation of ongoing economic development, repeating the same patterns the Agrarian and Industrial Economies went through before. Companies need to understand that goods and services are no longer enough; competitive advantage- and, at the macro level, new wealth creation- comes from conceiving and commercializing new experience offerings.

ChainLink: Technology and experience plays out in such things as games-that’s an industry that’s doing well-we’ve come a long way from Monopoly. But it’s like a convergence of technology, games and experiences and a $10 billion industry and growing-and you can charge more money-lots more money for these games. Is that the concept we are talking about here?

Joe: Absolutely! Games have become incredibly more experiential, engaging more of the senses (including haptic technology) with better narratives and more immersive environments. We end up being so engaged we spend much more time playing the games!

That’s a key distinction between services and experiences- time. For any company, ask if you want to spend more time with your customers, or less. Do your customers want to spend more time with you, or less? If the answer is less, then your service is rapidly commoditizing- and you may be doing it to yourself. If the answer is more, you have the opportunity to stage an engaging experience that will draw your customers in and get them to spend more.

ChainLink: Let’s talk about the experience concepts and how they apply to various industries.

Joe: One key concept is the theme. People tend to associate this with the over-the-top theming prevalent in Las Vegas or Orlando, or with under-realized theme restaurants. However, a theme is simply the organizing principle that makes any experience more cohesive, engaging, and enduring. Many hotels do this well, and my favorite is Joie de Vivre Hospitality in the San Francisco area. Each of its 20-plus properties is themed after a different magazine- but the company doesn’t tell you that! It harmonizes five key impressions from each magazine- such as adventurous, hip, funky, irreverent, and young-at-heart from Rolling Stone magazine for the Phoenix Hotel– knowing that if the hotel exemplifies those impressions, then everyone who loves the magazine will love the hotel.

A second concept is theatre. In the Experience Economy, work is theatre. Whenever in front of a guest, every worker is acting. Whether he knows it or not, whether he does it well or not, that worker is acting- and needs to act in a way that engages each guest. Here, any company in any industry that has direct customer interaction can create wonderful experiences by directing its workers to act. Think of Pike Place Fish Market in Seattle, selling true commodities- fish caught in the open sea- through the wonderful street theatre of its fun-loving and fish-throwing employees. Or of The Geek Squad in Minneapolis, where every worker is a wonderfully costumed Special Agent on a mission to seek out and eliminate computer problems. Since the company was bought eighteen months ago, see them infiltrating a Best Buy near you.

Indeed, what these two companies do for commodities and services, respectively, many manufacturers are now doing- that is, using experiences to generate demand for their core offerings. For in the Experience Economy, the experience IS the marketing. (Not coincidentally, that’s the title of an e-Doc my partner, Jim Gilmore, and I now have available exclusively on Volkswagen with its Autostadt theme park in Wolfsburg, Germany, Heineken with the Heineken Experience in Amsterdam, Vans with its Skateparks across the US, LEGO with its portfolio of experiences (many on the Web), and Apple with its unique retail venues- all exemplify this principle.

Our favorite example is the American Girl Place, first in Chicago and now in New York. This high-end doll manufacturer- now a unit of Mattel– wanted to create a retail presence, but didn’t create a store; it stages wonderful experiences such as a theater production, a cafe, a photo shoot, a doll hospital, and a hair salon. For each, it charges admission for the experience. Indeed, families can go into the place and pay well over a hundred dollars just for the admission-feed experiences, and then walk out having spent hundreds more on dolls, clothing, accessories, and so forth as memorabilia of those experiences!

The American Girl Place (along with most of the manufacturers mentioned earlier) further illustrates one principle for which Jim and I received a lot of flak when The Experience Economy was published five years ago: charging admission. People thought we were crazy, but we predicted companies increasingly would charge admission for their experiences- in effect, getting their customers to pay them to sell to them!That’s what truly differentiates experiences as a distinct economic offering. Now, we see that we were right, as dozens of manufacturers, retailers, restaurateurs, hoteliers, internet sites, and even B2B suppliers now charge admission for the experiences they stage.

ChainLink: How do businesses apply the principles in non-consumer arenas?

Joe: Every principle applies in B2B- for every buyer is an individual who increasingly desires to spend his time in engaging experiences rather than mundane activities.

Consider the technology used to sell to customers. I used to give presentations in Executive Briefing Centers at IBM, and can remember (barely) when black-and-white transparencies were the state-of-the-art! Then we moved to color, then video, then multimedia, until today all such briefings are sensory extravaganzas! At Johnson Controls Showcase in Milwaukee, the company plunges its prospective customers into the inky, cold darkness of winter or bakes them in the warm, arid heat of summer to simulate a power outage- and how using their controls would avoid such trauma.

In the northwoods of Wisconsin, Case Construction Equipment brings B2B buyers to its Case Tomahawk Experience Center, where they literally get to play with the equipment! The company found that this dramatically increases its close rates as compared to a customer just walking into a normal dealership.

And some B2B suppliers even find that they can create enough value from these experiences to charge admission for them! For example, consultant DiamondCluster in Chicago charges executives tens of thousands of dollars for three Diamond Exchange events a year, where they can learn how technology can inspire breakthrough solutions to current issues. Mid-Columbia Medical Center in The Dalles, Oregon, charges hospitals and other businesses for site visits, to see how they’ve created one of the most compelling experiences in the healthcare industry.

And beyond that, one company I work with intimately- Starizon of Keystone, Colorado- even charges for sales visits to its place!

ChainLink: How does it get away with that?

Joe: Because of the experience! A different kind of consulting company, we guide companies to transform themselves into premier experience stagers. The place the founders, Gary and Leigh Adamson, created in Keystone exemplifies all of the principles of experience design, and so just being there sets the transformation process in motion.

Indeed, Starizon views itself as being in the transformation business- charging not for the activities it performs but for the demonstrated outcomes the client achieves. In the last two chapters of The Experience Economy, we showed how experiences will eventually become as commoditized as goods and services, and therefore that companies will have to go beyond the experience to guiding transformations- where the customer is the product. Not just consulting companies, but healthcare, fitness centers, spas, publishers, and most every B2B supplier should understand that whatever they’re selling today is but a means to an end. Sell the end, rather than the means, and you’ll be much more economically rewarded.

ChainLink: How does one go about doing that?

Joe: There’s basically a three-stage process for any transformation. One, diagnosis- understanding customers’ aspirations and the gap between that and where they are today. Two, staged experiences- designing the exact set of experiences that will close the gap. And three, follow-through- ensuring that the transformation takes hold, and that the aspiration continues to be met over time. That’s where most consulting companies fail today- no follow-through! And of course key to all of it is customization, for it is customizing the experience that turns it into a transformation!

ChainLink: Let’s come back to Mass Customization for a minute. I think people have postponement and Mass Customization confused… I was happy you mentioned this in your book. Can you clarify the differences for our readers?

Joe: Mass Customization is efficiently serving customers uniquely. It involves producing on demand by scheduling modular resources to fulfill individual customer orders. Postponement is merely one method for achieving that, building “vanilla stock”, putting it in inventory, and then postponing the completion of the product until a customer order comes along.

The key to low-cost, high-volume customization is modularity, meaning an architecture defined by a linkage system and what modules can connect into it. Whether postponement is used or not, either the product itself or the process by which it is produced must be modular for it to be mass customized.

ChainLink: I look at many companies that are not coming up with good product or process innovations. They look like trouble on the way. Any warnings or final thoughts for these companies?

Joe: One method for discovering where to innovate that I always encourage companies to use is customer sacrifice mapping. Customer satisfaction is all well and good- but all it does is measure how well we’ve trained customers not to expect too much. Customer sacrifice mapping goes beyond expectations to examine the gap between the ideal offering individual customers want and what they have to settle for today. Examining this sacrifice will identify dimensions of customization along which companies can innovate for competitive advantage.

If you don’t innovate in terms of product or process- or experience!- then you will be commoditized.

ChainLink: Thank you!

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