The Harvard Business Review is a beguiling publication that divides opinion. Some think it stuffy. Some think it elitist. Others yet think it relevant only to the biggest of big businesses whose first box on the recruitment checklist is “Does she have an MBA?”
The reality is rather different, and I’ll hazard that those that think it stuffy, elitist, or judgmental haven’t read it recently or regularly. Yes, there are academic features on the commercial imperatives of digital transformation that might mean little to a pop-up coffee cart business in Hoxton. Though if that business were to channel some of the wisdom that appears in every edition of the HBR, they may very well find themselves challenging Starbucks in a decade or two. Or probably sooner, given the speed with which businesses can rise and fall as we approach the new decade with 2020 vision.
Much of what appears in the august pages of HBR is beautifully written, road-tested, case history-rich smarts from practitioners at the top of their game. What’s more, it’s relevant to the behemoths of global capitalism as it is for millennial-focused, upstart start-ups looking to disintermediate those same behemoths and do well by doing good into the bargain. The same, it must be said, goes for the HBR’s live events.
Earlier this week, I had the pleasure of attending one of those events, hosted by Warwick Business School. Not the WBS campus on the outskirts of South West Coventry. No, the WBS facility on the 17th floor of the Shard, towering above London Bridge Station (who knew?). And having washed down meaty nibbles with very passable vino, the packed, 120-strong audience sat back for a masterclass on the experience economy.
Our speaker was B. Joseph Pine II, the American founder of “design studio” (aka consultancy) Strategic Horizons. Pine is also the author of a string of HBR favourite books including Mass Customization, Infinite Possibility, and the reason for our gathering, The Experience Economy. First published 20 years back when the experience economy wasn’t much more than a twinkle in Pine’s eye, he’s just updated it with academic and practitioner partners to make it fit for the 2020s.
Joe started well. To all the nay-sayers of purpose – proper “Why do we get out of bed and even bother with this purpose malarkey?”, not short-sighted, woke-washing, save-the-planet style purpose – he said this: “While money should never be the purpose of any enterprise, money should be the measure of how you fulfil that purpose.” A cracking opener. We were in for a treat.
He went on to illustrate the shift from commodities to goods to services to experiences using the excellent example of coffee, moving from beans to ground packaged coffee to foodservice coffee to Howard Schultz’s development of “the third space”. At each stage in the process of development, additional value is added, allowing Starbucks to charge $5 for a cup of coffee, whereas at the bottom of the commoditised chain, the beans that go to make that coffee cost but 2c.
As you move up the experience ladder, the previous rung becomes commoditised and so devalued. Indeed, the sequential pressure of commoditisation crushes value in the stages that have flourished but then been superseded. And as you go up, the value generated by the service and then experience generate orders of magnitude more value. In the case of coffee, that’s as much as 250 times as much value. The apex – of experience – demands more than just making a damned fine coffee, Agent Palmer. It requires creating a tailored individual happening that leads to a positive memory, growing into a sustainable habit to which we attach emotional and ultimately spiritual value, going well above physical and practical. It’s Maslow’s hierarchy in action.
For Pine, the three key variables in the experience economy are attention, money, and time, all of which face stiff competition and limitations.
Attention is increasingly diverted and fragmented, as we all attempt to cope with the clutter of the modern, hypermediated environment. It’s increasingly scarce and advertisers interrupt consumers at their peril.
Money is also limited, consumable and when it’s gone it’s gone (within reason, and within available and expandable credit limits).
But time is the most limited (and finite) of all, and in the experience economy, it’s what brands and organisations must compete for most keenly of all. Experiences are all about time.
If commodities are money well-saved then products are money well-spent. It follows that services are time well-saved and experiences are time well-spent. Great commodities create great goods; great goods are the underpinnings of great services; and great services are the foundation stones of great experiences.
Pine’s 20 years-on update to The Experience Economy argues that brands and companies need to captivate and entire consumer attention using robust experiences across four critical realms: education, entertainment, escapism, and esthetics. And it’s not just his North American heritage which makes him mis-spell aesthetics; it also allows him to create a four-Es model, Ah! Consultants! (Well, it takes on to know one.) The four-Es model demands that experiences be robust, cohesive (themed around an organising principle), harmonised with cues in the physical environment, eliminating negative cues, and engaging – or at least evoking – all five senses.
Pine argues that there are no markets any more in the experience economy, just individual consumers. This heralds – he argues – a need for brands to stop marketing and (this is a bit hard to stomach, a bit of a stretch) “start consumering; reaching inside people on a customer-unique basis”. You can understand what he means, even if the language is a bit jarring. Certainly to Anglo ears.
The ultimate endgame of the experience economy is transformation – providing rounded, holistic experiences that improve people. Transformation is the goal of universities, gyms and fitness centres, travel and tourism destinations. It’s particularly relevant for travel and tourism because when we leave our normal, day-to-day environments and experiences, we are (psychologically) most open to change, most liable to achieve our aspirations. So, if experiences are time well-spent, transformations (or transformative experiences) are time well-invested. And this is why so many brands – from Disney to Harley Davidson, Guinness to Johnnie Walker – are now starting to shift advertising investment into creating genuine, authentic customer experiences. Indeed, the latest global, aggregated figures expected brands to spend $560bn-odd on media in 2019 and just shy of half a trillion on experiences.
When it comes to return on experience, Pine presents a simple ROI equation:
ROX = Incremental revenue / (Cost – Admission fees)
The variables represent the following:
- Incremental revenue: how much new money you make from providing experiences, divided by …
- Cost – how much it costs you to stage and create the experiences, minus …
- Admission fees – how much you can charge for entry to your experience, from Legoland and the Dublin Guinness Experience – officially Europe’s top tourist destination in 2017
What this equation shows is that, with the right experience created, experience marketing can generate infinite ROI. It can do this if admission fees – which range from cents per minute for Disney land to $2,000 per minute for Virgin Galactic – match or exceed cost. For when the denominator of an equation – the number below the line – is zero, the resulting sum is infinity. Genius!
Pine is a seasoned business writer, presenter, and consultant. Cut him and he bleeds relevant case studies. And although he wrote the rulebook for the experience economy at the end of the last millennium, it seems as though his freakishly accurate predictions have now become both reality and the new normal. And the new book is most definitely worth a read. Hey, it’s almost an experience in itself.
Sam Knowles is a data storyteller and the Founder & MD of Insight Agents. His purpose is to help organisations talk Human and sound like people. An established and sought-after trainer, speaker, and podcaster, he is the co-founder and co-host of the Small Data Forum podcast and chair of I-COM’s Data Storytelling Council.
Sam is the author of the critically-acclaimed book Narrative by Numbers: How to Tell Powerful & Purposeful Stories with Data (Routledge, 2018, with more at www.narrativebynumbers.com). This has just been followed by a sequel, How To Be Insightful: Unlocking the Superpower that Drives Innovation (also Routledge, May 2020, and more at www.HowToBeInsightful.com).