Lesson 1. An Introduction to Experience Economy Strategies

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Lesson 1. An Introduction to Experience Economy
Strategies
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Quick Links

• 1.1 A Progression of Economic Value from
  Commodities to Experience
• 1.2 Defining the Four Experiences (4Es)

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Introduction

• Successful small businesses have demonstrated
  qualities such as vision, innovation, opportunity
  recognition, a passion for change, exceptional
  staffing, and extraordinary service (Morris,
  1998). Exceptional staffing and extraordinary
  service reflect a customer-focused strategy,
  which remains a key competitive strategy for
  small businesses (McGee Love, 1999).
• Successful small businesses are keenly aware of
  the importance of customer value and emphasize a
  quality image for their store through
  customer-service (McGee Love, 1999), but
  customer value today is more than quality
  products and superior customer-service. Value for
  todays customer is also coming from positive,
  engaging, memorable experiences.

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Introduction (continued)

• Creating these positive, memorable experiences is
  where qualities of vision, innovation,
  opportunity recognition, and a passion for change
  come into play for the small business operator.
  These positive, engaging, memorable experiences
  (experiential value) result in differentiation
  from competitors, large and small (Pine
  Gilmore, 1999)

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Introduction (continued)

• Adding value from positive, engaging, memorable
  experiences can offer competitive advantage for a
  business that
• Fully satisfies customers
• Builds loyal customers
• Increases customers willingness to pay more
• Encourages positive word-of-mouth
• Recruits new customers
• Enhances the business image
• Differentiates the business from its competitors
• Makes it difficult for competitors to copy the
  business

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Introduction (continued)

• Small businesses must develop opportunities that
  create value through innovation (Drucker, 1985).
  In the following lessons we present Pine and
  Gilmores (1999) Experience Economy strategies
  that help an operator innovate his/her business
  by creating experiential value for the customer.
• These lessons a) outline Pine and Gilmores
  perspective and four types of strategies for
  creating experiential value with examples of each
  found in small businesses, b) provide tools for
  the operator to assess experiential value of a
  business, c) outline how to communicate the
  experiential value of the business in the firms
  Web site, and d) provide tools to assess
  experiential value of the web site.

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1.1 A Progression of Economic Value From
Commodities to Experience
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1.1 A Progression of Economic Value From
Commodities to Experience

• According to the Experience Economy (Pine
  Gilmore, 1999) framework, todays customers want
  more than just high quality goods and services.
  They want value from positive, engaging,
  memorable experiences along with high quality
  goods and services. Value refers to the benefits
  the customer perceives he/she gets not only from
  the goods and service, but also from interactions
  with people and places, which help shape the
  experience.

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1.1 A Progression of Economic Value From
Commodities to Experience

• Consider the idea behind the once small business
  of Starbucks that has burgeoned into a successful
  public company. The focus on design with the
  shops rich warm colors, contemporary
  furnishings, stylized graphics, and carefully
  selected music makes it stand apart from other
  coffee shops and creates a memorable experience.
  Some Starbucks have added Hear Music media bars
  where customers can explore the music (including
  the music programmed for their stores), get
  recommendations, and burn selections from a vast
  library of songs. This is the way Starbucks has
  innovated its unique experience to add value for
  its customers.

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1.1 A Progression of Economic Value From
Commodities to Experience

• In their Experience Economy framework, Pine and
  Gilmore (1999) explain that sources of economic
  growth in the U.S. have shifted from extracting
  raw materials, called commodities, to processing
  the commodities to making goods, then to offering
  services, and now to staging positive, engaging
  memorable experiences.
• Pine and Gilmores Progression of Value

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1.1 A Progression of Economic Value From
Commodities to Experience

• An example, using the commodity of corn,
  illustrates how this progression of value has
  resulted in an innovative small business. Value
  is added to corn when the commodity is processed
  and boxed as breakfast cereal shown in Figure
  1.1. The local diner that brings the cereal in a
  bowl with milk to the customer is adding value
  through service. But how do you make cornflakes
  memorable? The small business, Cereality has
  changed breakfast cereal into an engaging
  experience through mass customization. In mass
  customization, consumers engage in creating a
  unique product to their individual specification
  by selecting from an array of options offered by
  the business.

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1.1 A Progression of Economic Value From
Commodities to Experience

• The creative process becomes an important source
  of value for the consumers in mass customization
  (Fiore, Lee, Kunz, 2004). Cereality customers
  creatively combine two cereals, a milk, and a
  topping, including malted milk balls, and eat
  from a traditional take-out container.

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Figure 1.1 Pine and Gilmores Progression of Value
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1.1 A Progression of Economic Value From
Commodities to Experience

• Movement to experiences as a source of economic
  growth reflects expansion, not substitution, of
  customer expectations. Customer expectations for
  high quality goods and services are consistently
  met, so now their expectations have expanded to
  include positive experiences. Consistency in
  quality goods and services means that businesses
  need to add value in a new way to differentiate
  themselves from the pack of competitors.

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1.2 Defining the 4Es Education, Esthetics,
Escapism, and Entertainment
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1.2 Defining the 4Es Education, Esthetics,
Escapism, and Entertainment

• The experience economy offers four realms of
  experiential value to add to a business. Pine and
  Gilmore (1999) termed these realms, the 4Es. The
  4Es consist of adding Educational, Esthetic,
  Escapist, and Entertainment experiences to the
  business. The four experiences vary based on the
  customers active or passive participation and on
  absorption or immersion in the experience. Active
  passive participation entails the level of
  customer involvement in creation of the
  experience.

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1.2 Defining the 4Es Education, Esthetics,
Escapism, and Entertainment

• For instance, the customer can actively
  participate in a product trial or passively watch
  a product demonstration performed by a staff
  member. Absorption is occupying customers
  attention by bringing the experience into the
  mind and immersion is becoming physically or
  virtually a part of the experience itself (Pine
  Gilmore, 1999, p. 31).

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1.2 Defining the 4Es Education, Esthetics,
Escapism, and Entertainment

• The 4Es are differentiated by the form of
  customer involvement as shown in Figure 1.2.
  Passive participation of the customer in an
  experience offered by the business characterizes
  the Entertainment and Esthetic dimensions, while
  active participation characterizes Educational
  and Escapist experiences. The customer who
  passively participates in an experiential
  activity or setting does not directly affect or
  influence these experiential offerings, whereas
  an active participant will personally affect
  these activities and settings. The customer
  typically absorbs Entertainment and Educational
  experiences and immerses in Esthetic and
  Escapist experiences.

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Figure 1.2 Pine and Gilmores Four Realms of
Experience
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1.2 Defining the 4Es Education, Esthetics,
Escapism, and Entertainment

• A small business may focus on creating one
  experience or a medley of all 4Es. The Blue Bell
  Inn Bed Breakfast (BB) in Iowa, for instance,
  offers all 4Es. Customers actively participate in
  cooking classes where they learn about various
  cooking techniques and recipes (Education). The
  Inn offers music recitals inviting local
  musicians here customers passively absorb the
  performance (Entertainment). Customers actively
  immerse themselves in a murder mystery by taking
  on a character or role in the setting (Escapism)
  that is, they engage in solving the murder not as
  an audience member but as a character in the
  mystery. Customers passively immerse themselves
  in the homey, creative interior of the house
  designed by the Inns owner (Esthetics).

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1.2.1 The 4Es Educational Experiences

• Educational experiences increase the customer's
  skills and enhance his/her knowledge through
  active participation in the experience. The
  Educational experiences offered by four different
  types of small businesses (Accommodation/BB,
  Restaurant, Retail, and Rural Tourism) are shown
  in the next slide.

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1.2.1 Examples of Educational Experiences
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1.2.1 Examples of Educational Experiences
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1.2.2 The 4Es Esthetic Experiences

• Esthetic experiences entail customer enjoyment of
  an enriched, unique physical design. The customer
  enjoys passively appreciating or just being in a
  setting of the business.

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1.2.2 Examples of Esthetic Experiences
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1.2.2 Examples of Esthetic Experiences
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1.2.3 The 4Es Escapist Experiences

• Escapist experiences require that the customer
  actively participate in the events of a real or
  virtual environment. The customer shapes or
  contributes to the experience, which offers the
  customer a way of taking on a new persona.

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1.2.3 Examples of Escapist Experiences
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1.2.3 Examples of Escapist Experiences
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1.2.4 The 4Es Entertainment Experiences

• Entertainment experiences entail watching the
  activities and/or performances of others. The
  customer is not actively involved in the creation
  of the entertainment, but the mind is actively
  engaged during appreciation of the event.

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1.2.4 Examples of Entertainment Experiences
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1.2.4 Examples of Entertainment Experiences
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1.3 Summary of Lesson 1

• This lesson introduced concepts of Pine and
  Gilmores experience economy and reviewed how
  economic value has evolved from commodities, to
  goods, services, and experiences. The four realms
  of experience (4Es Educational, Esthetic,
  Escapist, and Entertainment experiences) were
  discussed as a means for adding value and unique
  competitive advantages for rural businesses. Each
  of the 4Es was defined and appropriate
  experiential Website examples provided for four
  types of business settings including
  accommodation/BB, restaurant, retail, and rural
  tourism.

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References

• Drucker, P. F. (1985). Innovation and
  entrepreneurship Practice and principles. New
  York HarperCollins.
• Fiore, A. M., Lee, S-E, Kunz, G. (2004).
  Individual differences, motivations, and
  willingness to use mass customization options of
  fashion products. European Journal of Marketing,
  38, 835-849.
• McGee, J.E. Love, L. G. (1999, March).
  Competitive advantage and the small independent
  retailer The role of distinctive competencies.
  Journal of Business and Entrepreneurship, 11(1),
  85-98.
• Morris, M. (1998). Entrepreneurial Intensity
  Sustainable advantages for individuals and
  organizations. Westport, CT Quorum.

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References (continued)

• Pine, B. J. II Gilmore, J. H. (1999).
  Experience economy Work is theater and every
  business a stage. Boston Harvard Business
  School.
• Images
• http//www.starbucks.com/hearmusic/inourstores.asp
  ?category_nameInOurStores
• http//www.cereality.com
• Education
• http//www.roundbarnfarm.com/attractions.htm
• http//www.thechoppingblock.net/
• http//www.explorewisconsin.com/CowCountryFabricsa
  ndQuilts/
• http//www.dutchvillage.com/park/activities.html

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References (continued)

• Esthetics
• http//www.worldvacationrentals.net/detailed/1157.
  html
• http//www.roadfood.com/Reviews/Overview.aspx?RefI
  D1900
• http//www.roadfood.com/Reviews/Overview.aspx?RefI
  D491
• http//www.sfc.ucdavis.edu/agritourism/agritour.ht
  ml
• Escapism
• http//www.bbonline.com/ky/maplehill/murdermystery
  .html
• http//www.flyingb.com/Calf20Feeding.jpg
• http//www.beautifulvista.com/Recent_Photos/Bike_R
  ide_Photos/Bob_Mountain_Biking.JPG
• http//www.scottszellwoodsweetcorn.com/cornmaze.ht
  m

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References (continued)

• Entertainment
• http//www.eliaschildhouse.com/hearthcooking.htm
• http//www.flyingt.com/
• http//www.metropawlis.com/setrecommend.htm
• http//www.oldmacsfarm.blackhills.com/Info/pr0402.
  jpg