Playing To Win
Strategy for the Experience Economy
Be in the Outcome Business, not an Input Business
Last week, my wife Marie-Louise and I had a conversation at the Mandarin Oriental Dubai with a staff member who we had known for some time, and he shared the good news that he had gotten an exciting new role at the hotel as Guest Experience Manager. That got me thinking about the ripple effect of a Harvard Business Review (HBR) article on the topic exactly 25 years ago. I thought it would be fun and useful to provide an update with my 42nd Year III Playing to Win/Practitioner Insights piece Strategy for the Experience Economy: Be in the Outcome Business, not an Input Business. You can find the previous 152 PTW/PI here.
Background
The HBR article in question was one of those pieces that proverbially launched a thousand ships, like Ted Levitt’s Marketing Myopia, Peter Drucker’s Managing Oneself, and Michael Porter’s What is Strategy. This one was Welcome to the Experience Economy by Joe Pine and Jim Gilmore, published in the July-August 1998 issue — exactly 25 years ago.
As is often the case, a simple and compelling story communicated the essence of the article:
“As a vestige of the agrarian economy, mothers made birthday cakes from scratch, mixing farm commodities (flour, sugar, butter, and eggs) that together cost mere dimes. As the good-based industrial economy advanced, moms paid a dollar more or two to Betty Crocker for premixed ingredients. Later, when the service economy took hold, busy parents ordered cakes from the bakery or grocery store, which, at $10 or $15, cost ten times as much as the packaged ingredients. Now in the time starved 1990s, parents neither make the birthday cake nor even throw the party. Instead, they spend $100 or more to “outsource” the entire event to Chuck E. Cheese’s, the Discovery Zone, the Mining Company, or some other business that stages a memorable event for the kids — and often throws in the cake for free. Welcome to the emerging experience economy.”
As with many great ideas, the article wasn’t the first tackling of the concept. One could easily argue that it is a logical successor to the quote attributed to newspaper publicity manager Leo McGivena sometime in the 1940s and first made famous by the aforementioned Ted Levitt in a 1969 book, The Marketing Mode, and then made still more famous by Clay Christensen in a 2005 HBR article, “Last year over one million quarter-inch drills were sold — not because people wanted quarter-inch drills but because they wanted quarter-inch holes.” The moral equivalent from Pine and Gilmore is that parents didn’t want a cake, they wanted a great birthday experience for their child — and were willing to pay 100X for it.
Though maybe not entirely original (and frankly, what is?) this article came at a propitious time and synoptically captured the idea for a wider audience — a real intellectual contribution to business.
Continuing Along One Experience Vector
Since 1998, the business world has continued to progress along one experience economy vector — and that is in improving the experience of buying and consuming an existing product or service and charging for the increased customer value. Four Seasons Hotels & Resorts has made a world-beating business on the back of a differentiated guest experience — and charges a pretty penny for it. Car rental companies improve the rental experience by allowing you to take whichever car you wish from a specified aisle. Flagship stores on the world’s leading high streets provide a halo experience to enhance the image of their brand everywhere else. Mayo Clinic distinguishes itself through a uniquely agreeable patient experience.
It is in this era that designers came to the fore in business, with Steve Jobs, the patron saint of design, leading the way. Apple made everything about the experience of purchasing a device, opening the box, getting started, and using it more enjoyably and frustration-free better than with any competitor. Unlike in 1998, in 2023 lots of folks started to have user experience in their title — like our Mandarin Oriental friend — and enjoy places closer to the seat of power than ever before.
This is all good. I am in favor of earning both greater customer loyalty and higher price premia for making the experience of products/services better for the customer.
Not What Pine & Gilmore Meant
However, it is not the experience economy to which Pine & Gilmore refer. Think about the cake example. The attractiveness to the customer was in Chuck E. Cheese’s providing something closer to the outcome that customers really wanted. It wasn’t just an input to what the customer wanted. It was exactly what the customer wanted.
Providing quarter-inch holes on demand is the experience that customers would want, not providing customers with a quarter-inch drill.
The experience economy is about figuring out what the user wants to accomplish and doing as much of that task as possible. I would argue that Tide Pods is an experience product success. The customer has always wanted cleaned, whitened/brightened, and softened clothes. Prior to Tide Pods, the inputs that laundry suppliers provided were bottles of detergent, bottles of bleach, and bottles of fabric softener (though some provided bottles that mixed some or all the ingredients). The consumer had to pour out the correct dosage of each and put each in the proper washing machine receptacle and then the ingredients did their job. The message of Tide Pods was: “We will do all those steps for you! Just toss a Tide Pod (or Pods) into the washing machine and it will clean, bleach, and soften perfectly. You don’t have to think about it.”
It eliminated annoying steps that the consumer needed to carry out to get the desired outcome. The proof that the ease of use makes a difference is that with Tide Pods, parents reported that for the first time ever, their teenaged sons would do the wash (without being ordered to). They were willing to do the small remaining task of tossing in a Pod, but not the more involved task of pouring the correct dosage(s) of products. Seen in this light, it is no surprise at all that Tide Pods have been a category-transforming, blow-out success.
Another blow-out experience success is Amazon Prime. The desired outcome is an item in the hands of the consumer in the consumer’s home. Everything else is an input. The prior process was to travel to the retailer, acquire the item, and bring it home. Amazon Prime said: “We will get rid of the annoying step of having to go to the retailer, find the item in the store, pay for it at the checkout counter, carry it to your car, and drive back home. All you have to do is ask for it and it will be delivered to your home.” That is an experience offering because it gets far closer to the outcome desired than the existing alternative.
In the B2B space, the entire outsourcing movement is part of the experience economy. The customer wants storage, not servers; calls answered, not call centers; paychecks delivered, not a payroll department. Outsourcers provide outcomes and the assurance that the customer can stop engaging in the input activities. And many of these outsourcing businesses are huge — like cloud — because they provide experiences, not products/services.
The Super Bowl as an Experience Offering
Done right, you can shift a product/service to the higher category of experience and the Super Bowl provides an excellent example. For its first three decades (1967–1990), the game was pure sports entertainment — and the highest level. The experience was excellent with more camera angles and the best commentators. But by the 1990s it took on a whole new experience dimension — and has increasingly provided desired outcomes beyond the broadcast of a sporting event.
In the 1990s, the marching band or generic musical entertainment at halftime, which often wasn’t even shown (or at least in its entirety) on television, gave way to bigger name musical acts. Starting in 2001, with Aerosmith, followed by U2, Rolling Stones, Prince, Bruce Springsteen et al., halftime featured pop music’s superstars, and became a can’t-miss part of the Super Bowl experience.
Perhaps more surprising, starting with Apple’s legendary 1984-themed Mac launch ad, the advertisements slowly but surely became a can’t-miss part of the show. It created a serious bathroom break dilemma. To relieve yourself, you either had to miss part of the game, a new-to-the-world ad or the halftime show!
As time went on, the Super Bowl became a social experience — an excuse for a Super Bowl party, which became such a tradition that purchases of the latest technology television sets spike before the Super Bowl because party hosts want to show off for their guests.
Now you talk about the halftime show around the water cooler at work, and rate all the commercials to compare your rankings to the ones published after the game in the major newspapers and magazines. You want to be part of the dialogue in a way that never happened when it was just a football game. With over 115 million viewers, the Super Bowl counts among the top handful of social events in the annual calendar of Americans, along with the major holidays.
The Social Experience Vector
I am intrigued that many of the most valuable experience offerings in the modern economy are social in nature — like the Super Bowl. The social dimension is the accelerator of its value — Super Bowl parties across America. Social media is, of course, the other major example of this. Facebook and Instagram were, and TikTok most certainly is, not just platforms for sharing updates, photos, videos. They are platforms for achieving a social experience outcome — getting famous, finding like-minded people, reinforcing friendships, etc. There are intense feedback loops that are critical parts of the experience.
This social driver of modern experiences was pointed out to me by folks at the Danish strategy design firm ReD Associates, with whom I have started to collaborate on the subject.
Practitioner Insights
A concept doesn’t have to be new to be valuable. The idea of the experience economy may be (at least) 25 years old, but it still holds much value. But by the same token, old concepts are often not ubiquitously employed. For many companies, I see big strategic opportunities in experiences.
Never stop trying to understand your customers better. And as you do, keep asking whether there are more things you could do to get them closer to their desired outcome. Are you just providing one input to the desired outcome? If so, can you improve the customer experience by providing more? Think Tide Pods, Chuck E. Cheese’s, and the Super Bowl.
And in the modern economy, thinks about customers in their social context. If you can move the needle on improving their social experience, you are in line for substantial rewards.
