Article for Quiz 1 Essay

As goods and services become commoditized, the customer experiences that companies create will matter most.

WELCOME TO THE

EXPERIENCE
ECONOMY
BY B.JOSEPH PINE I! AND
JAMES H. GILMORE

H

o w DO ECONOMIES CHANGE? T h e

entire history of economic progress can be recapitulated in the fourstage evolution of the birthday cake. 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 goods-based industrial economy advanced, moms paid a dollar or two to Betty Crocker for premixed ingredients. Later, when the service economy took hold, busy parents ordered eakes from the bakery or grocery store, which, at $io or $15, cost ten times as much as the packaged ingredients. Now, in the time-starved 1990s, parents neither

B. Joseph Pine II and James H. Gilmore are cofounders of Strategic Horizons LLP, based in
Cleveland, Ohio. They are coauthors of Every
Business a Stage: Why Customers Now Want
Experiences, to be published by the Harvard
Business School Press in January 1999. They are the authors of "The Four Faces of Mass
Customization" (HBR January-February 1997) and can be reached at pine&)gilmore@customization.com.

HARVARD BUSINESS REVIEW

|uÍy-AugUSI 199»

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 husiness that stages a memorable event for the kids-and often throws in the cake for free. Welcome to the emerging experience economy.
Economists have typically lumped experiences in with serviees, but experiences are a distinct economic offering, as different from services as services are from goods. Today we can identify and describe this fourth economic offering because consumers unquestionably desire experiences, and more and more businesses are responding by explicitly designing and promoting them. As services, like goods before them, increasingly become commoditized - think of long-distance telephone services sold solely on price - experiences have emerged as the next step in what we call the progression of economic value. (See the exhibit "The Progression of Economic Value.") From now on, leading-edge companies-whether they sell to consumers or businesses-will find

WELCOME TO THE EXPERIENCE ECONOMY

however, they will be compelled to upgrade their offerings to the next stage of economic value.
The question, then, isn't whether, but when - and how - to enter the emerging experience economy. An early look at the characteristics of experiences and the design principles of pioneering experience stagers suggests how companies can begin to answer this question.

The Progression of Economic Value

Difíerentiated

Stage

experiences

services

Competitive
Position

Staging Experiences that Sell

goods

Undífíerentidted
Premium

Pricing

that the next competitive hattleground hes in staging experiences.
An experience is not an amorphous construct; it is as real an offering as any service, good, or commodity. In today's service economy, many companies simply wrap experiences around their traditional offerings to sell them better. To realize the full benefit of staging experiences, however, businesses must deliberately design engaging experiences tbat command a fee. This transition from selling services to selling experiences will be no easier for established companies to undertake and weather than the last great economic shift, from the industrial to the service economy. Unless companies want to be in a commoditized business.

To appreciate the difference between services and experiences, recall the episode of the old television show Taxi in which Iggy, a usually atrocious (but fun-loving) cab driver, decided to become the best taxi driver in the world. He served sandwiches and drinks, conducted tours of the city, and even sang
Frank Sinatra tunes. By engaging passengers in a

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