The Experience Economy: Work is Theatre & Every Business a Stage by B. Joseph Pine, James H. Gilmore

From the Publisher

With The Experience Economy, Pine & Gilmore explore how successful companies — using goods as props and services as the stage — create experiences that engage customers in an inherently personal way. Why does a cup of coffee cost more at a trendy cafe than it does at the corner diner or when brewed at home? It's the value that the experience holds for the individual that determines the worth of the offering and the work of the business. From online communities to airport parking, the authors draw from a rich and varied mix of examples that showcase businesses in the midst of creating engaging experiences for both consumers and corporate customers. Make no mistake, say Pine & Gilmore: goods and services are no longer enough. Experiences are the foundation for future economic growth, and The Experience Economy is the playbook from which managers can begin to direct new performances.

Frank P. Stanek

Pine and Gilmore capture the essence of today's demanding consumer expectations and provide a creative, step-by-step script to help your organization to meet them.
 Harvard Manager's Bookshelf

The Standard

This book scared the hell out me. The pitch is that consumers are increasing in complexity. They want everything from simple commodities to manufactured goods to what the authors call experiences – immersive, richly textured commercial events. And fast-paced business types better follow or they'll be left in the dust.

The patron saint here is Walt Disney: Coffee shops should focus on the coffee experience, the authors suggest, while restaurants need to realize that the music and the ambiance – eatertainment, as the authors label it – are as important as the food.

The book is well written and I liked its fanatical conviction. The authors cheerfully acknowledge that even the most sacred experiences can be turned into a fast buck for faster companies. (They point out that many Americans now seek advice not from their priests and religious leaders, but from paid "spiritual coaches.") I'd love to think this is an elaborate spoof on the absurdity of late-state capitalism, but I'm afraid Pine and Gilmore are absolutely serious when they conclude that "The Consumer Is the Product." God help us all.

– Michael Parsons

What People Are Saying

Roger Dow
For any business seeking to turn on its customers, The Experience Economy offers surprising, practical insights. Pine & Gilmore provide proven tools for engaging guests-since every consumer's a guest regardless of your business-well into the new millennium. (Roger Dow, Senior Vice President and General Sales Manager, Marriott International, and Coauthor of Turned On: Eight Vital Insights to Energize Your People, Customers, and Profits)

Watts Wacker
As the world cascades toward sameness, every innovative good created or service provided will be copied at the speed of sound. Pine & Gilmore look beyond the traditional business models to provide a blueprint for what happens next: differentiation by experience. They have convinced me that work is theatre and that success comes from creating experiences and pushing the envelope by staging every interaction as a once-in-a lifetime event. (Watts Wacker, Founder, Firstmatter, and Coauthor, The 500-Year Delta: What Happens After What Comes Next)

Marilyn Carlson Nelson
Pine & Gilmore confirm our sense of excitement about the Experience Economy and the role experiences play in building stronger, more personal relationships with employees, corporate customers, and consumers. Businesses today must deliver emotional, authentic experiences to build and encourage sustainable growth for survival in the future. Places ready? Curtain going up! (Marilyn Carlson Nelson, President, CEO, and Vice Chair, Carlson Companies, Inc.)

Alan P. Hald
This no-nonsense book tells us why simply delivering great service is no longer a winning strategy. Pine & Gilmore provide practical insights that will help all industries compete in the new Experience Economy. (Alan P. Hald, Cofounder, MicroAge, and Master Entrepreneur of the Year)

Frank P. Stanek
Pine & Gilmore capture the essence of today's demanding consumer expectations and provide a creative, step-by-step script to help your organization to meet them. This book is a must read if you want to be 'on stage' in the next millennium. (Frank P. Stanek, President, International Business Development, Universal Studios Recreation Group)

Kenneth Wong
A relevant and timely perspective on current and future opportunities in retailing, entertainment, and our American public life. The Experience Economy reflects uncommon common sense. (Kenneth Wong, President, Walt Disney Imagineering)

Product Details

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Table of Contents

Read a Sample Chapter

Welcome to the
Experience Economy

Commoditized. No company wants that word applied to its goods or services. Merely mentioning commoditization sends shivers down the spines of executives and entrepreneurs alike. Differentiation disappears, margins fall through the floor, and customers buy solely on the basis of price, price, price.

    Consider, however, a true commodity: the coffee bean. Companies that harvest coffee or trade it on the futures market receive—at the time of this writing—a little more than $1 per pound, which translates into one or two cents a cup. When a manufacturer grinds, packages, and sells those same beans in a grocery store, turning them into a good, the price to a consumer jumps to between 5 and 25 cents a cup (depending on brand and package size). Brew the ground beans in a run-of-the-mill diner, corner coffee shop, or bodega and that service now sells for 50 cents to a dollar per cup.

    So depending on what a business does with it, coffee can be any of three economic offerings—commodity, good, or service—with three distinct ranges of value customers attach to the offering. But wait: Serve that same coffee in a five-star restaurant or espresso bar, where the ordering, creation, and consumption of the cup embodies a heightened ambience or sense of theatre, and consumers gladly pay anywhere from $2 to $5 for each cup. Businesses that ascend to this fourth level of value (see Figure 1-1) establish a distinctive experience that envelops the purchase of coffee, increasing its value (and therefore its price) by two orders of magnitude over the original commodity.

    Or more. Immediately upon arriving in Venice, Italy, a friend asked a hotel concierge where he and his wife could go to enjoy the city's best. Without hesitation they were directed to the Cafe Florian in St. Mark's Square. The two of them were soon at the cafe in the crisp morning air, sipping cups of steaming coffee, fully immersed in the sights and sounds of the most remarkable of Old World cities. More than an hour later, our friend received the bill and discovered the experience had cost more than $15 a cup. Was the coffee worth it, we asked? "Assolutamente!" he replied.

    A NEW SOURCE OF VALUE

Experiences are a fourth economic offering, as distinct from services as services are from goods, but one that has until now gone largely unrecognized. Experiences have always been around, but consumers, businesses, and economists lumped them into the service sector along with such uneventful activities as dry cleaning, auto repair, wholesale distribution, and telephone access. When a person buys a service, he purchases a set of intangible activities carried out on his behalf. But when he buys an experience, he pays to spend time enjoying a series of memorable events that a company stages—as in a theatrical play—to engage him in a personal way.

    Experiences have always been at the heart of entertainment, from plays and concerts to movies and TV shows. Over the past few decades, however, the number of entertainment options has exploded to encompass many, many new experiences. We trace the beginnings of this experience expansion to one man and the company he founded: Walt Disney. After making his name by continually layering new levels of experiential effects onto cartoons (he innovated synchronized sound, color, three-dimensional backgrounds, stereophonic sound, audio-animatronics, and so forth), Disney capped his career in 1955 by opening Disneyland—a living, immersive cartoon world—in California. Before his death in 1966, Disney had also envisioned Walt Disney World, which opened in Florida in 1971. Rather than creating another amusement park, Disney created the world's first theme parks, which immerse guests (never "customers" or "clients") in rides that not only entertain but involve them in an unfolding story. For every guest, cast members (never "employees") stage a complete production of sights, sounds, tastes, aromas, and textures to create a unique experience. Today, The Walt Disney Company carries on its founder's heritage by continually "imagineering" new offerings to apply its experiential expertise, from the Disney Institute to Club Disney play centers, and from Broadway shows to the Disney Cruise Line, complete with its own Carribean island.

    Where Disney used to be the only theme park proprietor, it now faces scores of competitors in every line of business, both traditional and experimental. New technologies encourage whole new genres of experience, such as interactive games, World Wide Web sites, "motion-based attractions," 3-D movies, and virtual reality. Desire for ever-greater processing power to render ever-more immersive experiences now drives demand for the goods and services of the computer industry. In a speech at the November 1996 Comdex computer show, Intel Chairman Andrew Grove declared, "We need to look at our business as more than simply the building and selling of personal computers [that is, goods]. Our business is the delivery of information [that is, services] and lifelike interactive experiences." Exactly.

    Many traditional service industries, now competing for the same dollar with these new experiences, are becoming more experiential themselves. At theme restaurants such as the Hard Rock Cafe, Planet Hollywood, Dive! and the Bubba Gump Shrimp Co., the food functions as a prop for what's known in the industry as an "eatertainment" experience. And stores such as FAO Schwarz, Jordan's Furniture, and Niketown draw consumers through fun activities and promotional events (sometimes called "shoppertainment" or "entertailing").

    But this doesn't mean that experiences rely exclusively on entertainment; entertainment is only one aspect of an experience. Rather, companies stage an experience whenever they engage customers, connecting with them in a personal, memorable way. Many dining experiences have less to do with the entertainment motif or celebrity of the financial backers than with the merging of dining with comedy, art, architecture, history, or nature, as happens at such restaurants as Pomp Duck and Circumstance, Iridium, the Cypress Club, Medieval Times, and the Rainforest Cafe, respectively. In each place, the food service provides a stage for layering on a larger feast of sensations that enchants consumers.

    The "commodity mind-set," according to former British Airways chairman Sir Colin Marshall, means mistakenly thinking "that a business is merely performing a function—in our case, transporting people from point A to point B on time and at the lowest possible price." What British Airways does, he continued, "is to go beyond the function and compete on the basis of providing an experience." The company uses its base service (the travel itself) as a stage for a distinctive en route experience, one that gives the traveler a respite from the inevitable stress and strain of a long trip.

    Even the most mundane transactions can be turned into memorable experiences. Standard Parking of Chicago plays a signature song on each level of its parking garage at O'Hare Airport and decorates walls with icons of a local sports franchise—the Bulls on one floor, the White Sox on another, and so forth. As one Chicago resident told us, "You never forget where you parked!" Trips to the grocery store, so often a burden for families, become exciting events at places such as Bristol Farms Gourmet Specialty Foods Markets in Southern California. This upscale chain "operates its stores as if they were theatres," according to Stores magazine, featuring "music, live entertainment, exotic scenery, free refreshments, a video-equipped amphitheater, famous-name guest stars and full audience participation." Russell Vernon, owner of West Point Market in Akron, Ohio—where fresh flowers decorate the aisles, restrooms feature original artwork, and classical music wafts down the aisles—describes his store as "a stage for the products we sell. Our ceiling heights, lighting and color create a theatrical shopping environment."

    Consumers aren't the only ones to benefit from experiences. Businesses are made up of people, and business-to-business settings also present stages for experiences. A computer installation and repair firm in Minneapolis dubs itself the Geek Squad. Its "special agents" costume themselves in white shirts with thin black ties and pocket protectors, carry badges, and drive around in old cars, turning a normally humdrum service call into a memorable encounter. Similarly, many companies hire theatre troupes to turn otherwise ordinary meetings into improvisational events (an example is the Minneapolis-based Interactive Personalities, Inc., which stages rehearsed plays and "spontaneous scenes" with audience members and displays computer-generated characters that interact in real time). And business-to-business marketers increasingly orchestrate elaborate venues for selling. In June 1996, Silicon Graphics, for example, opened its "VISIONARIUM Reality Center" at its corporate headquarters in Mountain View, California, to bring customers and engineers together in an environment where they could interact with real-time, three-dimensional product visualizations. Attendees view, hear, and touch as well as drive, walk, or fly through myriad product development simulations. As former chairman and CEO Edward R. McCracken related at the time, "This is experiential computing at its ultimate, where our customers can know what their products will look like, sound like, feel like before manufacturing."

    VALUABLE DISTINCTIONS

The above examples—from consumer to business customer, theme restaurant to computer repair service—only hint at the newfound prominence of such experiences within the U.S. economy and, increasingly, that of other developed nations as well. They are heralds of the emerging Experience Economy.

    Why now? Part of the answer lies with technology, which powers so many experiences, and part with increasing competitive intensity, which drives the ongoing search for differentiation. But the most encompassing answer resides in the nature of economic value and its natural progression—like that of the coffee bean—from commodities to goods to services and then to experiences. An additional reason for the rise of the Experience Economy is, of course, rising affluence. Economist Tibor Scitovsky notes that "man's main response to increasing affluence seems to be an increase in the frequency of festive meals; he adds to the number of special occasions and holidays considered worthy of them and, ultimately, he makes them routine—in the form, say, of Sunday dinners." The same is true of experiences we pay for. We are going out to eat more frequently at increasingly experiential venues, and even drinking more "festive" types of coffee. As summarized in Table 1-1, each economic offering differs from the others in fundamental ways, including just what, exactly, it is. These distinctions demonstrate how each successive offering creates greater economic value. All too often some manager claims a company is "in a commodity business" when in fact the product sold is not a true commodity. The perception results in part from a self-fulfilling commoditization that occurs whenever an organization fails to fully recognize the distinctions between higher-value offerings and pure commodities. (And if an analyst or pundit says your company sells a commodity when you don't, you've been insulted, as well as challenged to shift up to a higher stage in economic value.) If you fear that your offerings are being commoditized, read the simple descriptions given below. And if you think your offerings could never be commoditized—think again. A haughty spirit goes before a great fall (in prices).

Commodities

True commodities are materials extracted from the natural world: animal, mineral, vegetable. People raise them on the ground, dig for them under the ground, or grow them in the ground. After slaughtering, mining, or harvesting the commodity, companies generally process or refine it to yield certain characteristics and then store it in bulk before transporting to market. By definition, commodities are fungible—they are what they are. Because commodities cannot be differentiated, commodity traders sell them largely into nameless markets where some company purchases them for a price determined simply by supply and demand. (Companies do of course supply gradations in categories of commodities, such as different varieties of coffee beans or different grades of oil, but within each grade the commodity is purely fungible.) Every commodity trader commands the same price as everyone else selling the same stuff, but when demand greatly exceeds supply, handsome profits ensue. When supply outstrips demand, however, profits may be hard to come by. Over the short term, the cost of extracting the commodity bears no relationship to its price, and over the long term price is determined by the invisible hand of the market as it encourages companies to move in or out of commodity businesses.

    Agricultural commodities formed the basis of the Agrarian Economy, which provided a subsistence level of existence for families and small communities for millennia. At the Agrarian Economy's zenith in eighteenth-century United States, more than 80 percent of the workforce was employed on farms. Today, less than 3 percent of the population work on farms.

    What happened? The tremendous productivity improvements that became known as the Industrial Revolution drastically altered this way of life, beginning on the farm but quickly extending into the factory (such as the pin-making factory made famous by Adam Smith in his 1776 book The Wealth of Nations). Building on the success of companies in England from the 1750s onward, flourishing U.S. factories developed their own production innovations that in the 1850s collectively became known as the American System of Manufactures. As manufacturers the world over copied and learned these techniques, automating millions of craft jobs in the process, the foundation for all advanced economies irrevocably shifted to goods.

Goods

Using commodities as their raw materials, companies make and then inventory goods—tangible items sold to largely anonymous customers who buy them off the shelf, from the lot, out of the catalog, and so on. Because manufacturing processes actually convert the raw materials in making a variety of goods, leeway exists to set prices based on the costs of production as well as product differentiation. Today significant differences exist in the features of different makes of automobiles, computers, soft drinks, and, to some degree, even lowly pins. And because they can be put to immediate use—to get places, write reports, quench thirsts, fasten things together—their users value them more highly than the commodities from whence they came.

    Although people have turned commodities into useful goods throughout history, the time-intensive means of extracting commodities and the high-cost methods of craft producing goods long prevented manufacturing from dominating the economy. This changed when companies learned to standardize goods for economies of scale. People came off the farm in droves to work in factories, and by the 1880s the United States had overtaken England as the world's leading manufacturer. With the advent of Mass Production, brought about in the first assembly line at Henry Ford's Highland Park, Michigan, plant on April 1, 1913, the United States solidified its position as the number one economic power in the world.

    As continued process innovations gradually reduced the number of workers required to produce a given output, the need for manufacturing workers leveled off and eventually began to decline. Simultaneously, the vast wealth generated by the manufacturing sector, as well as the sheer number of physical goods accumulated, drove a greatly increased demand for services and, as a result, service workers. It was in the 1950s, when services first employed more than 50 percent of the U.S. population, that the Service Economy overtook the Industrial (although this was not recognized until long after the fact). Today, manufacturing jobs employ a mere 17 percent of the population. What economists today categorize as services makes up the remaining 80 percent.

Services

Services are intangible activities customized to the individual request of known clients. Service providers use goods to perform operations on a particular client (such as haircuts or eye exams) or on his property or possessions (such as lawn care or computer repair). Clients generally value the benefits of services more highly than the goods required to provide them. Services accomplish specific tasks they want done but don't want to do themselves; goods merely supply the means.

    Just as gray areas lie between commodities and goods (extensive processing or refining sometimes merges into making), the line between goods and services can be blurry. Even though restaurants deliver tangible food, for example, economists place them in the service sector because their offerings aren't standardized and inventoried but rather delivered on demand in response to an individual patron's order. While fast-food restaurants that make the food in advance share fewer of these attributes and so lie closer to the realm of goods than others, economists are not mistaken when they count those employed at McDonald's, for instance, in the service sector.

    While employment in services now dominates the economy, output in the commodity and goods sectors has not abated. Today, fewer farmers harvest far more than their ancestors ever conceived possible, and the sheer quantity of goods rolling off assembly lines would shock even Adam Smith. Thanks to continued technological and operational innovations, extracting commodities from the ground and making goods in factories simply takes fewer and fewer people. Still, the percentage of gross domestic product (GDP) devoted to the service sector today dwarfs the other offerings. After fearing for so many years the hollowing of America's industrial base, most pundits now recognize it as a positive development that the United States, along with most advanced countries, has shifted full-bore to a Service Economy.

    With this shift comes another little realized or discussed dynamic: In a Service Economy, individuals desire service. Whether consumers or businesses, they scrimp and save on goods (buying at Wal-Mart, squeezing suppliers) in order to purchase services (eating out, managing the cafeteria) they value more highly. That's precisely why so many manufacturers today find their goods commoditized. In a Service Economy, the lack of differentiation in customers' minds causes goods to face the constant price pressure indelibly associated with commodities. As a result, customers more and more purchase goods solely on price and availability.

    To escape this commoditization trap, manufacturers often deliver services wrapped around their core goods. This provides fuller, more complete economic offerings that better meet customer desires. So automakers increase the range and length of their warranties and offer to lease cars, consumer goods manufacturers manage inventory for grocery stores, and so forth. Initially, manufacturers almost always give away these services to enhance selling their goods. Many later realize that customers value the services so highly that the companies can charge separately for them. Eventually, astute manufacturers shift away from a goods mentality to become predominantly service providers. For example, who buys cellular telephones anymore? Except for those who absolutely must have the latest and greatest techno-goodies, most everyone just waits until one of the paging service providers offers it for a nominal fee as little as one cent as incentive to sign up for its service.

    Look at IBM. In its heyday in the 1960s and 1970s the hardware manufacturer's well-earned slogan was "IBM Means Service," as it lavished services—at no cost—on any company that would buy its hardware goods. It planned facilities, programmed code, integrated other companies' equipment, and repaired its own machines so prodigiously as to overwhelm nearly all competitors. But as time went on and the industry matured, customer demand for service surpassed the company's ability to give it away (not to mention the Justice Department suit that forced IBM to unbundle its hardware and software), and it began to charge explicitly for its services. Company executives later discovered that the services it once provided free were, in fact, its most valued offerings. Today, with its mainframe computers long since commoditized, IBM's Global Services unit grows at double-digit rates. The company no longer gives away its services to sell its goods. Indeed, the deal is reversed: IBM will buy its clients' hardware if they'll contract with Global Services to manage its information systems. IBM still manufactures computers, but it's now in the business of providing services. Similarly, General Electric's highest-profit contributor is GE Capital, and the Big Three automakers actually make more money from their financial arms than they do from manufacturing cars.

    Giving away or buying goods to sell services is a harbinger that the Service Economy has reached a level once thought unimaginable and by many undesirable. Indeed, until just a few short years ago one could still hear the voices of academics and pundits decrying that services were taking over as the engine of economic growth, that no economic power could afford to lose its industrial base, and that an economy based so overwhelmingly on services would become ephemeral, destined to lose its prowess and its place among nations. That is now obviously untrue.

    Even more so, the commoditization trap that forced manufacturers to add services to the mix now attacks services with the same vengeance. Telephone companies sell long-distance service solely on price, price, price. Airplanes resemble cattle cars, with a significant number of passengers flying on free awards. Fast-food restaurants all stress "value" pricing. (Indeed, McDonald's now finds itself so commoditized that the Economist created the Big Mac Index to compare the price levels in different countries based on the price of a local Big Mac.) And a price war looms in the financial services industry as first discount and then Internet-based brokers constantly drive down commissions, in some cases charging as little as $8 for what a full-service broker would charge more than $100. The chairman of AmeriTrade Holding Corp., J. Joe Ricketts, even told Business Week this: "I can see a time when, for a customer with a certain size margin account, we won't charge commissions. We might even pay a customer, on a per trade basis, to bring the account to us." An absurdity? Only if one fails to recognize that any shift up to a new, higher-value offering entails giving away the old, lower-value offering.

    Indeed, the Internet is the greatest force of commoditization ever known to man, for both goods and services. It eliminates much of the human element in traditional buying and selling. Its capability for friction-free transactions enables instant price comparisons across myriad sources. And its ability to quickly execute these transactions allows customers to benefit from time as well as cost savings. In today's world of time-starved consumers and speed-obsessed businesses, the Internet increasingly turns transactions for goods and services into a virtual commodity pit. Web-based businesses busy commoditizing both consumer and business-to-business industries include the following:

    * www.appliances.com (appliances)

    * www.priceline.com (airline travel)

    * www.narrowline.com (advertising space)

    * www.necx.com (computer components)

    * www.getsmart.com (financial services)

    * www.insweb.com (insurance)

    * www.compare.net (consumer goods)

    * www.energymarket.com (natural gas and electricity)

    * www.netmarket.com (virtually all goods and services households buy)

    In addition to such commoditization, service providers face a second adverse trend unknown to goods manufacturers: disintermediation. Companies such as Dell Computer, Streamline, USAA, and Southwest Airlines increasingly go around retailers, distributors, and agents to connect directly with their end-buyers. Decreased employment in these intermediaries, as well as bankruptcies and consolidations, invariably results. And a third trend further curtails service sector employment: that old boogeyman automation, which today hits many service jobs (telephone operators, bank clerks, and the like) with the same force and intensity that technological progress hit employment in the goods sector during the twentieth century. Today, even professional service providers increasingly discover that their offerings have been "productized"—embedded into software, such as tax preparation programs.

    All this points to an inevitable conclusion: The Service Economy is peaking. A new, emerging economy is coming to the fore, one based on a distinct kind of economic output. Goods and services are no longer enough.

Experiences

The newly identified offering of experiences occurs whenever a company intentionally uses services as the stage and goods as props to engage an individual. While commodities are fungible, goods tangible, and services intangible, experiences are memorable. Buyers of experiences—we'll follow Disney's lead and call them guests—value being engaged by what the company reveals over a duration of time. Just as people have cut back on goods to spend more money on services, now they also scrutinize the time and money they spend on services to make way for more memorable—and more highly valued—experiences.

    The company—we'll call it an experience stager—no longer offers goods or services alone but the resulting experience, rich with sensations, created within the customer. All prior economic offerings remain at arms-length, outside the buyer, while experiences are inherently personal. They actually occur within any individual who has been engaged on an emotional, physical, intellectual, or even spiritual level. The result? No two people can have the same experience—period. Each experience derives from the interaction between the staged event and the individual's prior state of mind and being.

    Even so, some may still argue that experiences are just a subclass of services, merely the latest twist required in today's fast-paced world to get people to buy certain services. Interestingly, the esteemed Adam Smith made the same argument about the relationship between goods and services more than two hundred years ago in The Wealth of Nations. He regarded services almost as a necessary evil—what he called "unproductive labour"—not as an economic offering in itself, precisely because services cannot be physically inventoried and therefore create no tangible testament that any work has been done. Smith did not limit his view of unproductive activity to such commoners as household servants. He included the "sovereign" and other "servants of the public," the "protection, security, and defence of the commonwealth," and a number of occupations ("churchmen, lawyers, physicians, men of letters of all kinds") whose work the market has today determined to be of far more value than that of most laborers. He then singled out the experience stagers of his day ("players, buffoons, musicians, opera-singers, opera-dancers, &c.") and concluded:

The labour of the meanest of these has a certain value, regulated by the very same principles which regulate that of every other sort of labour; and that of the noblest and most useful, produces nothing which could afterwards purchase or procure an equal quantity of labour. Like the declamation of the actor, the harangue of the orator, or the tune of the musician, the work of all of them perishes in the very instant of its production.

However, while the work of the experience stager perishes upon its performance (precisely the right word), the value of the experience lingers in the memory of any individual who was engaged by the event. Most parents don't take their kids to Walt Disney World just for the event itself but rather to make that shared experience part of everyday family conversations for months, and even years, afterward. While the experience itself lacks tangibility, people greatly value the offering because its value lies within them, where it remains long afterward.

    Those companies which capture this economic value will not only earn a place in the hearts of consumers, they will capture their dollars. Indeed, the notion of inflation as purely the result of companies passing on increased costs to consumers simply is not valid. The shift in consumer (and business) demand from commodities to goods to services and now to experiences should shift the prototypical "market basket" to these higher-valued offerings, but the federal government is behind the times; as of 1997 services made up only a little more than 57% of its Consumer Price Index (CPI)—services weren't even included in the Producer Price Index until 1995. But if we examine the CPI statistics, as shown in Figure 1-2, we see that the CPI for commodities increases less than that for goods (using new cars as the prototypical Industrial Economy good), which increases less than the CPI for services, which in turn increases less than the CPI for the one prototypical experience that can be found in the government statistics: admissions to recreational events (movies, concerts, sports, etc.). Note, too, the volatility of the CPI for energy commodities relative to the other offerings. Increased price volatility as market forces take over awaits the sellers of all commoditized goods and services. Companies that stage experiences, on the other hand, increase the price of their offerings much faster than the rate of inflation simply because consumers value experiences more highly.

    The employment and nominal gross domestic product statistics show the same effect as the CPI, as Figure 1-3 makes clear. Using the period 1959 to 1996, where the data remains consistent across the offerings, we see the same relative position of each successive offering. While commodity output produced in the United States increased by a compound annual growth rate (CAGR) of more than 5 percent from 1959 to 1996, employment in commodity industries actually decreased. Manufacturing output increased more than commodity output, while employment increased slightly (although the relative number of people employed in the manufacturing sector decreased greatly in this time period). Services dominated the statistics with a 2.7 percent CAGR in employment and more than 8 percent in GDP. But those industries which could be pulled out of the government's service sector statistics as clearly experiential grew even faster: almost twice the annual growth in employment with a slightly higher GDP growth rate. Why such a disparity in employment growth between services and experiences? Previously because the Experience Economy is still in its infancy and has not yet undergone the automation now endemic to much of the service sector.

    No wonder so many companies today wrap experiences around their existing goods and services to differentiate their offerings. Service providers clearly have an edge in this regard, as they are not wedded to tangible offerings. They can enhance the environment in which clients purchase and/or receive the service, layer on inviting sensations encountered while in that company-controlled environment, and otherwise figure out how to better engage clients to turn the service into a memorable event.

(Continues...)