by Eliot Mannoia // August 1, 2023
reading time: 5 minutes

Full concert with cheering crowd, by Annam W.

© annam-w

Over time, economies have changed, and we can understand this progression by comparing it to how birthday cakes have evolved. In the past, mothers made cakes from basic ingredients. Then, premixed ingredients became available, and later, people started buying cakes from stores or bakeries. Now, instead of making cakes or throwing parties, parents pay for experiences at places that cater towards children events.

The entire history of economic progress can be recapitulated in the four-stage 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 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.

Joseph Pine II and James H. Gilmore

The role of EQ

Experiences have become a separate economic offering that companies are now focusing on. Customers want experiences that engage them emotionally, physically, or intellectually. Companies must deliberately design and promote these experiences to be successful.

Emotional intelligence plays a pivotal role in the realm of experiences because it directly influences how customers perceive and engage with an offering. Understanding and managing this effectively enables businesses to create experiences that resonate on a deeper level, forging stronger connections with their clientele. An emotionally intelligent approach empowers companies to anticipate and respond to customer needs, ensuring that each interaction is personalized and meaningful. Additionally, it aids in handling challenging situations, such as customer complaints or unexpected hiccups during the experience, allowing for more empathetic and positive resolutions. By incorporating emotional intelligence into the design and delivery of experiences, businesses can elevate customer satisfaction, loyalty, and ultimately their success in the experience economy.

During the 1960s and 1970s, IBM heavily promoted its slogan “IBM Means Service” and offered free services to customers who purchased their hardware products. They provided facilities, programming, integration of equipment, and even machine repairs, surpassing their competitors in service offerings. However, due to a court order, IBM had to start charging customers for these services that were previously free. Despite the change, IBM realized that their services were highly valued by customers. As technology evolved, their mainframe computers became more common and commoditized. As a result, IBM shifted its focus and now experiences significant growth in its Global Services unit, providing services rather than solely selling hardware. Today, they even purchase clients’ hardware and manage their information systems, highlighting their transition from a computer manufacturer to a service provider.

In the modern landscape of the experience economy, the interplay between experiences, emotional intelligence, and technology has become increasingly significant. Technology serves as a powerful enabler, providing seemingly infinitely more possibilities. By leveraging emotional intelligence, companies can ensure that experiences that customers have with new devices, interfaces and services are as comfortable, convenient and reliable as possible. Personalized interactions, fuelled by emotional intelligence, foster stronger connections and customer loyalty. Furthermore, technology itself can be designed to evoke emotions, such as virtual reality simulations or immersive storytelling experiences. It is essential to balance the use of technology with emotional intelligence to ensure that experiences remain authentic and human-centered. By harnessing the potential of technology while embracing emotional intelligence, businesses can elevate their offerings and foster lasting, meaningful relationships with customers in this dynamic experience-driven era.

In the experience economy context, companies need to think about creating memorable events that customers are willing to pay for. Experiences are different from simple services or goods; they are personal and leave a lasting impact on people’s minds. Businesses that adapt to this shift will have a competitive advantage.

Companies should think about what they would do differently if they charged admission

Companies should think about what they would do differently if they charged admission. Just as a mental exercise. If you are a bank, restaurant or a furniture shop what and how could you create such an incredible experience so that you could charge for people to enter your establishment?

To charge for an experience, a company must first craft an experience that customers truly value. The art of designing, marketing, and delivering these experiences is just as vital as it is for goods and services. Creativity and innovation are essential to driving revenue growth in this domain. However, experiences come with their unique traits and design complexities, setting them apart from traditional products and services.

There are certain characteristics of experiences in the emerging experience economy. They broadly fall along two dimensions: customer participation (passive to active) and environmental relationship (absorption to immersion).

Customer Participation

This dimension refers to the level of involvement or engagement of the customers in the experience. On one end of the spectrum, we have passive participation, where customers are mere observers or listeners and do not actively influence the performance or event. An example of this is when someone attends a symphony concert and simply enjoys the music without actively participating in the performance.

On the other end of the spectrum, we have active participation, where customers play a significant role in creating the experience. This means they actively participate in the event and contribute to the overall experience. An example of active participation is skiing, where individuals actively engage in the activity and directly influence the experience they have on the slopes.

So, the level of customer participation can range from being a passive observer to being an active participant who actively shapes and contributes to the experience.

Environmental Relationship (Absorption to Immersion)

This dimension refers to the degree of connection or engagement between the customers and the environment or setting of the experience. Absorption represents a more detached relationship, where customers experience the event as external observers. They may appreciate the experience but do not feel fully immersed in it. For instance, sitting in the audience and watching a Formula One race allows one to absorb the event from a distance.

On the other hand, immersion refers to a deeper and more involved connection with the environment or setting. Customers who are immersed in an experience are fully engaged and surrounded by the sights, sounds, and overall atmosphere of the event. A classic example of immersion is being in the fan stand of a Formula One race, where one is surrounded by the excitement, sounds, and energy of the race.

To illustrate this further, consider a movie theater experience. If you watch a film at home on your TV, you are somewhat absorbed in the story but not fully immersed in the cinematic environment. However, when you watch the same film in a movie theater with a large screen, surround sound, and a captivated audience, you become more immersed in the movie-going experience.

The two dimensions of customer participation and environmental relationship help us understand how experiences vary based on the level of engagement and connection between customers and the events they are participating in. Some experiences may involve passive observation and external connection, while others may require active participation and complete immersion in the surroundings. The combination of these dimensions creates a wide range of experiences in the emerging experience economy.

Image of students in a classroom, by icsa

© icsa

The four types of experiences

Experiences can be categorized into four types: entertainment, education, escapist, and aesthetic.

Entertainment Experiences: These are experiences where customers participate more passively than actively. Examples include watching television, attending a concert, or going to a movie theater. The focus is on absorbing the event or performance, and customers are usually observers or listeners.

Educational Experiences: In these experiences, customers play a more active role, but they are still somewhat outside the event. Examples include attending a class or taking a golf lesson. Customers engage in the learning process, but they are not fully immersed in the action.

Escapist Experiences: Escapist experiences involve greater customer immersion. Customers actively participate and become fully engaged in the experience. Examples include acting in a play, playing in an orchestra, or going on an adventure trip like white water rafting.

Aesthetic Experiences: These experiences are about immersion in an activity or environment without much active participation from the customers. Customers are deeply engaged in the experience, but they don’t have a significant impact on it. An example is a tourist viewing the white water rafting from the cliff top.

By understanding these four types, companies can design experiences that match their desired goals and engage customers effectively. Each type offers different opportunities for creating memorable and valuable experiences for customers.

Five key principles

According to B. Joseph Pine II and James H. Gilmore to design successful experiences, companies must follow five key principles:

  1. Theme the experience: Define a well-defined theme that captivates customers and guides the design elements.
  2. Harmonize impressions with positive cues: Introduce cues that affirm the experience’s nature and support the theme while eliminating negative cues.
  3. Mix in memorabilia: Offer memorabilia or mementos that allow customers to remember the experience and attach value to it.
  4. Engage all five senses: Stimulate multiple senses to enhance the experience and make it more memorable.
  5. Eliminate negative cues: Ensure that no elements contradict or distract from the intended experience.

Companies that effectively design and deliver engaging experiences will thrive in the experience economy, while those that fail to meet customer expectations or become stagnant risk losing relevance in the market.

This piece was inspired by the visionary 1998 Harvard Business Review article “Welcome to the Experience Economy”.

Tell me: What is your opinion on what shapes a great experience?

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