16 Ekim 2023 Pazartesi

Notes from “The Experience Economy”

Dear Friends,

Today I will be sharing my notes from an astonishing book called “The Experience Economy”. This book was written by Joseph Pine and James Gilmore in the late 90s. 

“You are what you charge for”

This is the hearth of the book. Competing with price is an old fashion thing. The customers want to experience new feelings that make them ready for pay a premium. If you charge your customers for your great services you become one of the distinguished companies. 

Consider the journey of a coffee bean.

It is first collected from trees, then packaged and sold in the markets, then served in various cafes and finally in some places it becomes a part of a special experience.

In each of these four stages, different businesses operate with different profit margins. Of these, the company that produces the product in the form of commodity operates with the lowest profit margin, and the one that operates with the highest profit margin is the business that makes this part of a special experience.

Even though the product is the same, the emotion it evokes in the customer is not the same so a business that focuses on experience always earns more. It makes us to think how we can improve our offerings for delightful experiences.

Experiences have been all around but consumers, businesses lumped them into the service sector along with such uneventful activities as dry cleaning, telephone access. But with memorable events, the services can be promoted to be experiences which needs a personal engagement. 

Experiences are events that engage the individuals in a personal way.

Ing the thing. The companies try to wrap experiences around a their existing goods and services. Manufacturers should experientialize their products. This will make them more memorable. 

The cake making shows the progression of the economic value. 50 years ago, moms used to bake their cake for the birthday parties. Then they started to order. Then, outsource the entire party to somewhere else. In every progression, the value expected has been also increased. This has made the seller to earn more profits. 

Do not forget. If you are in the middle of an experience, your price sensitivity will drop and you will be open for buying more. 

There are four realms of the experience depending on the participation of the individual and the absorption/immersion of the same. If you are absorbing the experience in a passive way you are at the entertainment realm. If you are absorbing the experience (experience goes into you) in an active way, you are at the education realm. If you are immersing into the experience (going into the experience) and actively participating, you are at the escapist level where you feel that you are at the stage. Finally if you are passively immersing the experience you are at the esthetic level i.e. where you are experiencing the art or viewing the Grand Canyon. The richest experiences encompass all levels of realms. 

How can you increase the effect of the experience?
1- Theme the experience (alter the sense of reality)
2- Harmonize the impressions with positive cues.
3- Eliminate the negative cues.
4- Mix in memorabilia(Soveigners) 
5- Engage five senses. (The more sensory the experience the more memorable it will be)

You are not truly selling an experience if you don't charge for it. 

To enter an experience economy, first customise your goods and services. If you commoditize your experiences you fall into services and goods. 

Two formulas:

Customer satisfaction = what customers expects to get - what customers perceives he gets
Customer sacrifice = what customers want exactly - what customers settles for 

Designing for the average is the root cause of the customer sacrifice. Designing for the customer for many organizations really means designing for the average customer which doesn't exist. The attitude of “They don't mind” approach leads to customer sacrifice. 

To fight against customer sacrifice there are four types of customizations.
1- Collaborative customisers work with their customers to determine what they need and produce it for them. 
2- Adaptive customisers offer one product designed to let users alter it themselves. 
3- Cosmetic customization present standard good or service differently to different customers.
4- Transparent customizers provide a tailored offering without customers knowing that it is customised for them.

To truly differentiate themselves, businesses must focus on increasing customer satisfaction, then on eliminating customer sacrifice and finally creating customer surprise. But, once a company creates a customer surprise, the customers start to expect more surprises. 

The work is a theatre. Therefore, all the processes of a theatre apply here. Please have a look at the following chart to understand how similar the theatre concepts with the business headlines. 

There are four realms of the theatre. You should understand how to act.

Improv theatre involves new to the world performances where creativity and spontaneous activity is highlighted. 
Platform theatre involves little variation. The formal scripts are in use here. 
Matching theatre integrated portions of work into a unified whole. Scripts in matching theatre are always dynamic. 
Street theatre draw people in, amaze them and then ask for money. Such as the illusionists.

The last stage of the progression of the value of the offerings is the transformations. At this level, the customer will eventually be changed and transformed to be different human being. He will be better than his previous stage. If we give an example from the fitness sector, the manufacturers should stop to think about to sell gym products but to think about how they can change the body and the health of the customers. At this stage, the guidance of the company play a great role. 

In the economy pyramid, 
- Commodities are discovered and extracted
- Goods are developed and made
- Services are devised and delivered
- Experiences are depicted and staged
- Transformations are determined and guided

Transformation phase has three processes:
- Diagnose the aspirations of the customers 
- Stage the experiences and depict memorable events (four realms of the experiences; entertainment, education, escapist and esthetic)
- Follow through the progress (It will not be a true transformation unless it is sustained)

To understand the level of the value offerings we can glance at the change of CPI for almost a century. The transformation price increases are far more than the other offerings. 

It makes the progress of the value offerings as below. 

The result is depicted as follows. 

To sum up, 
- if you charge for stuff you are in the commodity business,
- if you charge for tangible things you are the goods business,
- if you charge for the activities you execute, you are at service business,
- if you charge for the time customers spent with you, you are at the experience business,
- if you charge for the demonstrated outcome of the customer achieves, you are at the transformation business.

If you promote your offerings to the transformations you will definitely get benefit out of it. 

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