In the 1980s, many parents stopped baking cakes at all. Instead, Mom or Dad called the supermarket or local bakery and ordered a cake, specifying the exact type of cake and frosting, when it would be picked up, and the desired words and designs on top. At $10 to $20, this cake-making service cost ten times the price of the goods needed to make the cake at home while still involving less than a dollar's worth of ingredients. Many parents thought this a great bargain, however, enabling them to focus their time and energy on planning and throwing the actual party.
What do families do now in the twenty-first century? They outsource the entire party to companies such as Chuck E. Cheese's, Jeepers!, Dave & Buster's, or myriad other local “family entertainment centers,” or this Zone or that Plex of one kind or another. These companies stage a birthday experience for family and friends for $100 to $250 or more, as depicted in figure 1-4. For Elizabeth Pine's seventh birthday, the Pine family went to an old-time farm called the New Pond Farm in Redding, Connecticut, where Elizabeth and fourteen of her closest friends experienced a taste of the old Agrarian Economy by brushing cows, petting sheep, feeding chickens, making their own apple cider, and taking a hay ride over the hill and through the woods.35 When the last present had been opened and the last guest had departed, Elizabeth's mom, Julie, got out her checkbook. When Dad asked how much the party cost, Julie replied, “A hundred and forty-six dollars—not including the cake”!
Figure 1-4: Price of birthday offerings
The simple saga of the birthday party illustrates the Progression of Economic Value depicted in figure 1-5.36 Each successive offering—pure ingredients (commodities), packaged mixes (goods), finished cakes (services), and thrown parties (experiences)—greatly increases in value because the buyer finds each more relevant to what he truly wants (in this case, hosting a fun-filled and effortless birthday party). And because companies stage many kinds of experiences, they more easily differentiate their offerings and thereby charge a premium price based on the distinctive value provided, and not the market price of the competition. Those moms who baked from scratch paid only a few dimes' worth of ingredients. Similarly, the old-time farm accrues relatively little marginal cost to stage the birthday experience (a few dollars for labor, a little feed, and an hour or two's worth of depreciation) to turn a nice profit.37
Figure 1-5: Progression of Economic Value
One company that illustrates how to generate increased revenue and profits by shifting up the Progression of Economic Value is The Pleasant Company, now a part of Mattel. Founded in the 1980s by Pleasant Rowland, a former schoolteacher, the business manufactures a collection of American Girl dolls. Each one is cast in a period of American history and has its own set of a half-dozen fictional books placed in that time period. Girls learn U.S. history from owning the dolls and reading the books, which are marketed to their parents via catalog and the Web. In November 1998, the company opened its first American Girl Place off Michigan Avenue in Chicago, an ingeniously themed venue supported by sensation-filled sets (a doll hair salon, a photo studio, a restaurant simply called “Cafe,” showcase displays for each doll, and various nooks for cuddling up with a book or doll), engaging staff performances (arriving at the concierge desk, visiting the hospital reception used for dolls in need of mending, and at nearly every turn), and a host of special events (theme parties, “Late Night” after-hours tours, and of course birthday parties). It's hard to call the American Girl Place a retail store, because it is indeed a business stage for experiences. Certainly you can purchase dolls, books, furniture, clothing, and various kits galore—even children's clothing that matches the dolls' outfits. But the merchandise proves secondary to the overall experience, at which guests average (average!) more than four hours per visit.
And do the math. A family may visit an American Girl Place and shell out $20 for a photography shoot—complete with preparatory makeup session—with the photo printed on a customized cover of American Girl magazine (subscriptions sold separately for $19.95 for six non-customized issues per year), pay another $20 in the hair salon for the doll to be restored to its original coiffed condition, and then dine at the Cafe at prix fixe prices, including gratuity, ranging from $17 to $26 for brunch, lunch, tea, and dinner. Even if they forgo a birthday celebration (at $32 per person, or $50–$65 for deluxe versions) or a late night event (for $200–$240 per girl), a family can easily spend hundreds of dollars—without buying a single physical thing! Of course, spending that much time and money on experiences then creates greater demand for traditional American Girl goods to commemorate the visit.
The company has expanded its portfolio of experiences to include American Girl Places in New York City (off Madison Avenue) and Los Angeles (at The Grove), as well as new (smaller footprint) American Girl Boutique & Bistros in Atlanta, Boston, Dallas, Denver, and the Mall of America. Sales soar, not only from the revenue generated at these retail venues but also from home via catalog shopping and at the company's website. These sales from home have undoubtedly accelerated as a result of the company's creating these away-from-home experiences to fuel the demand, for in today's Experience Economy, the experience is the marketing.
Let the Action Begin
Other children's experiences, such as The Little Gym and KidZania, now circle the world. Kids' camps are big business, as are various “travel teams” in their associated sports leagues, often supported with additional payments for ongoing sports lessons and personal coaching. Adults frequent cooking schools, fantasy camps, and wellness spas, among other indulgent experiences. Unique experiences constantly emerge: a place called Dig This in Steamboat Springs, Colorado, offers the B2C equivalent of the Case Tomahawk digging experience; one of its offerings, Excavate & Exfoliate, combines construction equipment play with follow-up spa treatments. Thus whole new genres of tourism arise; witness film tourism, culinary tourism, medical tourism, disaster tourism, climate change tourism, even “PhD tourism” (Context Travel of Philadelphia assigns doctorate experts to travel with tourists to various European cities). Airports, foremost among them the Amsterdam Airport Schiphol, have become experiential shopping centers. They serve as way stations to bizarre new attractions and destinations, such as Ski Dubai, Icehotel and its spinoff Icebars, and Atlantis in the Bahamas and Dubai—only to be topped by the Burning Man festival in the Black Rock Desert in Nevada. Back home, malls have become “lifestyle centers.” Cafe culture abounds, from Starbucks and Caribou to the International Netherlands Group's ING Direct Cafes. Fitness centers seek to differentiate via the experience offered, from themed Crunch, to no-frills Curves, to large-scale Lifetime Fitness. Ian Schrager Company introduced the world to “boutique” hotels, followed soon by Kimpton Hotels, Joie de Vivre Hospitality, Starwood's W, and hundreds of independents represented by Design Hotels (based in Berlin). Blue Man Group and Cirque du Soleil offer truly new-to-the-world staged experiences. Museum experiences are being fundamentally rethought; visits to the International Spy Museum in Washington, D.C., the Harley-Davidson Museum in Milwaukee, and the Abraham Lincoln Presidential Library and Museum in Springfield, Illinois, clearly offer a new kind of encounter. The Internet offers new online experiences, from the U.S. Army's America's Army game at americasarmy.com to Linden Research's Second Life and Blizzard Entertainment's World of Warcraft. New experiences are available even at the end of life; Givnish Funeral Homes, outside Philadelphia, offers Life Celebration capabilities to other funeral directors throughout the United States. It is hard to find an industry still untouched by the shift to experiences.
Of course, no one has repealed the laws of supply and demand. Companies that fail to provide consistently engaging experiences, overprice their experiences relative to the value received, or overbuild their capacity to stage them will see demand or pricing pressure. For example, Discovery Zone, one stalwart of the birthday party circuit, went belly-up because of inconsistently staged events, poorly maintained games, and little consideration of the experience received by the adults, who, a
fter all, pay for the event.38 Planet Hollywood saw same-store sales plummet and had to significantly scale back its number of locations because it failed to refresh its experiences. As with most theme restaurants, repeat guests see (or do) little different from what they saw and did on previous visits. Even Disney succumbed to this problem when it let Tomorrowland grow horribly out of date over the past couple of decades; and the company had to invest billions to relaunch Disney's California Adventure Park after a lukewarm reception of the initial offering by Disney enthusiasts.
As the Experience Economy continues to unfold in the twenty-first century, more than a few experience stagers will find the going too tough to stay in business. Only the best of theme-based restaurants launched in the 1990s, for example, survived into the new millennium. But such dislocations occur as the result of any economic shift. Once, there were more than a hundred automakers in eastern Michigan, and more than forty cereal manufacturers in western Michigan. Now there are only the Big Three in Detroit (depending on how you want to count it these days) and the Kellogg Company in Battle Creek, all stalwarts of the Industrial Economy.
The growth of both the Industrial Economy and the Service Economy brought with it a proliferation of offerings that did not exist before imaginative companies invented and developed them. That's also how the Experience Economy will grow, as companies tough out what economist Joseph Schumpeter termed the “gales of creative destruction” that constitute business innovation. Those businesses that relegate themselves to the diminishing world of goods and services will be rendered irrelevant. To avoid this fate, you must learn to stage a rich, compelling experience.
CHAPTER 2
Setting the Stage
ON A HOT AUGUST NIGHT you find yourself in Evanston, Illinois, at the corner of Dempster and Elmwood. You spy a storefront named LAN Arena and, wondering what it might be, step inside. A T-shirted Gen Xer with “Commander Francisco” printed on his badge looks your way and mouths some words of greeting from atop his elevated platform. You nod in that general direction but decline his offer to explain the strange surroundings as you take a few more paces inside.
The walls are bare, the floor nearly empty. A faint odor of cement after a summer rain wafts its way into your nostrils. The tonal range looks decidedly grey. The sights and sounds soon draw your focus to the very heart of the place, in front of the Commander's platform, where finally you behold the domain he rules: fourteen PCs with large monitors, standard keyboards, and assorted gadgetry, half of them tethered to obviously quick- moving and presumably quick-witted people. You now identify the background noise that has been omnipresent from the moment you opened the door: the clicking and clacking of fingers on keys combined with the smooth sliding of joysticks. A yelp goes up from one of the six souls whose eyes focus on the screens before them: “Go away, you greasy-haired piece of monkey brains!” he yells, as you reflexively jump behind a pillar. Feeling foolish, you realize the taunt was aimed not at you but at an unseen combatant sparring with the truly greasy-haired piece of animated humanity before you. Another person mutters, “Who's in there? Careful! You're not getting off that easy!” A third shouts mild obscenities, punctuated by the occasional repeatable word.
As you walk around, desiring a closer look at both the human beings and their cybernetic appendages, you see that every PC has a nameplate: Toby, Fergie, Grape Ape, and—somehow you knew this was coming—Larry, Moe, and Curly. The screamer bangs away at Eastwood, the mutterer at one named Buddha. You glance back at Commander Francisco and notice for the first time that behind him are a number of shelves filled with row upon row of software boxes. Here, more names greet you: Diablo, Red Alert, Warcraft II, Command & Conquer. Ah! That's it! They're all playing some computer-based game against each other. “It's called Quake,” the Commander announces, having watched your exploration of the place and now sensing your need to know. “It's sort of an electronic version of capture the flag.”
You finally understand the attraction of this place and soon gain vicarious enjoyment from watching the players play. Three on three, the virtual opponents, physically seated less than twenty feet apart, battle in a virtual arena by means of a local area network, or LAN. You see the excitement in each player's face, the fluidity of human and machine working as one, and finally the joy that resounds in the one final cry of the victor as he vanquishes his last opponent. While disappointed in their loss, the also-rans all too happily begin anew. Hesitantly, anxiously, eagerly, you inform the Commander that you wish to join them. You sit down at a station and begin to experience the play for yourself.
This narrative, written in the second-person style endemic to certain kinds of computer games, more or less describes the real-life LAN Arena as we first experienced it. It was the kind of place like many others that dotted the urban landscape in the late 1990s, where for a fee people played computer-based games against like-minded competitors. Commander Francisco Ramirez—who, in addition to being our host, was also one of three co-owners—explained that one could join in for $5 to $6 per hour and that regulars could select annual membership plans ranging between $25 and $100 to receive discounted rates, reserve a spot in the LAN Arena Directory, and play in occasional tournaments.
Despite the evident popularity of the LAN Arena, we couldn't help getting the feeling that the place resembled all the mom-and-pop video stores that mom-and-popped up across the country twenty-five or thirty years ago. The self-owned and -run local video store is now largely a historical curiosity—an interim solution—thanks to the creative destruction of alternative formats and innovative distribution and merchandising programs created by bigger enterprises. Not to mention industry consolidations, culminating in the wide swath cut by Blockbuster to gain the lion's share of the nascent industry's revenues. Then, of course, Blockbuster faced yet newer competition from outlet-free Netflix and its time-based pricing model, offering unlimited viewing experiences for a monthly fee in lieu of per-rental service charges (and pesky late fees).
Similarly, the LAN Arena format, with players seated together at a common site, proved only an interim solution before the play-at-home games of the past gave way to the play-in- cyberspace games of today. LAN Arena offered a ready-to-play gaming environment that was less costly and cumbersome than setting up the same arrangement at home, before the cost of faster hardware plummeted and broadband service became plentiful and free. Today, faster play is generally available on the Internet, and multiple players can readily participate simultaneously in the same Quake game or myriad others online. Indeed, the competitive landscape for gaming experiences knows few boundaries.1
Interestingly, as direct, online, from-home competitions came to dominate the gaming experience, “LAN parties” proliferated as pop-up events in cities around the world. Evidently the now-defunct LAN Arena was on to something. The social interaction, the game outside the game, weighs just as importantly in the enjoyment of software-enabled games as it does with the old table-top board games. Technology pundits anticipate that real-time audio, video, and tactile technologies will advance to the point that in a few years we'll be able to experience all interactions—yells and glares, teases and taunts, perhaps even pushes and shoves—virtually as well as we now do in reality. Evidently, no cyber game experience will be complete without its attendant virtual social experience.2
In the meantime, the staging of these LAN party experiences in physical venues has itself become a large-scale production. At about the same time LAN Arena opened in Evanston, id Software, the developers of Quake, launched QuakeCon. Now in its fifteenth year, the event features a QUAKE LIVE Masters Championship for advanced players (with a $50,000 purse for the winner), a four-on-four “Capture the Flag” competition, and an open tournament for less-skilled players—all held in an intimate 250-person arena, with others watching via streaming video. The competition comes complete with “shoutmasters” covering the action, culminating in a giant 3,000-person LAN party.
The future mix of virtual
and physical action remains to be seen, and there is always the possibility that new social interfaces might even mask the interplay between the two. In any case, it is clear that not every company that stages these new experiences will be successful in the short term, much less the long term. Only a few will survive. What we don't know are which ones. Those that thrive will do so because they treat their economic offering as a rich experience—and not a glorified good or celebrated service—and will stage it in a way that engages the individual and leaves behind a memory. That means not making the mistake we see time and time again: equating experiences with mere entertainment.
Enriching the Experience
Because many exemplars of staged experiences come from what the popular press loosely calls the entertainment industry, it's easy to conclude that shifting up the Progression of Economic Value to stage experiences simply means adding entertainment to existing offerings. That would be a gross understatement. Remember that staging experiences is not about entertaining customers; it's about engaging them.
An experience may engage guests on any number of dimensions. Consider two of the most important, as depicted in the axes of figure 2-1. The first dimension (on the horizontal axis) corresponds to the level of guest participation. At one end of the spectrum lies passive participation, in which customers do not directly affect or influence the performance. Such participants include symphony goers, who experience the event purely as observers or listeners. At the other end of the spectrum lies active participation, in which customers personally affect the performance or event that yields the experience. Active participants include skiers, who participate in creating their own experience. But even people who turn out to watch a ski race are not completely passive; simply by being there, they contribute to the visual and aural event that others experience.
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