In the full-fledged Experience Economy, we will see not only portions of retail stores but entire shopping malls charge admission before a person is allowed to set foot in a store.28 In fact, such shopping malls already exist. Disney's archrival Universal Studios, for example, charges admission (in the form of a parking fee) to CityWalk. But the Minnesota Renaissance Festival, the Gilroy Garlic Festival in California, the Kitchener-Waterloo Oktoberfest in Ontario, Canada, and a host of other seasonal festivals charge admission for what are really outdoor shopping malls. Consumers find these festivals to be worth the entrance fees, because their owners explicitly script distinctive experiences around particularly enticing themes and then stage a wealth of activities that captivate guests before, after, and while they shop.
At the Minnesota Renaissance Festival, for example, handsome knights and fair maidens greet visitors to the twenty-two-acre domain of King Henry and Queen Katherine outside Minneapolis, hand them a News of the Realm guide on simulated parchment, and invite them to enjoy the day's festivities. Throughout the day various merrymakers in Renaissance costume—magicians, jugglers, peddlers, singers, dance troupes, and even a pair of bumbling commoners known as Puke & Snot—frequently accost guests (many of whom also clothe themselves in period costume) with the express intent of ensuring that they, their companions, and everyone else within earshot have a wonderful time. Among the numerous categories of activities in which guests delight—and that could apply to any experience—are the following:
Period demonstrations (armor making, glass blowing, bookbinding, and so forth)
Crafts that guests perform themselves (brass rubbing, candle making, calligraphy)
Games, contests, and other challenges for which prizes are awarded (archery, giant maze, Jacob's ladder)
Human- and animal-powered (never electric) rides (elephants, ponies, cabriolet)
Food (turkey legs, apple dumplings, Florentine ice)
Drink (beer and wine but also—in an admitted concession to modern concessions—soda and coffee)
Shows, ceremonies, parades, and various and sundry revelry (magicians, puppetry, jousts), some of which require an additional fee
Not to mention the hundreds of Renaissance-themed shops (make that shoppes), all selling handcrafted goods appropriate to the period, such as jewelry, pottery, glass, candles, musical instruments, toys, apparel, plants, perfumes, wall hangings, and sculptures, or services such as face painting, astrology readings, portraits, and caricatures. With nearly every guest leaving with one or more bags of goodies, the Renaissance Festival experience clearly siphons off shopping dollars that otherwise would be spent at traditional malls and other retail outlets.
Fortunately for their conventional competitors, the proprietors of such festivals do not hold them year-round … yet. The Minnesota Renaissance Festival, for example, opens its gates weekends and Labor Day from mid-August to the end of September. Because of its intensity and unusual nature, most people do not repeat this kind of experience often enough to make staging it every day worthwhile. However, with appropriately malleable grounds and facilities, consumers could be enticed over and over again if different experiences were rotated through the same place. Mid-America Festivals, the company that runs the Minnesota Renaissance Festival as well as similar endeavors in other states, added Halloween-theme experiences (Trail of Terror, Gargoyle Manor, and BooBash) at the same locale, as well as a Christmas-theme gourmet dinner and entertainment called the Fezziwig Feast. Shopping malls that wish to embrace the Experience Economy must learn how to stage revolving productions, just as theatres did long ago, that entice people to pay an admission fee again and again.
Do you think people would be crazy to pay for the experience of shopping at their local mall? Imagine the reaction if, decades ago—just after World War II, let's say, when the U.S. economy was booming, flush with returning GIs buying houses in the suburbs and filling their garages with new cars and their kitchens with the latest in household gadgets—you had told people that in the near future the typical family would pay someone else to change the oil in their car, make their kids' birthday cakes, clean their shirts, mow their lawn, or deliver a host of other now-commonplace services. No doubt they would have said you were insane! Or imagine going back hundreds of years and telling rural farmers that in the centuries hence the vast majority of people would no longer farm their own land, build their own houses, kill animals for their own meals, chop their own wood, or even make their own clothes or furniture. Again, you would have been thought crazy.
The history of all economic progress consists of charging a fee for what once was free. In the full-fledged Experience Economy, instead of relying purely on our own wherewithal to experience the new and wondrous—as has been done for ages—we increasingly pay companies to stage experiences for us, just as we pay companies for services we once delivered ourselves, goods we once made ourselves, and commodities we once extracted ourselves. We find ourselves paying to spend more and more time in various places or events.
Admission to such experiences need not be limited to paying to enter, although such entry fees will certainly continue as one form of admission fee. In addition to paying at the start of experiences, customers may pay by occurrence or per period of time. And for each measurement (at start, by occurrence, and per period), paying guests may be admitted either for specific occasions or on an open basis. As shown in figure 3-1, six forms of admission therefore are available to experience stagers:
Entry fee: Payment to enter a venue or event, such as going to a movie, seeing a stage performance, attending a sporting event, or walking a trade show floor
Per-event fee: Payment to participate in an event, such as playing an arcade game, placing a wager, taking part in a competitive contest, or partaking in a conference or seminar
Per-period fee: Payment for a set time—per minute, per hour, per day, per week, per month, per quarter, per year—at, for, in, or with offerings, such as satellite TV, Internet use, or club or association dues
Initiation fee: Initial payment to affiliate with an experience, such as joining a country club, social club, website, or social network
Access fee: Payment to obtain entrance, participation, time, affiliation, or membership, such as a backstage pass, beginner fee, test period, “professional seat license,” or trial membership
Membership fee: Payment to be enrolled or included in a group's experiences, such as in a club, league, forum, co-op, or other association, whether for a group or an individual
Entry fees are paid before an experience just to get in; per-event fees are paid during an experience (or at the end of it) to get involved; and per-period fees are paid over time to yet again experience an offering. Initiation fees are paid to join and be received; access fees are paid to pass through and experience an exclusive offering; and membership fees are paid to continue and belong.
Remember: you are what you charge for. Knowing these varied admission fee possibilities opens up new opportunities for differently structuring economic relationships with customers—and thus alters the perceived value of one's offerings. For example, hotels that require guests to check out by a certain time in the morning still embrace a service mindset evidenced in the form of a room rate, wherein customers essentially pay for a collection of activities performed directly or (often) indirectly on their behalf. The requirement often frustrates guests. Hotels can shift to an experience mindset by charging per-period in the form of a day rate, allowing guests to stay in full twenty-four intervals before checking out. (Or alternatively, charge hour rates, as “hotel cabin” chains like YO! Company's YOtel now do.) Any business can differentiate itself by considering alternative approaches; any number of the six forms of admission could be combined to effect greater loyalty.
Figure 3-1: Forms of admission
Charging explicitly for experiences, versus merely for goods and services, can lead to fundamentally altering the financial winners in an industry. Think movies. Blockbust
er once dominated the movie rental industry, charging for each film rented, and fining customers (yes, fining customers!) for late returns. Enter Netflix. It offered an alternative pricing model, one based on charging explicitly for movie-viewing experiences (not movie-renting services). Netflix customers simply pay a monthly (per-period) fee, with unlimited movie rentals subsumed within the offering. Granted, Netflix also reinvented the underlying delivery service and is eagerly reinventing it again. Why? It's because by charging for time (each month) and not for the service (each rental), Netflix treats new technological platforms not as a threat to service revenues but as the means to lower delivery costs supporting its experience revenues.
Consider other such per-period possibilities. Imagine paying a company an annual fee to carefully manage an ever-changing mix of toys as part of a child development offering—instead of family and friends showering children with too many (inevitably unused) toys. Imagine a similar wardrobe management offering for adults, routinely providing expertise in the selection, maintenance, and replacement of garments—instead of closets packed with too many seldom-worn articles of clothing. Such subscription-based wardrobes could be customized based on color analysis, individual levels of fashion consciousness, and actual wear and tear. Or think about grocery stores, which charge for individual packaged goods and other foodstuffs. In a time when many people are overweight, couldn't a grocer offer to charge a per-period fee for a maximum number of calories to be taken home from the store each week? Almost any industry would benefit from seeking to differentiate based on for-fee experiences.
Charging admission does not necessarily mean, however, that companies stop selling their goods and services. (Still, some will indeed give away their lower-level offerings to better sell their high-margin experiences, just as telephone companies today give away cell phones to consumers who sign up for their wireless service.) The Walt Disney Company derives an awful lot of profit at its theme parks from photographic, food, and other services, as well as from all the goods it sells as memorabilia. But without the staged experiences (not only of the theme parks but also cartoons, movies, and TV shows) there would be nothing to remember—Disney would have no characters to exploit. While historically Disney started with the experience and then added lower-level offerings, the principle holds for those starting with goods and services that shift up to experiences. In the Experience Economy, experiences drive the economy and therefore generate much of the base demand for goods and services. So explore the experiences you could stage that would be so engaging that your current customers would actually pay admission and then pay extra for your services while they are so engaged, or pay more for your goods as memorabilia. In doing so, you would be following the lead of not only Disney but also the Minnesota Renaissance Festival, American Girl Places, prix fixe restaurants, and a host of other companies that have already entered the Experience Economy.
The same principle applies to business-to-business companies: staging experiences for their customers will drive demand for their current goods and services. The business equivalent of a shopping mall is, after all, a trade show—a place to find, learn about, and, if a need is met, purchase offerings. Trade show operators already charge admission (and could charge even more, if they staged better experiences); individual companies can do the same thing. If a company designs a worthwhile experience, customers will gladly pay the company to, essentially, sell to them.
Again, all the forms of admission fees are fair game for alternatively structuring B2B relationships. R&D-intensive companies could charge for membership and access to ongoing research findings and development intelligence. New experience-based revenue streams would emerge, replacing the paradigm of recovering costs only when a new good or service output eventually materializes. After all, new goods and services, once on the market, will only be reverse-engineered or otherwise copied and offered at a lower price. Charging admission to R&D may well provide the needed remedy for the tenuous cost issues causing turbulence (illegal imports, counterfeiting, medical tourism, and so forth) in the pharmaceutical, medical device, and other healthcare industries.
Will every company be able to charge admission? No, only those that properly set the stage by designing rich experiences that cross into all four realms: the entertainment, the educational, the escapist, and the esthetic. And only those that use the THEME-ing principles outlined earlier to create engaging, memorable encounters. Charging admission is the final step; first you must design an experience worth paying for.
But launching experiences worthy of charging admission is precisely what is needed in order to grow revenues, create jobs, increase wealth, and ensure continued economic prosperity now and in the future. Charging for goods and services is no longer enough. Instead of bombarding children with too many toys, we need new toy management and child development firms—operating essentially as the Netflix of toy-playing. Instead of closets and drawers full of too many clothes, we need wardrobe management offerings. We need new models for charging for nutritional foods. Fundamentally, we need to stop protecting old Mass Production businesses and start encouraging new customizing ventures. That show must go on.
CHAPTER 4
Get Your Act Together
REMEMBER THE LAST TIME YOU received particularly poor service, perhaps at a restaurant, automotive shop, or airline counter? For many, such ordeals create our most lasting recollections of a company—and often our best cocktail-hour stories. We forget consistently dependable service while remembering the occasional mishap. Companies that falter on the service front discover the hard way that the easiest way to turn a service into an experience is to provide poor service, thus creating a memorable encounter of the most unpleasant kind.
The surest way to provide poor service is to walk every client through the same rote, impersonal routine, never varying, no matter who the individual client is or what he really needs. Customers have been receiving such treatment ever since service providers embraced the same principles of Mass Production that manufacturers used to dramatically lower costs. And it has become even worse as the forces of commoditization that hit manufacturing now attack services as well. So service providers reengineer their call centers to reduce call time and downsize already harried frontline staff or outsource the work to save on fixed costs and overhead. The end result? Their employees spend less time with clients, and the time they do spend no longer delivers the same level of service. By focusing on costs at the expense of what clients want, these companies commoditize themselves. Why should customers pay a higher price for demonstrably poorer service?
But the inverse principle also holds true: customizing a service can be a sure route to staging a positive experience. Certainly, customization is not the be-all and end-all; rather, companies should use it to create customer-unique value, the portal through which experiences reach individual customers. An economic offering confers customer-unique value, at its ideal, when it is
Specific to individual customers: Brought into being at a particular moment for this precise customer
Particular in its characteristics: Designed to meet this customer's individual needs (although some other customer may have the same needs and may therefore purchase the same offering)
Singular in its purpose to benefit this customer: Not trying to be any more or less than, but rather only and exactly, what the customer desires
When a company provides such customer-unique value, it takes an invaluable first step toward creating memorable interactions that stand apart from the routine transactions mass producers foist on their customers.
Progressive Insurance of Cleveland, for example, gives adjusters “immediate response vehicles” (IRVs) outfitted with a personal computer, wireless uplink to its mainframe computers, and everything else they may need for the singular purpose of efficiently resolving a claim from the site of an accident. While the other party may wait days or weeks for his insurance company's cost-conscious adjuster to fit him into the schedule, the Progressi
ve claimant finds his particular needs handled right then and there—receiving not only a check but also a cup of coffee and, if need be, a few minutes to sit down and relax in the IRV and call to reassure his family (or arrange for a ride). Because Progressive customizes its claims service to the specific individual insured, its offering goes beyond the expected service to provide an experience appropriate to the physical and emotional needs of the claimant. And in doing all this, the company actually lowered its costs.
Automatic Shifting
The same effect works for goods: customizing a good automatically turns it into a service. Look at Dell. Ever since Michael Dell founded the company in his University of Texas dorm room in 1984 he focused on producing computers on demand to individual customer order. Until recently, the company never produced anything to put in finished goods inventory but instead made its personal computers (and, increasingly, servers, switches, consumer electronic devices, and so forth) only when a real, live, breathing customer provided the exact desired specifications. Via its web-based configurator or a telephone call center, or (for large corporate customers) directly to a salesperson, Dell collaborates with its customers to define the particular computing goods to meet their own individual needs.
In the fast-moving computer industry, Dell lowers its costs over inventory-laden mass producers because of what the company calls its “cash conversion cycle”—the time between when it pays its suppliers and when its customers pay it. For most manufacturers that's days, weeks, even months. (Think of all the “tired iron” that automakers push out to their dealers, where the industry standard is a sixty-day supply.) For Dell, in fiscal year 2010 the cash conversion cycle was a negative thirty-six days.1 (It was much higher—make that lower, in the negative forties and fifties—before Dell started in 2007 selling some of its goods at retail because of industry dynamics.) This means that it has negative working capital, with its growth funded by customers who pay in advance of receiving their products and suppliers that get paid long after they deliver.
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