As should prisons. Corrections Corporation of America (CCA), based in Nashville, provides local, state, and federal governments with private detention and correction services. Bureaucratic wardens might simply consider it a service that keeps inmates off the street for the length of their sentences. But when asked by Chief Executive magazine to describe his company's “product,” former CEO Doctor Crants responded that CCA produced “quality corrections,” which involve not only housing people but also creating “some positive impact on the chances that those inmates will have a better life after they leave our facility than they otherwise would … For us, quality corrections means teaching our inmates to read and write … About 50 percent don't have high school diplomas, so we have GED classes and educational courses … For those who already have a high school diploma, we have various kinds of job training courses. We teach them a skill, such as diesel mechanics or automobile mechanics … And we've devised what we think is the finest drug treatment program in the world, superior to the Betty Ford Clinic. It takes seven months to get through.”13
Crants acknowledged that CCA's methods do not work on about 20 percent of the prison population, the true psychopaths and sociopaths who cannot, at least with known methods, become productive contributors to society.14 He further explained that the government agencies that have privatized their prisons to CCA save money, generally about 10 percent, because “what's cost effective is to give every inmate a sense of hope. He gets up in the morning and goes off to do something that, at the end of his sentence, may position him to have a chance for life outside of a prison setting.”15
It may only be a chance, but transforming a hardened criminal or even a first-time offender into someone who won't return to prison truly is a different kind of economic offering. The same is true regarding all those who need a second chance at life, including those for whom typical schools have not worked—such as the culinary students at Bidwell Training Center in Pittsburgh. As social entrepreneur Bill Strickland says of these students, “They're human beings who are now capable of participating in the environment in an effective way … That's an outcome. That's a product.”16
Discovering the Distinctions, Part 2
As with experiences, some observers will surely argue that what we are calling transformations are really only a subclass of services. But there is just too much disparity between, say, eating at a McDonald's and firming up at a fitness center, between providing information reports and partnering in business outcomes, and between cleaning a suit and cleansing a soul to classify them all as a single economic offering. As delineated in table 9-1, transformations are indeed a distinct economic offering, as distinct from experiences as experiences are from services. Identifying this new offering requires using words not normally associated with businesses and their economic output. But just as it took years for the now-familiar terms of the Service Economy—such as intangible products, clients, delivering on demand—to fall trippingly from the tongue, so, too, it will be a while before the new vocabulary of experiences and transformations will become second nature. But to fully discern the distinctions between all five economic offerings, consider the following:
While commodities are fungible, goods tangible, services intangible, and experiences memorable, transformations are effectual. All other economic offerings have no lasting consequence beyond their consumption. Even the memories of an experience fade over time. But buyers of transformations seek to be guided toward some specific aim or purpose, and transformations must elicit that intended effect. That's why we call such buyers aspirants; they aspire to be someone or something different. Without a change in attitude, performance, characteristics, or some other fundamental dimension of self, no transformation occurs. And this change should be not only in degree but also in kind, not only in function but also in structure. The transformation affects the very being of the buyer. Table 9-1: Economic Distinctions
Economic offering
Commodities
Goods
Services
Experiences
Transformations
Economy
Agrarian
Industrial
Service
Experience
Transformation
Economic function
Extract
Make
Deliver
Stage
Guide
Nature of offering
Fungible
Tangible
Intangible
Memorable
Effectual
Key attribute
Natural
Standardized
Customized
Personal
Individual
Method of supply
Stored in bulk
Inventoried after production
Delivered on demand
Revealed over a duration
Sustained through time
Seller
Trader
Manufacturer
Provider
Stager
Elicitor
Buyer
Market
Customer
Client
Guest
Aspirant
Factors of demand
Characteristics
Features
Benefits
Sensations
Traits
While companies store commodities in bulk, inventory goods after production, deliver services on demand, and reveal experiences over a duration of time, they must sustain transformations through time if they are to take hold, to genuinely change the aspirant. If a change—losing weight, stopping a bad habit, or becoming financially secure, say, on the consumer side, or lowering fixed expenses, stopping wasteful practices, or becoming insulated from exchange rate fluctuations on the business side—is only temporary and not sustained, then it was not really transforming but merely a momentary uptick along the same old journey. Likewise, any relapses or digressions reduce the measure or intensity of the transformation attained.
Finally, whereas commodities are natural, goods standardized, services customized, and experiences inherently personal, transformations are individual. The offering does not exist outside the changed traits each aspirant desires; it is that change itself. Experiences are events to which the individual reacts and thereby creates a memory, but transformations go much further, actually changing the being of the buyer, whether a consumer or business. Because an experience is inherently personal, no two people can have the same one. The effect differs based on past experiences and current state of mind. So, too, no individual can undergo the same transformation twice; the second time it's attempted, the individual would no longer be the same person. People value transformation above all other economic offerings because it addresses the ultimate source of all other needs: why the buyer desires the commodities, goods, services, and experiences he purchases.
Indeed, with transformations, the economic offering of a business is the change in the individual person or company as a result of what the offering business does. With transformations, the customer is the product! The individual buyer of the transformation essentially says, “Change me.” The company's economic offering is neither the materials it uses nor the physical things it makes. It's neither the processes it executes nor the encounters it orchestrates. When a company guides transformations, the offering is the individual.
This means that the exact form and content of any particular transformational offering have to be considered carefully. The transformation elicitor must understand customer aspirations before hoping to affect any change in the particular traits—whether they be along physical, emotional, intellectual, or spiritual dimensions. Aspirations of course relate to customer expectations; but here the expectations center not on some external function or benefit but on the customers themselves, on what they want to become.17
Once the Experience Economy has run its course in the decades to come, the Transformation Economy
will take over. Then the basis of success will be in understanding the aspirations of individual consumers and businesses and guiding them to fully realize those aspirations.
Let's examine how the insurance industry, as one readily discernible example, will make the transition through successive economies. As you saw earlier, the claims adjustment process at Progressive Insurance shifted the company into the Experience Economy by providing the customers with the time and means to settle their nerves. The on-the-spot check relieves them of all worry about how to handle the situation. Traditional policy carriers merely insure their policyholders, meaning, as shown in figure 9-2, that clients merely secure a payment in the event of a loss. Something bad happens, they get money. That's it. The Progressive experience, on the other hand, assures its policyholders, meaning that guests secure confidence, encouragement, trust, or a feeling of satisfaction. When something happens, Progressive assures them that they will not only get their money but will also feel better about the whole unfortunate situation.
In the Transformation Economy, even assurance won't be enough. In addition, carriers will ensure policyholders, which means that aspirants will secure an actual event, situation, or outcome. For example, in 2007 Safeco Insurance of Seattle began providing “Teensurance” with the tagline “Encouraging responsibility. Delivering Peace of Mind.” This is exactly what the company's ensurance offering does. For teenagers, it combines an online driving assessment geared to enhance their driving skills with 24/7 roadside assistance should anything happen—not only accidents, of course, but also any car problem at all. For parents, Safeco installs a GPS monitoring device in the car that tracks not only location but also speed, distance, and time of driving. This Safety Beacon Convenience and Protection System sends an immediate alert to the parents whenever the teen exceeds preset speed limits, safe driving zone perimeters, or curfew restrictions, as well as for more mundane arrival and departure times. Online tools also enable parents and their children to discuss proper driving habits and behavior based on actual data, leading teenagers to become better drivers and thereby earn their parents' trust.
Figure 9-2: The “insurance” industry through successive economic offerings
Achmea, of Zeist, The Netherlands, focuses not on automobile but health insurance, among other financial offerings. Realizing that such insurance was a low-interest product, in 2006 it sought to change itself into a health company. It created its own health centers not only to help policyholders become more fit but also to enhance their nutritional intake, posture, incident prevention, and so forth. It also created a members-only website with such features as a medical encyclopedia, diagnosis assistance, lifestyle information, and psychology consults. It rounds out its shift from mere insurance services to ensurance transformations with such additional offerings as a magazine and newsletter, wellness programs, education, travel, and health checks with its own doctors.
Now, if you're a service provider, think of your own business. What are the equivalents to insure, assure, and ensure for the industry in which your company now resides? It's unlikely you can find such simple words to describe the path from services to experiences to transformations (you may even have to invent a word or two), but thinking creatively about new economic offerings that surround the present ones will pay dividends as we move inexorably from the Experience to the Transformation Economy.
So what's a manufacturer to do? In today's Experience Economy, we already see manufacturers experientializing their goods—inging the thing by focusing on the experience customers have while using their goods. In the Transformation Economy manufacturers will of course transformationalize their goods—design and sell goods that help customers become something distinct. Here the focus moves from using to user : how the individual changes while using the good. Although offerings such as self-help books, “edutainment” software, and exercise videos and equipment begin to address this aim, they fall short of fully transformationalized offerings.18 If exercise equipment were truly transformationalized, for instance, the manufacturers would stop thinking of their business as selling physical goods and start thinking of it as developing good physiques—and someone would show up occasionally to examine the results!
Some firms lead the way. In the greeting card business, Hallmark Card's BusinessConnections unit creates cards aimed at boosting employee morale and loyalty in the workplace (as well as customer loyalty in the marketplace). Hallmark's team of designers helps individual companies assess their needs, determines the appropriate series of messages to communicate to specific departments and individuals, and then creates customized cards for multiple occasions. Because the goal of the program is to change employee attitudes, Hallmark no longer sells the custom cards as ordinary goods but as tools for executives and HR departments to help improve employee retention and corporate culture.
Consider the automobile industry. Just as a significant factor in automobile design today is the sensation of how the doors sound when they close (something that did not matter a whit thirty years ago), in the Transformation Economy people won't buy a car unless it makes them—or their kids—better drivers. To that end, automakers have added a raft of features over the past decade or two, including collision avoidance radar, adaptive headlamps and side view mirrors, reverse backup sensors and cameras, and lane departure warning systems. Although most of these are embedded in the price of the vehicles themselves, General Motors surrounds its vehicles with the distinct transformational offering OnStar, a safety, security, and diagnostic system that ensures drivers are, well, safe and secure, with properly running vehicles.19
Or look at pharmaceuticals. GlaxoSmithKline (GSK) has long provided smoking cessation goods—Nicorette gum, NicoDerm CQ patches, Commit lozenges, and the like. It found, however, that the rate at which people actually achieved their aspiration of going from smoker to nonsmoker was quite small—only 24 percent.20 So the company designed an individualized smoking cessation program called Committed Quitters. This program begins with an up-front phone conversation between the smoker and a company representative to understand the person's smoking habits, how many cigarettes he smokes a day, when he most craves one, what obstacles he faces, and so forth. GSK then sends out custom mailers—letters, brochures, tip sheets, and so on—with follow-up phone calls, e-mails, and website interactions. After the multiweek program, GSK found that people who go through Committed Quitters had a 50 percent greater likelihood of achieving their aspiration—and bought more of its manufactured goods as well.21
One huge arena for manufacturers to sell goods that can help transform people is fitness. A short list of products here includes Nike+, a GPS application that connects your shoes to your iPod to track miles run, and adidas' miCoach, a personal training system accessible over the Web. Another transformative product is Fitbit, a clip-on sensor from the eponymous San Francisco-based company of the same name. This device measures the number of steps you take each day, your total distance traveled, the calories burned, and even your sleep quality. DirectLife, from Philips, tracks all of your activity (except sleeping) and comes with personal fitness and nutrition coaching through its own website. And Under Armour provides apparel that compresses muscles as you work out and aids in circulation.
Further, just as many manufacturers now exploit the Experience Economy by making memorabilia for guests to buy as physical reminders of their experience, in the nascent Transformation Economy goods producers can also make the emblems aspirants purchase to commemorate the transformations they undergo. Rings, crosses, flags, trophies, pennants, medals, badges, medallions, insignias, diplomas, certificates, and other such emblems all tangibly signify that their bearers have transformed themselves in some way: from single to married, from team to champion, from civilian to soldier, from soldier to hero, and so forth. All of these emblems further enable people to identify those who have undergone the same transformations and thereby initiate conversations and form communities.
Guiding Transformations
Experts in grieving assert that everyone faced with a tremendous personal loss first must go through a series of experiences—such as shock, depression, confusion, guilt, anger—before recovery can occur. How much better we can handle these stages, and more quickly be transformed from grief to normal living, when someone—minister, counselor, friend—guides us than when we are left alone. In the same way, all transformation elicitors guide aspirants through a series of experiences.
The Progression of Economic Value forms an Economic Pyramid, viewed as successive offerings built on top of the ones below, as shown in figure 9-3. Transformation elicitors must determine exactly the right set of life-transforming experiences required to guide aspirants in achieving their goals (commemorated with goods as emblems). Experience stagers must depict what services engage the guest and then stage them in such a way as to create a memorable event (preserved with goods as memorabilia). Service providers, in turn, must devise the proper configuration of goods (such as tables and condiment dispensers in a fast-food restaurant, or hangers, plastic bags, and cleaning equipment in a dry cleaner) that enable them to deliver the set of intangible activities desired by the client. Goods manufacturers, of course, must develop sources for the appropriate commodities used as raw materials for the tangible products they make for users. And commodity traders must discover where those materials lie and extract them for the markets they serve.
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