We Are in an Experience Economy

What do Starbucks, Disneyland and Apple Computer have in common? Yes, they are all successful businesses. Yes, they are all in commoditized and highly competitive markets yet each of them commands a premium for their products and services. What makes them so much more successful than their competition?

The answer is experience. I am not talking about how long they have been in business; I am talking about the experience they have created for their customers. We have become a society of consumers and businesses that value and will pay extra for experiences. Experience is a differentiating factor to companies in competitive and commoditized markets.

When you customize a product or build a custom product you are providing a service. When you customize a service you are providing an experience. In case you haven’t realized it, you are in the service business; the business of providing manufacturing services has become a commodity service. Moving from providing services for your customers to providing experiences to your customers may be just what separates your shop from the rest.

Experience matters. Coffee beans are a commodity; enough beans to make a cup of coffee would cost you about $.03. Maxwell House converts those commodity beans into a good and charges you $.20 for enough grounds to make a cup of coffee. Your local café or convenience store provides the service of brewing the coffee and they get $1.00 for a cup of coffee. Starbucks provides an experience and gets $4.00 for a cup of coffee. There are several places to buy a good cup of coffee for under $1 within a few hundred feet of my local Starbucks, yet there is always a line to pay $4.00.

Disney theme parks are the ultimate experience businesses. Most every state has numerous theme parks and lots of great attractions, yet millions of people travel across the country every year just to visit a Disney theme park. When you calculate the vacation time, the travel expenses and the passes for the park (which cost much more than other theme parks), we pay a huge premium for the Disney experience.

Apple Computer has defied the odds and survived because they changed the customer’s perception and experience with their computer. This is not the clunky, gray box that you stare at all day at work. They allowed their customers to experience a colorful and loud machine that made them creative and showed them how to “think different.” The IPod and all of its surrounding products all strictly follow this lineage and commitment to experience.

In my travels I have come across several machine shops and at least one mold shop that have created phenomenal customer experiences. They are able to charge a premium for the “experience” of doing business with them and have phenomenal customer loyalty. It’s not possible for me to tell you how to turn your service business into an experience business. If I could, everyone would do it and it would then be commoditized, right? It’s something you have to figure out on your own and believe me, it’s worth the effort.

There are some really good books on the subject of creating experiences. My favorite is The Experience Economy: Work Is Theatre & Every Business a Stage by B. Joseph Pine II and James H. Gilmore.

Create an experience for your customers or you will be competing in a commoditized market with thin margins and tough competition.