Welcome to the Experience Economy

As goods and services become commoditized,the customer experiences that companies

create will matter most.

WELCOME TO THEEXPERIENCEECONOMY

BY B.JOSEPH PINE I! AND

JAMES H. GILMORE

How DO ECONOMIES CHANGE? Theentire history of economic progresscan be recapitulated in the four-

stage evolution of the birthday cake. As avestige of the agrarian economy, mothersmade birthday cakes from scratch, mixingfarm commodities (flour, sugar, butter, andeggs) that together cost mere dimes. As thegoods-based industrial economy advanced,moms paid a dollar or two to Betty Crockerfor premixed ingredients. Later, when theservice economy took hold, busy parentsordered eakes from the bakery or grocerystore, which, at $io or $15, cost ten timesas much as the packaged ingredients. Now,in the time-starved 1990s, parents neither

B. Joseph Pine II and James H. Gilmore arecofounders of Strategic Horizons LLP, based inCleveland, Ohio. They are coauthors of EveryBusiness a Stage: Why Customers Now WantExperiences, to be published by the HarvardBusiness School Press in January 1999. Theyare the authors of "The Four Faces of MassCustomization" (HBR January-February 1997)and can be reached at pine&)[email protected].

make the birthday cake nor even throw theparty. Instead, they spend $100 or more to"outsource" the entire event to Chuck E.Cheese's, the Discovery Zone, the MiningCompany, or some other husiness thatstages a memorable event for the kids-andoften throws in the cake for free. Welcometo the emerging experience economy.

Economists have typically lumped expe-riences in with serviees, but experiencesare a distinct economic offering, as differentfrom services as services are from goods. To-day we can identify and describe this fourtheconomic offering because consumers un-questionably desire experiences, and moreand more businesses are responding by ex-plicitly designing and promoting them. Asservices, like goods before them, increas-ingly become commoditized - think oflong-distance telephone services sold solelyon price - experiences have emerged as thenext step in what we call the progression ofeconomic value. (See the exhibit "The Pro-gression of Economic Value.") From nowon, leading-edge companies-whether theysell to consumers or businesses-will find

HARVARD BUSINESS REVIEW |uÍy-AugUSI 199»

WELCOME TO THE EXPERIENCE ECONOMY

The Progression of Economic Value

Difíerentiated

Stageexperiences

CompetitivePosition

services

Undífíerentidted

goods

Premium

Pricing

that the next competitive hattleground hes in stag-ing experiences.

An experience is not an amorphous construct; itis as real an offering as any service, good, or com-modity. In today's service economy, many compa-nies simply wrap experiences around their tradi-tional offerings to sell them better. To realize thefull benefit of staging experiences, however, busi-nesses must deliberately design engaging experi-ences tbat command a fee. This transition fromselling services to selling experiences will be noeasier for established companies to undertake andweather than the last great economic shift, fromthe industrial to the service economy. Unless com-panies want to be in a commoditized business.

however, they will be compelled to upgrade theirofferings to the next stage of economic value.

The question, then, isn't whether, but when - andhow - to enter the emerging experience economy. Anearly look at the characteristics of experiences andthe design principles of pioneering experiencestagers suggests how companies can begin to an-swer this question.

Staging Experiences that SellTo appreciate the difference between services andexperiences, recall the episode of the old televisionshow Taxi in which Iggy, a usually atrocious (butfun-loving) cab driver, decided to become the besttaxi driver in the world. He served sandwiches anddrinks, conducted tours of the city, and even sangFrank Sinatra tunes. By engaging passengers in away that turned an ordinary cab ride into a memo-rable event, Iggy created something else entirely-a distinct economic offering. The experience ofriding in his cab was more valuable to his customersthan the service of being transported by the cab-and in the TV show, at least, Iggy's customers hap-pily responded by giving bigger tips. By asking to goaround the block again, one patron even paid morefor poorer service just to prolong his enjoyment.The service Iggy provided-taxi transportation-was simply the stage for tbe experience that he wasreally selling.

An experience occurs when a company intention-ally uses services as the stage, and goods as props, toengage individual customers in a way that createsa memorable event. Commodities are fungible,goods tangible, services intangible, and experiencesmemorable. (See the chart "Economic Distinc-

Economic Distinctions

Economic Offering

Economy

Economic Function

Nature of Offering

Key Attribute

Method ofSupply

Seiler

Buyer

Factors of Demand

Commodities

Agrarian

Extract

Fungibie

Natural

Stored in buik

Trader

Maricet

Characteristics

Goods

Industriai

Make

Tangible

Standardized

inventoried afterproduction

Manufacturer

User

Features

Services

Service

Deliver

Intangible

Customized

Deiivered ondemand

Provider

Ciient

Benefits

Experiences

Experience

Stage

Memorabie

Personal

Revealed overa duration

Stager

Guest

Sensations

98 HARVARD BUSINESS REVIEW |uly-August 1998


tions."} Buyers of experiences-we'll follow thelead of experience-economy pioneer Walt Disneyand call them "guests"-value what the companyreveals over a duration of time. While prior eco-nomic of ferings - commodities, goods, and services-are external to the buyer, experiences are inher-ently personal, existing only in the mind of an indi-vidual who has been engaged on an emotional,physical, intellectual, or even spiritual level. Thus,no two people can have the same experience, be-cause each experience derives from the interactionbetween the staged event (like a theatrical play) andthe individual's state of mind.

Experiences have always been at the heart of theentertainment business-a fact that Walt Disneyand the company he founded have creatively ex-ploited. But today the concept of selling an enter-tainment experience is taking root in businesses farremoved from theaters and amuse-ment parks. New technologies, in par-ticular, encourage whole new genresof experience, such as interactivegames, Internet chat rooms and multi-player games, motion-based simula-tors, and virtual reality. The growingprocessing power required to renderever-more immersive experiencesnow drives demand for the goods and services ofthe computer industry. In a speech made at theNovember 1996 COMDEX computer trade show,Intel chairman Andrew Grove declared, "We needto look at our business as more than simply thebuilding and selling of personal computers. Ourbusiness is the delivery of information and lifelikeinteractive experiences."

At theme restaurants such as the Hard RockCafe, Planet Hollywood, or the House of Blues, thefood is just a prop for what's known as "eatertain-ment." And stores such as Niketown, Cabella's,and Recreational Equipment Incorporated drawconsumers in by offering fun activities, fascinatingdisplays, and promotional events (sometimeslabeled "shoppertainment" or "entertailing").

But experiences are not exclusively about enter-tainment; companies stage an experience wheneverthey engage customers in a personal, memorableway. In the travel business, former British Airwayschairman Sir Colin Marshall has noted that the"commodity mind-set" is to "think that a businessis merely performing a function - in our case, trans-porting people from point A to point B on time andat the lowest possible price." What British Airwaysdoes, according to Sir Colin, is "to go beyond thefunction and compete on the basis of providing anexperience." (See "Competing on Customer Ser-

vice: An Interview with British Airways' Sir ColinMarshall," HBR November-December 1995.) Thecompany uses its base service (the travel itself) asthe stage for a distinctive en route experience-onethat attempts to transform air travel into a respitefrom the traveler's normally frenetic life.

Neither are experiences only for consumer in-dustries. Companies consist of people, and busi-ness-to-business settings also present stages forexperiences. For example, a Minneapolis computer-installation and repair company calls itself theCeek Squad. Its "special agents" costume them-selves in white shirts with thin black ties and pocketprotectors, carry badges, drive old cars, and turn ahumdrum activity into a memorable encounter.Similarly, many companies hire theater troupes-like the St. Louis-based trainers One World Music,facilitators of a program called Synergy through

Today the concept of sellingexperiences is spreading beyond

theaters and theme parks.

Samba-to turn otherwise ordinary meetings intoimprovisational events that encourage breakthroughthinking.

Business-to-business marketers increasingly cre-ate venues as elaborate as any Disney attraction inwhich to sell their goods and services. In June 1996,Silicon Graphics, for example, opened its Visionar-ium Reality Center at corporate headquarters inMountain View, California, to hring customers andengineers together in an environment where theycan interact with real-time, three-dimensionalproduct visualizations. Customers can view, hear,and touch-as well as drive, walk, or fly-throughmyriad product possibilities. "This is experientialcomputing at its ultimate, where our customerscan know what their products will look like, soundlike, feel like before manufacturing," said thenchairman and CEO Edward MeCracken.

You Are What You Charge ForNotice, however, that while all of these companiesstage experiences, most are still charging for theirgoods and services. Companies generally movefrom one economic stage to the next in incrementalsteps. In its heyday in the 1960s and 1970s, IBM'sslogan was "IBM Means Service," and the computermanufacturer indeed lavished services-for free-

HARVARD BUSINESS REVIEW July-August 1998 99


on any company that would buy its hardwaregoods. It planned facilities, programmed code, inte-grated other companies' equipment, and repairedits own machines; its service offerings over-whelmed the competition. But eventually IBM hadto charge customers for what it had been givingaway for free, when a Justice Department suit re-quired the company to unbundle its hardware and

Companies should think aboutwhat they would do differentlyif they charged admission.

software. The government order notwithstanding,IBM couldn't afford to continue to meet increasingcustomer-service demands without explicitlycharging for them. Services, it turned out, were thecompany's most valued offerings. Today, with itsmainframe computers long since commoditized,IBM's Global Services unit grows at double-digitannual rates. The company no longer gives away itsservices to sell its goods. In fact, the deal is re-versed: the company will buy its clients' hardwareif they'll contract with Global Services to managetheir information systems. IBM still manufacturescomputers, but now it's in the business of providingservices.

It's an indication of the maturity of the serviceeconomy that IBM and other manufacturers nowmake greater profits from the services than fromthe goods they provide. General Elcctric's GE Cap-ital unit and the financial arms of the Big Threeautomakers arc cases in point. Likewise, it's an in-dication of the immaturity of the experience econ-omy that most companies providing experiences-like the Hard Rock Cafe, the Geek Squad, or SiliconGraphics-don't yet explicitly charge for the eventsthat they stage.

No company sells experiences as its economicoffering unless it actually charges guests an admis-sion fee. An event created just to increase customerpreference for the commoditized goods or servicesthat a company actually sells is not an economicoffering. But even if a company rejects (for now)charging admission to events that it stages, its man-agers should already be asking themselves whatthey would do differently if they were to charge ad-mission. The answers will help them see how theircompany might hegin to move forward into the ex-perience economy, for such an approach demandsthe design of richer experiences.

Movie theaters already charge admission to seefeatured films, hut Jim Loeks, part-owner of theStar theater complex in Southfield, Michigan, toldForbes magazine that "it should be worth the priceof the movie just to go into the theater." Starcharges 3 million customers a year 25% higher ad-mission for a movie than a local competitor doesbecause of the fun-house experience it provides.

Soon, perhaps, with 65,000 squarefeet of restaurants and stores heingadded to the complex. Star will chargeits customers admission just to getinto the complex.

Some retailers already border on theexperiential. At the Sharper Image orBrookstone, notice how many peopleplay with the gadgets, listen to minia-

turized stereo equipment, sit in massage chairs, andthen leave without paying for what they valued,namely, the experience. Could these stores chargeadmission? Not as they are currently managed. Butif they did charge an admission fee, they would beforced to stage a much better experience to attractpaying guests. The merchandise mix would need tochange more often - daily or even hourly. The storeswould have to add demonstrations, showcases,contests, and other attractions to enhance the cus-tomer experience.

With its Niketown stores, Nike is almost in theexperience business. To avoid alienating its exist-ing retail channels, Nike created Niketown as amerchandising exposition. It's ostensibly forshow-to build the brand image and stimulate buy-ing at other retail outlets-not for selling. If that isso, then why not explicitly charge customers forexperiencing Niketown? Would people pay? Peoplehave already queued to enter the Niketown onChicago's Michigan Avenue. An admission feewould force Nike to stage more engaging eventsinside. The stores might actually use the basketballcourt, say, to stage one-on-one games or rounds ofhorse with National Basketball Association play-ers. Afterward customers eould buy customizedNike T-shirts, commemorating the date and scoreof events-complete with an action photo of thewinning hoop. There might be more interactivekiosks for educational exploration of past athleticevents. Virtual reality machines could let you, asNike's advertising attests, be Tiger Woods. Nikecould probably generate as much admission-basedrevenue per square foot from Niketown as the WaltDisney Company does from its entertainmentvenues-and as Disney should (but does not) yieldfrom its own retail stores. For the premier companyof the experience economy, Disney's specialty re-

100 HARVARD BUSINESS REVIEW luly-August 1998


tailing outside of its own theme parks disappoints.Its mall stores aren't much different from anyoneelse's, precisely because Disney doesn't charge ad-mission to them-and so doesn't hother creatingthe extraordinary experiences it so expertly createselsewhere.

An entrepreneur in Israel has entered the experi-ence economy with the opening of Cafe Ke'ilu,which roughly translates as "Cafe Make Believe."Manager Nir Caspi told a reporter that people cometo cafes to he seen and to meet people, not for thefood; Cafe Ke'ilu pursues that ohservation to its log-ical conclusion. The estahlishment serves its cus-tomers plates and mugs that are empty and chargesguests $3 during the week and $6 on weekends forthe social experience.

Charging admission-requiring customers to payfor the experience - does not mean that companieshave to stop selling goods and services. Disney gen-erates significant profits from parking, food, andother service fees at its theme parks as well as fromthe sale of memorahilia, But without the staged ex-periences of the company's theme parks, cartoons,movies, and TV shows, customers would havenothing to rememher-and Disney would have nocharacters to exploit.

In the full-fledged experience economy, retailstores and even entire shopping malls will chargeadmission heforc they let a consumer even set footin them. Some shopping malls, in fact, already docharge admission. We're not thinking of the Mall ofAmerica outside of Minneapolis, which contains anamusement park; it charges for the rides, but theshopping is still free. We're referring to the GilroyGarlic Festival in California, theMinnesota Renaissance Festival,the Kitchener-Waterloo Oktoberfestin Ontario, Canada, and other sea-sonal festivals that are really outdoorshopping malls and do indeed chargeadmission. Consumers judge themworth the fees because the festival op-erators script distinctive experiencesaround enticing themes, as well as stage activitiesthat captivate customers hefore, after, and whilethey shop. With nearly every customer leavingwith at least one bag of merchandise, these festivalexperiences clearly capture shopping dollars thatotherwise would be spent at traditional malls andretail outlets.

The business equivalent of a shopping mall is atrade show - a place for finding, learning about, and,if a need is met, purchasing exhibitors' offerings.Trade-show operators already charge admission tothe experiences they create; individual business-to-

husiness companies will need to do the same, es-sentially charging customers to sell to them. Dia-mond Technology Partners for instance, stages theDiamond Exchange, a series of forums that helpmembers explore the digital future. Current andpotential clients pay tens of thousands of dollarsannually to attend hecause what they gain-freshinsights, self-diseovery, and engaging interactions-is worth it. No one minds that in staging the event,Diamond greatly improves its chances of sellingfollow-up consulting work.

The Characteristics of ExperiencesBefore a company can charge admission, it must de-sign an experience that customers judge to be worththe price. Excellent design, marketing, and deliverywill be every bit as crucial for experiences as theyare for goods and services. Ingenuity and innovationwill always precede growth in revenue. Yet experi-ences, like goods and services, have their own dis-tinct qualities and characteristics and present theirown design challenges.

One way to think ahout experiences is across twodimensions. The first corresponds to customer par-ticipation. At one end of the spectrum lies passiveparticipation, in which customers don't affect theperformance at all. Such participants include sym-phony-goers, for example, who experience theevent as observers or listeners. At the other end ofthe spectrum lies active participation, in whichcustomers play key roles in creating the perfor-mance or event that yields the experience. Theseparticipants include skiers. But even people who

Some companies will eventuallybe like trade shows, charging

customers to sell to them.

turn out to watch a ski race are not completely pas-sive participants; simply by being there, they con-trihute to the visual and aural event that othersexperience.

The second dimension of experience describesthe connection, or environmental relationship,that unites customers with the event or perfor-mance. At one end of the connection spectrum liesabsorption, at the other end, immersion. Peopleviewing the Kentucky Derby from the grandstandcan absorb the event taking place beneath and infront of them; meanwhile, people standing in the



infield are immersed in the sights, sounds, andsmells that surround them. Furiously scribblingnotes while listening to a physics lecture is moreabsorbing than reading a textbook; seeing a film atthe theater with an audience, large screen, andstereophonic sound is more immersing than watch-ing the same film on video at home.

We can sort experiences into four broad cate-gories according to where they fall along the spectraof the two dimensions. (See the exhibit "The FourRealms of an Experience.") The kinds of experi-ences most people think of as entertainment-watching television, attending a concert-tend tobe those in which customers participate more pas-sively than actively; their connection with theevent is more likely one of absorption than of im-mersion. Educational events - attending a class,taking a ski lesson--tend to involve more activeparticipation, but students (customers, if you will)are still more outside the event than immersed inthe action. Escapist experiences can teach just aswell as educational events can, or amuse just as wellasi entertainment, but they involve greater customerimmersion. Acting in a play, playing in an orches-tra, or descending the Grand Canyon involve bothactive participation and immersion in the experi-ence. If you minimize the customers' active partici-pation, however, an escapist event becomes an ex-perience of the fourth kind-the esthetic. Herecustomers or participants are immersed in an activ-ity or environment, but they them-selves have little or no effect on i t -like a tourist who merely views theGrand Canyon from its lim or like avisitor to an art gallery.

Generally, we find that the richestexperiences - such as going to DisneyWorld or gambling in a Las Vegascasino - encompass aspects of allfour realms, forming a "sweet spot"around the area where the spectrameet. But still, the universe of possi-ble experiences is vast. Eventually,the most significant question man-agers can ask themselves is "Whatspecific experience will my companyoffer?" That experience will come todefine their business.

Experiences, like goods and ser-vices, have to meet a customer need;they have to work; and they have tobe deliverable. Just as goods and ser-vices result from an iterative processof research, design, and development,experiences derive from an iterative

process of exploration, scripting, and staging-capa-bilities that aspiring experience merchants willneed to master.

Designing Memorable ExperiencesWe expect that experience design will become asmuch a business art as product design and processdesign are today. Indeed, design principles are al-ready apparent from the practices of and resultsobtained hy companies that have (or nearly have)advanced into the experience economy. We haveidentified five key experience-design principles.

Theme the experience. Just hear the name of any"eatertainment" restaurant - Hard Rock Cafe,Planet Hollywood, or the Rainforest Cafe, to namea few-and you instantly know what to expectwhen you enter the establishment. The proprietorshave taken the first, crucial step in staging an expe-rience hy envisioning a well-defined theme. Onepoorly conceived, on the other hand, gives cus-tomers nothing around which to organize the im-pressions they encounter, and the experience yieldsno lasting memory. An incoherent theme is likeGertrude Stein's Oakland: "There is no there there."Retailers often offend the principle. They talk of"the shopping experience" hut fail to create atheme that ties the disparate merchandising pre-sentations together into a staged experience.Home-appliance and electronics retailers in partic-

The Four Realms of an Experience

Absorption

Entertainment Educational

Passiveparticipation

Activeparticipation

immersion

102 HARVARD BUSINESS REVIEW My-August 1998


ular show little thematic imagination. Row uponrow of washers and dryers and wall after wall of re-frigerators accentuate the sameness of differentcompanies' stores. Shouldn't there be somethingdistinctive about an establishment called CircuitCity, for example?

Consider the Forum Shops in Las Vegas, a malltbat displays its distinctive theme-an ancientRoman marketplace - in every detail. The SimonDeBartolo Group, which developedthe mall, fulfills this motif througha panoply of architectural effects.These include marble floors, starkwhite piuars, outdoor ' cafés, livingtrees, flowing fountains - and even a p/^ i r ipainted blue sky with fluffy white at t imi the naUne 01 the experience.clouds that yield regularly to simulat-

must support the theme, and none should be incon-sistent witb it.

George Harrop, founder of Barista Brava, a fran-cbised chain of coffee bars based in Washington,D.C., developed the company's theme of "the mar-riage of Old-World Italian espresso bars with fast-paced American living." The interior decor sup-ports the Old World theme, and the carefullydesigned pattern of the floor tiles and counters en-

To create the desired impression,companies must provide cues that

ed storms, complete with lightningand thunder. Every mall entrance and every store-front is an elaborate Roman re-creation. Every hourinside tbe main entrance, statues of Caesar andother Roman luminaries come to life and speak."Hail, Caesar! " is a frequent cry, and Roman centu-rions periodically march through on their way tothe adjacent Caesar's Palace casino. The Romantheme even extends into some of the shops. A jew-elry store's interior, for instance, features scrolls,tablets, Roman numerals, and gold draperies. Thetheme implies opulence, and the mall's 1997 sales-more than $1,000 per square foot, compared witha typical mall's sales of less tban $300- suggest thatthe experience works.

An effective theme is concise and compelling. Itis not a corporate mission statement or a marketingtag line. It needn't be publicly articulated in writ-ing. But the theme must drive all the design ele-ments and staged events of the experience towarda unified story line that wholly captivates the cus-tomer. Educational Discoveries and ProfessionalTraining International of Orem, Utah, stage a day-long course on basic accounting skills to nonfinan-cial managers. Tbeir exquisitely simple theme-running a lemonade stand-turns learning into anexperience. Students use real lemons and lemon-ade, music, balloons, and a good deal of ballyhoowhile they create a corporate financial statement.The theme unifies the experience in the students'minds and helps make the learning memorable.

Harmonize impressions with positive cues.While the theme forms the foundation, the experi-ence must be rendered with indelible impressions.Impressions are the "takeaways" of tbe experience;they fulfill the theme. To create the desired impres-sions, companies must introduce cues that affirmthe nature of the experience to the guest. Each cue

courages customers to line up without tbe usualsignage or ropes that would detract from thattheme. The impressions convey quick service in asoothing setting. Furthermore, Harrop encouragesbaristas to remember faces so that regular cus-tomers are handed their usual order without evenhaving to ask.

Even the smallest cue can aid the creation of aunique experience. When a restaurant host says,"Your table is ready," no particular cue is given. Butwhen a Rainforest Cafe host declares, "Your adven-ture is about to begin, " it sets the stage for some-thing special.

It's the cues that make the impressions that cre-ate the experience in the eustomer's mind. An ex-perience can be unpleasant merely because somearchitectural feature has been overlooked, under-appreciated, or uncoordinated. Unplanned or incon-sistent visual and aural cues can leave a customerconfused or lost. Have you ever been unsure how tofind your hotel room, even after the front-desk staffprovided detailed directions? Better, clearer cuesalong the way would have enhanced your experi-ence. Standard Parking of Chicago decorates eachfioor of its O'Hare Airport garage with icons of dif-ferent Chicago sports franchises - the Bulls on onefioor, the White Sox on another, and so forth. Andeach level has its own signature song waftingthrough it. "You never forget where you parked,"one Chicago resident remarked, which is preciselythe experience a traveler wants after returning froma week of travel.

Eliminate negative cues. Ensuring the integrityof the customer experience requires more than thelayering on of positive cues. Experience stagers alsomust eliminate anything that diminishes, contra-dicts, or distracts from the theme. Most constructed



Spaces-malls, offices, buildings, or airplanes - arelittered with meaningless or trivial messages.While customers sometimes do need instructions,too often service providers choose an inappropriatemedium or message form. For example, trash binsat fast-food facilities typically display a "ThankYou" sign. True, it's a cue to customers to bus theirown trays, but it also says, "No service here," anegative reminder. Experience stagers might,instead, turn the trash bin into a talking, garbage-eating character that announces its gratitude when

If airlines truly sold experiences,more passengers would aetiiallyshop in the seat-poeket eatalogsfor mementos of their (liglit.

the lid swings open. Customers get the same mes-sage but without the negative cue, and self-busingbecomes a positive part of the eating experience.

The easiest way to turn a service into an experi-ence is to provide poor service-thus creating amemorable encounter of the unpleasant kind."Overservicing" in tbe name of customer intimacycan also ruin an experience. Airline pilots interruptcustomers wbo are reading, talking, or napping toannounce, "Toledo is off to the right side of the air-craft." At hotels, front-desk personnel interruptface-to-face conversations with guests to field tele-phone calls. In the guestrooms, service remindersclutter end tables, dressers, and desktops. (Hidethem away and housekeeping will replace tbese an-noyances tbe next morning.) Eliminating negativecues-by transmitting pilots' offband announce-ments through headsets instead of speakers, by as-signing off-stage personnel to answer pbones, andby placing guest information on an interactive tele-vision channel - creates a more pleasurable customerexperience.

Mix in memorabilia. Certain goods have alwaysbeen purchased primarily for the memories theyconvey. Vacationers buy postcards to evoke a trea-sured sigbt, golfers purcbase a shirt or cap witb anembroidered logo to recall a course or round, andteenagers obtain T-shirts to remember a rock con-cert. Tbey purchase such memorabilia as a physicalreminder of an experience.

People already spend tens of billions of dollarsevery year on memorabilia. These goods generallysell at price points far above tbose commanded by

similar items tbat don't represent an experience.A Rolling Stones concert-goer, for example, willpay a premium for an official T-shirt emblazonedwith tbe date and city of tbe concert. That's becausethe price points are a function less of tbe cost of goodstban of the value the buyer attaches to remember-ing tbe experience.

If service businesses like airlines, banks, grocerystores, and insurance companies find no demandfor memorabilia, it's because tbey do not stage en-gaging experiences. But if these businesses offered

themcd experiences layered with pos-itive cues and devoid of negative cues,their guests would want and wouldpay for memorabilia to commemoratetheir experiences. (If guests didn'twant to, it probably would mean theexperience wasn't great.) The specialagents of the Geek Squad, for exam-ple, stage such a distinctive computer-repair experience that customers buyT-shirts and lapel pins from tbe com-

pany's Web site. If airlines truly were in tbe experi-ence-staging business, more passengers wouldactually shop in those seat-pocket catalogs for ap-propriate mementos. Likewise, mortgage loanswould inspire bousehold keepsakes,- grocery check-out lanes would stock souvenirs in lieu of nickel-and-dime impulse items; and perhaps even insur-ance policy certificates would be considered suitablefor framing.

Engage all five senses. Tbe sensory stimulantstbat accompany an experience should support andenhance its tbeme. Tbe more senses an experienceengages, tbe more effective and memorable it canbe. Smart shoesbine operators augment the smell ofpolish witb crisp snaps of tbe clotb, scents andsounds tbat don't make the sboes any sbinier but domake tbe experience more engaging. Savvy hairstylists shampoo and apply lotions not simply be-cause the styling requires it but because tbey addmore tactile sensations to the customer experience.Similarly, grocery stores pipe bakery smells intotbe aisles, and some use ligbt and sound to simulatetbunderstorms when misting their produce.

Tbe mist at the Rainforest Cafe appeals seriallyto all five senses. It is first apparent as a sound:Sss-sss-zzz. Tben you see the mist rising from therocks and feel it soft and cool against your skin.Finally, you smell its tropical essence, and you taste(or imagine that you do) its freshness. What youcan't be is unaffected by the mist.

Some cues heighten an experience through a sin-gle sense affected through striking simplicity. TheCleveland Bicentennial Commission spent $4 mil-

104 HARVARD BUSINESS REVIEW luly-August 1998


lion to illuminate eight automobile and railroadbridges over the Cuyahoga River near a nightspotarea called the Flats. No one pays a toll to view oreven to cross these illuminated bridges, but the dra-matically lighted structures are a prop that citymanagers hope will help attract tourist dollars bymaking a trip to downtown Cleveland a more mem-orable nighttime experience.

Not all sensations are good ones, and some com-binations don't work. Bookstore designers have dis-covered that the aroma and taste of coffee go wellwith a freshly cracked book. But Duds n' Suds wentbust attempting to combine a bar and a coin-oper-ated laundromat. The smells of phosphates andhops, apparently, aren't mutually complementary.

Entering the Experience EconomyUsing these five design principles, of course, is noguarantee of success; no one has repealed the lawsof supply and demand. Companies that fail to pro-vide consistently engaging experiences, overpricetheir experiences relative to the value perceived, oroverbuild their capacity to stage them will ofcourse see pressure on demand, pricing, or both.One stalwart of the children's birthday-party cir-cuit. Discovery Zone, has had a rough few yearsbecause of inconsistent experience staging, poorlymaintained games, and little consideration of theexperience received by adults, who are, after all.

paying for the event. More recently, the RainforestCafe and Planet Hollywood have encountered trou-ble because they have failed to refresh their experi-ences. Guests find nothing different from one visitto the next. Disney, on the other hand, avoids stale-ness by frequently adding new attractions and evenwhole parks such as the Animal Kingdom, whichopened in the spring of 19 9 8.

As the experience economy unfolds, more than afew experience stagers will exit the business. It'shard to imagine, for example, that every one of thescores of theme-based restaurants operating todaywill last into the millennium. Recall that oncethere were more than 100 automakers in easternMichigan and more than 40 cereal makers in west-ern Michigan. Now only the Big Three automakersin Detroit and the Kellogg Company in BattleCreek remain. The growth of the industrial econ-omy and the service economy came with the prolif-eration of offerings-goods and services that didn'texist before imaginative designers and marketersinvented and developed them. That's also how theexperience economy will grow: through the "galesof creative destruction," as the economist JosephSchumpeter termed i t - tha t is, husiness innova-tion, which threatens to render irrelevant thosewho relegate themselves to the diminishing worldof goods and services. ^

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"Well, Hayward. everyone is on board but you.

HARVARD BUSINESS REVIEW July-August 1998 iO5

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