THRIVING IN THE EXPERIENCE ECONOMY Connecting with customers on an emotional level

Materials, products, services ... Experiences? Welcome to the newest evolution of economic value – and the companies that are earning big dividends by satisfying their customers on a deep, emotional level.

The global economy is entering its sixth straight year of slow or negative growth, unemployment is stubbornly high, corporate earnings continue to lag, and governments around the globe seem powerless to jolt their economies back to life.

During this same period of turmoil, however, a once-struggling hardware maker – Apple – has surpassed Microsoft to become the world’s most valuable company. In the process, Apple’s iPhones knocked mobile phone leader Nokia, long considered unbeatable, off its pedestal. Apple’s iPad tablets own a mind-boggling 60% of the market. Its Apple Stores generate more revenue per square foot than any other U.S. retailer and double that of Tiffany & Co., the perennial front-runner Apple displaced in 2011.

What does Apple know that the rest of the market has missed? It knows how to create a stellar customer experience. By delivering what Steve Jobs, Apple’s founder and former CEO, called “the whole widget,” Apple has impressively wooed and wowed its customers with an ecosystem that takes absolutely everything into account, from design-leading devices to personalized service and support delivered in the coffee-bar atmosphere of its Apple Stores. The result is an experience so seamless and painless that consumers are willing to pay substantial premiums just to own Apple’s products and subscribe to its services.

BEYOND SERVICE

The fact that experience is the key to Apple’s success is no surprise to B. Joseph Pine II, co-author with Jim Gilmore of The Experience Economy, a book that drew significant notice when it was published in 1999. What does surprise Pine is how few companies have fully followed the experience model in the 13 years since. It is a topic Pine addresses in an updated edition of The Experience Economy released in 2011 and in Infinite Possibility: Creating Customer Value on the Digital Frontier, which he co-authored with Kim Korn to explore how technology is merging the real and the virtual to dramatically expand the universe of potential experiences.

$5,647

In 2011, experience retailer Apple sold an average of $5,647 per square foot in its 388 Apple Stores, double that of the number-twoUS retailer.

Rather than create experiences, Pine says that many companies simply wrap a few services around their traditional products. But, thanks in part to Apple and other experience-oriented companies, customers want to be delighted and surprised in memorable, positive ways. Given this expectation, Pine believes that businesses must create offerings so engaging that they connect with customers on an emotional level, creating an experience they want to have again and again. “A fundamental principle of the experience economy is that the experience is the marketing,” Pine says. The best way to generate demand for any offering – whether it is a consumer or business-to-business (B2B) offering or even a government activity – is to start the way Apple did: by designing a full experience that is so engaging customers cannot help but pay attention … and pay up.

It is simple common sense that consumers would rather spend their time in engaging ways than in boring ones, Pine says. Companies, therefore, must align what they charge for with what their customers value. “Especially in the B2B world, a customer is never really buying a company’s offering – it is a means to an end,” Pine says. “If you sell the end, rather than the means, you gain more economic value. And the end is helping your customers achieve their aspirations.”

“An experience is a memorable event that engages each and every person in an inherently personal way and thereby creates a memory.”

B. Joseph Pine II co-author of The Experience Economy

Making these connections is critical to generating demand that will inject energy into the lagging global economy, Pine says. “Industries that are being commoditized need to step up to this if they want to survive. To get job growth now and into the future, we need to be thinking about experiences. That’s where growth and economic value will be coming from.”

Again, Apple is a perfect example. Michael Feroli, chief U.S. economist for J.P. Morgan Chase & Co., recently estimated that the iPhone 5, released by Apple in late September, could add as much as half a percentage point to the annualized rate of economic growth in the US in the fourth quarter of 2012. That would represent a $3.2 billion boost in US fourth-quarter Gross Domestic Product, or $12.8 billion at an annualized rate. What’s more, Feroli’s estimates represent phone sales alone; sales of apps, music, and other goods and services generated by the new phones could add even more, all because the experience of owning and using an iPhone creates so much enthusiasm among Apple’s customers.

VALUE’S EVOLUTION

Economic value began with Resources (crops, minerals). People crafted resources into Goods, reducing resources to commodities. Services were born, reducing goods to commodities. Now services are becoming, you guessed it, commodities. Today, Experiences are the new king of economic value, with services as the stage and goods as props.
B. Joseph Pine II

INVESTING IN EXPERIENCE

If experiences are the key to jump-starting the global economy, why are so few companies (and government agencies, for that matter) stepping up to the experience opportunity?

One reason may be that customers and citizens often don’t recognize that they want or could benefit from a product, service, or experience until it appears in the marketplace. In the current slow economy, however, investing the capital required to develop offerings that consumers don’t yet perceive a need for is a tremendous risk – especially when investors focus on the latest quarterly earnings report with laser intensity.

Jeneanne Rae, the CEO of Motiv Strategies and a thought leader on innovation management and design strategy, says getting on board with experience requires significant investment – investment that often pays off only in the long term.“Customer experience is not something you can accomplish in one project, in one quarter,” Rae says. “It is an ongoing commitment that needs to be staffed, recognized, worked on and measured. It often requires its own management structure, and building that structure in this economy is unpopular. It’s a lot of investment that doesn’t usually pay off in the short-term.”

“Customer experience is not something you can accomplish in one project, in one quarter. It is an ongoing commitment that needs to be staffed, recognized, worked on and measured.”
Jeneanne Rae

CEO of Motiv Strategies

Rae argues that creating great customer experiences is well worth the risks, however. “Great experiences build loyalty,” she says. “It’s been shown that if you can drive a 5% increase in customer loyalty, you can increase profits by 25% to 50%. By reducing churn and keeping your customers, you’re able to build your customer base.
By creating raving fans among your customers, you gain your own marketing team. They start talking about your service and experience in a way that’s very compelling to their peer group … much more compelling than any advertising you’re going to put out there.”

TEACH CUSTOMERS WHAT THEY WANT

Understanding your customers well enough to offer an experience that meets their unexpressed (perhaps even unperceived) needs and expectations is a challenge, one that becomes even more difficult in the B2B world. “You’ve really got multiple customers within one account – from the end user to the CEO – and they all have different needs and expectations,” Rae says. “There’s a huge disconnect about customer needs and how to solve or answer them.”

It’s not surprising, then, that when Rae looks at today’s market, only one B2B company’s offering stands out as a true experience: the Boeing 787 Dreamliner. “There was something just magical going on there,” Rae says. “They fundamentally conceived the Dreamliner as a solution set, not an airplane and services. My contention is you can’t get to a great customer experience unless you’re agnostic to whether you’re producing a product or a service.”

BUILDING A DREAM

According to Boeing’s news releases, the 787 Dreamliner is the most successful new aircraft launch in commercial aviation history. One reason may be that the 787 gives flyers benefits they never thought to ask for. In the process, it promises to give the airlines that fly 787s a new competitive advantage.

Innovations include higher pressurization and humidity levels to minimize passenger jet lag; dynamic LED lighting and larger, eye-level windows with auto-dimming to ease glare and eliminate window shades;  ride-smoothing technologies for less stress and better sleep on overnight flights; and lower fuel costs, made possible by the world’s first all-carbon-fiber fuselage. Boeing even provides its airline customers with a showroom and virtual reality configurator that allows them to quickly customize the 787’s interior and see the result in immediate virtual reality – all while ensuring the design meets regulatory requirements. The result is a visionary experience for passengers and for Boeing’s airline clients.

“They did a fabulous job not just for passengers and flight attendants, but also for airline operators when it comes to maintenance and other aspects of flying the airplane,” Rae says.

EXPERIENCES GET PERSONAL

Nespresso, an arm of the Nestlé Group of Switzerland, wraps an experience around a food product. The company offers its ubiquitous coffee-filled capsules and machines for brewing espresso, latte and cappuccino one cup at a time, boasting on its website that “the world’s best café is in your home.”

The flavors are color-coded to match consumers’ moods and play to “an endless passion to stay at home.”
In short, Nespresso is Starbucks without the drive.

Nespresso clearly understands its customers’ wants and needs. According to a 2010 report, the company’s sales have grown an average of 30% each
of the past 10 years, with more than 20 billion capsules sold since 2000.
The company also offers a club for customers to order capsules, receive personalized advice and obtain technical support.

Another great experience is offered by Paris Miki, a Japanese company that collaborates with its customers to mass-customize eyewear to their exact specifications. The company’s Mikissimes Design System offers customers an “exploring experience,” using computer graphics supported by artificial intelligence to analyze distinctive attributes of each customer’s face. These attributes are combined with customer-provided adjectives that describe the type of look they desire, such as sporty or elegant. The system uses this information to design, refine and virtually prototype the custom glasses, which can be produced in as little as an hour.

CASE: AN EARTH-MOVING EXPERIENCE

Pine points to another B2B company, Case Construction Equipment of Racine, Wisconsin, USA, and its Tomahawk Experience Center as a great B2B experience. Ironically, it’s an experience Case has been offering its customers for more than 50 years.

At the Tomahawk Center, Case customers and prospects escape to a pristine north woods setting  where they are housed in a lakeside lodge, served hearty, homestyle meals and invited to “play” with more than 60 pieces of the company’s construction equipment in what amounts to a giant sandbox. About 2,000 customers per year spend up to three days each at the facility, testing machines that cost from tens of thousands to hundreds of thousands of dollars.

“The purchase of construction equipment is not an impulse buy,” explains Athena Campos, director of marketing for Case Construction Equipment. “It’s a significant investment that affects the P&L (profit and loss) of a business. So we’ve designed a customer experience that goes well beyond showing a machine on a dealer lot or talking to them about specifications.”

Campos says most customers who come to Tomahawk are accompanied by their dealer, allowing them to work with the machine while reinforcing the level of support they can expect after their purchase. When they leave, she says, each customer goes home with tangible evidence of membership in a very special club of “raving” Case fans: a custom-made Case-branded tomahawk.

The experience is paying off for customers and for Case. The company’s close rate is more than 75% for those who visit the Tomahawk center.

THE VIKING LIFESTYLE

Another example of stellar customer experience can be found at Viking Range, headquartered in Greenwood, Mississippi, USA. Viking markets its kitchen appliances and tools not as products but as “the culinary lifestyle.” To help customers experience this lifestyle, Viking offers cooking schools across the United States.  

More than 77,000 people have visited Viking cooking schools over the past several years. Every dollar guests spend on Viking’s cooking classes earn discounts on Viking products through the company’s rewards program. Ultimately, those rewards are paid right back to Viking in the form of customer loyalty and word-of-mouth product endorsements. In a 2006 Fortune magazine study of “breakaway brands” by Landor Associates, Viking ranked second only to Apple’s iPod for most growth in “brand strength,” based on consumer perceptions of variables including awareness and esteem over
a three-year period.

“Our founder and CEO, Fred Carl, has always considered Viking to be a lifestyle brand, and we wanted to bring that brand to life for our customers in a fun, vibrant, relevant way through experiential, customer-facing, bricks-and-mortar locations,” says Jane Crump, public relations manager at Viking. “The idea for our cooking schools was born after Fred asked some of us to visit a Land Rover dealer in Dallas that offered an experiential test-drive course that really put their vehicles through their paces over rocky terrain. Fred said, ‘That’s what I want to do with a culinary concept,’ and the Viking Cooking Schools were born.”

Becky Thompson, chef and manager of Viking’s Greenwood Cooking School, says the goal is to “instill culinary confidence” in Viking’s students. “Cooking should be fun, enjoyable and something anybody can do,” she says.

That is achieved, in large part, by ensuring that the school’s chefs are masters at their craft and at teaching that craft, says Tony Antoon, vice president, Viking Culinary Group. Demand for Viking’s cooking school experiences has proven so strong that the company has begun franchising the schools through upscale grocery stores and hotels.

“We’re now able to leverage our name with some pretty impressive partners,” Antoon says. For example, Viking Cooking Schools can be found inside Harrah’s Casino in Atlantic City, New Jersey, and  Hubbell & Hudson, an upscale gourmet market outside Houston in The Woodlands, Texas.

“By incorporating a Viking Cooking School via the Viking franchise program, our partners are gaining the instant credibility and trust that comes with the Viking name and track record,” Antoon says. “We’re committed to deliver a consistent customer experience, and this franchise program offers us new and exciting ways to take it to market.”

MERGING THE REAL AND THE VIRTUAL

The potential to create memorable experiences is a constantly expanding universe. As Pine points out in Infinite Possibility, technology increasingly enables experiences by merging the real and the virtual. In fact, Pine has identified six realms between real and virtual, five of them – including alternate reality and mirrored virtuality – made possible by technology.

“Technology opens up infinite possibility for what we can do and how we can create value for customers, because with technology we open a world that is limited only by our imagination,” Pine says.
In Infinite Possibility, Pine and co-author Kim Korn cite dozens of examples. A few of the more recognizable include the Wii gaming system; FanVision to keep up with sporting events on the go (especially popular with people who attend the events but still want live stats and play-by-play commentary); and Google Goggles for price-comparison shopping.

Some of the more fantastical include Organovo’s 3D bioprinter, which “prints” human tissue – and, one day, complete organs – from an individual’s DNA; an “enhanced vision” system from General Motors that will highlight speed limit signs, draw the edge of the road in foggy conditions and point out animals near the car; and LookTel from Ippex, which lets visually impaired users point their smartphone cameras at objects, which the app then identifies verbally. Thanks to digital technology, Pine says, businesses and societal organizations can now create unprecedented value for users.
“We can create experiences that have never been envisioned, engendered, nor encountered,” he says, “because we truly do have infinite possibility.”

If enough companies step up to the challenge, that possibility may even include a chance to put the global economy back on a growth track.

by Lisa Roner Back to top
by Lisa Roner

US President Barack Obama toured the Master Lock plant in Milwaukee, Wisconsin, USA, in February 2012 to celebrate the company’s success in bringing back manufacturing that it previously offshored to China. (Photo by Tom Lynn, Milwaukee Journal Sentinel)