We hear the term a lot, but actually, what is the Experience Economy?
The majority of posts I read express that it’s important (spoiler alert – it really is very important), but how many of us truly understand what it is, and what it truly means? Obviously it’s something to do with customer experience, but to wholeheartedly grasp the concept of the Experience Economy, a historical primer is first needed.
To fully appreciate what the Experience Economy is, we need to go way back and consider how commerce and economics have evolved over the last 2,000 years.
Throughout all this time and change, one key principle has remained constant: if a person or business can provide something of value, something that people want, and something that others can’t provide, they’ll have a competitive advantage. Once others start to provide the same thing – or something better – the competitive advantage is lost and their value reduces.
Class is in session: A brief history of economic evolution
Ancient economies relied mainly on agriculture, and people would generally barter goods or services on a very localized basis. A producer would add value and have a competitive advantage over others simply by having something that somebody else needed.
In an age where subsistence farming was the norm, a farmer with a bag of corn would possess something of high value to someone who needed that corn to eat. Crops weren’t produced on a large scale, and raw materials were scarce, therefore very few things were commoditized.
As technology and knowledge evolved, the ability to produce crops and raw materials on a larger scale became more prevalent, resulting in the competitive position of that farmer with his bag of corn becoming diminished and the value of the corn becoming smaller.
The farmer was no longer offering something unique and valuable to customers and was now competing with commoditized products. Great wealth was accumulated through large scale food production and mining of raw materials, but as the supply began to outstrip the demand, the value of these commodities reduced, and people began to offer something else to be competitive and add the extra value.
- The Industrial Economy
As the world moved further into the industrial revolution, a new type of economy began to evolve – one where people and businesses started offering something new, unique, and of high value to others. This was the industrial economy. In this economy, technology allowed people to produce unique products at a large scale in a way that others could not, giving them a competitive advantage and allowing them to provide value to others.
The owner of a textiles factory which could produce different and unique textiles on a large scale was adding value because very few others could do this which, in turn, giving him a competitive advantage over others. As before, great wealth was acquired by those who produced products on a mass scale where they experienced very little competition and demand outstripped supply. This, however, was not going to last.
- The Service Economy
As technology advanced and the world became less localized and more globalized, the availability of products became more widespread. The textiles produced by the local factory were now less unique, as many more manufacturers were able to supply the demand, sometimes at a better price, and their value dropped.
The competitive position of the factory owner was reduced since there were many other producers of the same products. As before, people and companies needed to evolve and to offer something new to remain competitive.
As the world became smaller through globalization, companies had to evolve to remain competitive and to continue to offer something unique and of value to customers. This is where many countries in the world moved from the industrial economy into the service economy.
In a global economy, offering unique services allows companies to remain competitive and to offer value by providing something that many others cannot. It could be argued that much of the world is now in a service economy. In many western countries, the service sector contributes – by far – the most to the economy, more than any other sector, and also provides the bulk of employment opportunities.
In countries like the UK and the USA, the service economy has grown significantly over the last 50 years, clearly demonstrating the value and competitive advantage that delivering unique services can provide.
The world, and consumer behavior, however, is constantly changing. As the service sector has grown, so has the number of people and companies offering these services. Further advances in technology has meant that more and more services can be delivered remotely, which has increased competition and reduced the value and competitive advantage of many of those offering services locally.
Now is the time for another evolution.
So, what is the Experience Economy?
So how do companies keep up the value they add and maintain their competitive advantage over others? This is where customer experience comes to the forefront. As many economies have evolved from producing commodities, through to products, and then onto delivering services, they are now evolving to deliver customer experience.
Customer experience is what allows a company to add the highest value and therefore build a competitive advantage over others. It’s no longer good enough to offer good products at a good price and to provide good services. Technology, knowledge, and globalization allows others to do that just as well, if not better.
The way you can provide something unique and valuable is to provide a good customer experience. This may include producing products and delivering services, but these need to be encompassed in an overall customer experience that is better than your competition.
Let’s take the example of a leading high street electronics retailer. 20 years ago, they had the best products, at the best prices, and could offer you services such as delivery or insurance. This gave them a competitive advantage since others were unable to do this, and they provided value to consumers. We could get the products we wanted at a good price and choose the services we wanted, all by traveling to a single location.
Now let’s fast forward 20 years. As you’ve likely guessed, this retailer is struggling to compete. Online providers like Amazon have stepped in and can provide the same products, at the same prices, and can even provide the same services.
However, the difference here is that Amazon is also providing these things wrapped up in a great customer experience. We can find most of what we need in one place without having to travel anywhere. We can see photos, videos, and customer reviews. We have lots of delivery options and can easily return items. We can pay in lots of different ways and can place the order in seconds.
Amazon’s value and competitive advantage is not in its products, prices, or services, it’s in the experience it provides to their customers. This is what makes it unique and is what gives it significant value over others.
Let’s take another, sometimes more controversial, example: Uber. On the face of it, Uber provides the same core service as a normal taxi you could hail from the street. A driver will take you from A to B for a fee. Uber will not necessarily get you to your destination any faster, and it may not be any cheaper, but still the company has grown at an enormous rate.
The thing that gives Uber a competitive advantage is the experience it provides. You can request it from wherever you are. You can see how far away the driver is and check out the driver’s customer reviews. You can pay through the app automatically. Some drivers even go as far as allowing you to choose the music being played or giving you a drink. This is customer experience. You are essentially getting the same service at the same price, but it’s wrapped up in a superior customer experience.
We don’t use Amazon just because it has the best products, the best prices, or the best services. We don’t use Uber because it gets us to our destination more quickly. We use Amazon and Uber because they both provide us with the best customer experience. This is the Experience Economy.
Customer experience is now the key battleground in which most companies must compete. If a company isn’t focusing on and investing in CX, they’ll begin to lose their value and competitive advantage.
Throughout economic history, people and business have had to evolve to ensure that they continue to add value and compete as the world changes around them, and now is no different.
