Creating revenue growth through the experience economy
Consumers desire more than just goods and services. They seek out experiences that engage them in a personal and memorable way. Charging explicitly for experiences for venues or events, where people pay for duration of time will increasingly be the basis of retail economic growth. Want to grow your business? Offer more experiences put the "ing" in things. Otherwise it will become increasingly difficult to make profits from the sole activity of selling physical goods, no matter how popular they are.
The Gumball Wizard, invented by Global Gumball of Arizona, is the epitome of the customer experience. It is not a better gumball product nor is it a better gumball delivery system. The Gumball Wizard is about a gumball spiraling experience and while there is no traditional, functional reason for its existence, it is the great innovation in the gumball industry. They're almost like roller coasters for the gumball. Oftentimes, people feed quarters into these devices to watch the spiraling gumball and never consume the gum. What are they buying? They are buying the experience. Even though the physical good is received, it is wrapped around the experience used to differentiate one gumball from another.
Piece of Cake
The birthday industry illustrates the progression of the consumer experience. At one time, consumers baked birthday cakes from scratch by using raw ingredients like flour, water, cocoa and sugar. In the 1970s, consumers opted for a packaged good like a Betty Crocker Cake Mix to bake a birthday cake. In the 1980s, parents stopped buying the physical goods and ordered customized cakes from their local bakeries. At the end of the century, parents not only outsourced the making of the cake, they outsourced the entire birthday party through venues like Chuck E. Cheese, Discovery Zone and Jeepers.
Parents willingly and gladly pay hundreds of dollars for these birthday party experiences. It commands a premium price because it's highly valued. Not only is it more convenient, sometimes it makes for a better party. The contention is that the experience economy will emerge as the new basis of growth, just as services came to displace goods in the past.
"-ing" the Thing
The basic principle behind the customer experience is the attachment of the suffix "ing." It is the actual using of the physical good that creates the experience. The following examples are companies that understand how to put the "ing" in the thing.
While normal baseballs sell for three to four dollars, a Rawlings Radar Ball sells for $35. The Radar Ball contains a microchip and comes with a piece of string that measures 60 feet six inches, the distance from home plate to the pitchers mound. To use the Radar Ball, you measure out that distance and tap the ball three times to activate it. When the ball hits the other person's glove, it provides a digital readout of how fast the ball was thrown, thus changing the playing catch experience.
Heinz also "inged" the buying experience of its products by producing green ketchup. And for traditional red ketchup, the company often replaces the words "Tomato Ketchup" with phrases like "Not Green" or "14 Billion French Fries Can't Be Wrong." It also advertises contests on its labels where customers suggest yet additional phrases to be put on the bottles of ketchup. Essentially, Heinz has made its customers the copywriters for its packaging copy, selling more ketchup in the process.
Steinway & Sons occasionally runs promotions for its highest-end piano, which sells for about $85,000. With that high-end purchase, however, the customer receives a piano playing experience. Steinway & Sons sends a concert pianist to your home and invites twelve other couples. The company handles all of the invitations and includes a valet service and a caterer. An acquaintance took advantage of this proposition and told me that the night of his piano playing experience two of the other couples decided to buy the piano. For Steinway, the experience is the marketing. If you provide a truly compelling experience, customers can't help but tell other customers about it.
Arguably the most compelling retail venue on the planet is the American Girl Place in Chicago, a subsidiary of Pleasant Company, founded in 1986 by Pleasant T. Rowland, a former educator and publisher of educational materials.
The company has sold more than 61 million books and five million dolls to a nationwide audience of girls, largely because it understands the need to "ing" the thing. At American Girl Place, young ladies, from six to 12 years in age purchase dolls, special clothes for the dolls and matching outfits for themselves.
American Girl Place also understands the power of experience and has built a 150-seat theater in the store that puts on a show called the "American Girl's Review." The average audience is about 100 people and at $25 a person for admission that's $2,500 in revenue to spend 70 minutes watching a musical. It's easy to spend hundreds of dollars basically paying admission to other American Girl experiences like the café or hair salon before ever buying a (physical) thing. And think about it: If you spend hundreds of dollars on experiences, you're then going to buy some physical goods after that to commemorate the good times.
At Build-A-Bear Workshop people pay to make their own teddy bears. Build-A-Bear is akin to a retail factory with various stations to pick skin, clothing, stuffing and hordes of other teddy bear accoutrements. At one point in the process, right before the "stitch me" station, children have the option of placing a heart inside their bear, before making a wish and stitching it up. Microchips can also be placed inside bears, which play certain songs like "Take Me Out to the Ballgame" when the bear paw is squeezed. What was originally a six-dollar skin becomes a $35 dollar bear by the time you're finished.
Hotels also allow customers to spend more time with brands. Hard Rock Café has three hotels with plans to open a fourth in Chicago. Marlboro Ranch, started as a promotion where consumers saved the box tops from Marlboro cigarette cartons to enter the contest. It became so popular that Marlboro purchased a dude ranch in Wyoming now called the Marlboro Ranch. The experience is the marketing.
In Switzerland, fast-food chain McDonald's opened up Golden Arch Hotel. Bulgari Jewelry struck a deal with Marriott to operate a chain of ten luxury hotels in Europe. Even Home Depot would be an excellent candidate for a hotel chain, since they already have an experience set up for kids where they are given a little orange apron and a stool to put together. A great experience for the kids, but how about the adults?
Can you imagine going to the Home Depot Hotel where one checks into a room with no drywall or whatever you want to build, because it's the do-it-yourself hotel? Some ideas may not make it. Consumer Members
Vans was founded in 1966. It manufactures and sells its own athletic shoes. In 1998, the company opened its first Vans Skate Park a place where people pay to skateboard in a mall in Orange, California. The park became a mall anchor and now 14 additional parks are on the drawing board. The paradigm of putting in a department store as a mall anchor is a dinosaur model. It is now the experience venue that yields the better cost per square foot.
The interior of the Vans Skate Park is a simulated park environment and entrance requires a $40 annual membership. Skate Park members pay up to $11 per two-hour session. In the first year of operation, the very first skate park generated five million dollars in revenue, one million dollars in profits and it is still growing. In addition, by visiting the Web site, users can view Skate Park streaming video while having conversations on cell phones with friends who are actually skating.
Businesses need to think about not just selling goods online, but explicitly charging for online experiences. An Internet company called WGSN.com, for instance, which stands for Work Global Style Network, is actually a business-to-business offering within the fashion industry. WGSN charges $3,000 per year for a subscription, which is an admission fee to gain access to the Web site. Why would somebody pay $3,000 for a WGSN.com subscription? The company identified 300 nightclubs, restaurants and bars where they believe the fashion trendsetters hang out. Every day they photograph what people are wearing. For fashion designers and buyers it makes perfect sense to subscribe to WGSN.com to have instant access to last night's developing trends.
If WGSN charges $3,000 a year, why not a Gap club membership for $30 a month with free outfits every quarter? Or perhaps a dozen Gap outlets around the world wheel away their merchandise after hours and turn into dance clubs? Users pay to go to the Web site and surf the 12 different Gap locations, a ripe opportunity to gather teenage girls at the PC to look for cute guys. Guys finish dancing and check messages from around the world. The experiences are a distinct form of economic output.
Streaming video and Web sites are opportunities to charge explicitly for the time spent online for your industry. America Online should not be the only company charging just for the connection. To survive, businesses must think of ways to generate revenue from selling something other than physical goods by developing a rich portfolio of offerings.
Lego demonstrates this rich portfolio model, also called a location hierarchy model. At the top and the bottom resides a single place for company flagships. At the center, ubiquity. On one side, Lego charges a fee for experiences, but acknowledges that there is also room for free experiences. Lego's LegoLand in Billund, Denmark, is its flagship experience. At three additional experience hubs, located in England, California and Germany, are more LegoLands.
Other experience hub cities like Las Vegas, Orlando and Mall of America, in Minneapolis, employ Imagination Centers that are places to play. Millions of people visit these sites per year. Shouldn't your store be a little bit different in each city so it influences buying behavior when customers get back home? That's what Lego has done. Major venues, like science and industry museums, for instance, are for technology-driven Legos. Derivative presence is for everyday displays where consumers have the opportunity to make their own Lego creations inside select stores. Worldwide markets mean that Lego wants to be in every toy store in the world. In fact, Lego wants to be in the hands of every child. Lego's different echelons of offerings in the physical realm also transfer well online.
Lego's flagship site, Lego.com also can be accessed through various experience portals like MSN.com and AOL.com, and the company also carries a derivative presence on Web sites like Harry Potter.com and StarWars.com. All retailers should have a derivative presence inside other people's Web sites, whether it's E-toys, Amazon or LUGNET (Lego Users Group Network). Companies should have a users group a club for its brand. Just as Lego wants every kid to physically own Legos, they'd like every kid to have their very own Lego Web site. It's a valuable model that more retailers should think about.
Adapted from the February 12, 2003 presentation by James Gilmore at the Retail Executive Summit. James Gilmore is co-founder of Aurora, Ohio-based Strategic Horizons LLP, a thinking studio dedicated to helping businesses conceive and design new ways of adding value to their economic offerings. He is co-author of the book The Experience Economy (Harvard Business School Press, 1999). Tom Peters has called The Experience Economy "a brilliant, absolutely original book."