For more than 200 years, American commerce has unfolded like a good drama. In Act I, we extracted resources from the earth -- cotton, coal, coffee -- and sold them as commodities. Then, in Act II, we fashioned commodities into consumer goods -- that can of ground coffee on a grocery-store shelf. And in Act III, we turned goods into services -- that 50-cent cup of java that you bought on the way to work. With each transition, the source of economic value changed. New jobs and industries bloomed; old ones shrank.
In The Experience Economy, business consultants B. Joseph Pine II and James H. Gilmore argue that the curtain is about to open on the next transition: Act IV, in which service turns into an experience. "When a person buys a service," they say, "he purchases a set of intangible activities carried out on his behalf. But when he buys an experience, he pays to spend time enjoying a series of memorable events that a company stages -- as in a theatrical play -- to engage him in a personal way." That's why we'll pay four bucks for a latte -- to enjoy the experience of drinking it in the entertaining environs of our local Starbucks. According to Pine and Gilmore, the experience sector will gobble up the service sector just as surely as the service sector has reduced the size and influence of the manufacturing sector. Ethel Merman, meet the new economy: Pretty soon, there'll be no business that's not like show business.
It's a provocative argument. And while the experience of reading this book often feels more like finishing your math homework than like yukking it up at a hot Broadway show -- two-by-two matrices, to put it mildly, are not quite cutting-edge stagecraft -- Pine and Gilmore do make an intriguing case.
In particular, they implicitly challenge two ideas that have recently hardened into conventional wisdom: that giving away your product is the path to profit, and that casually clad tech-heads who inhale pizza and who write code until dawn represent the future of work.
Ready, Set, Charge
In the information economy, software makers like Netscape have built their market share by offering their wares for free. But in the experience economy, Pine and Gilmore argue, businesspeople must ask themselves, "What would we do differently if we charged admission?" Consider Sharper Image. Most customers stroll into that store, vibrate in the massage chair, shoot a little miniature pool -- and then leave empty-handed. More than they value any product, they value the shopping experience itself.
So why not charge for it? "That would force the company to stage a much better experience to attract guests, especially on a repeat basis," the authors write. "The merchandise mix would need to change more regularly -- perhaps daily, even hourly. Demonstrations, showcases, contests, and a plethora of other experiential attractions would complete the sharpened experience of a visit to Sharper Image. . . . And as a result, the retailer could very well sell more goods."
Ditto for a place like NikeTown. Instead of waving in potential shoe buyers for free, that store ought to charge guests "to go at it one-on-one with past NBA stars or play a game of H-O-R-S-E against a WNBA player." On sale would be shoes, yes, but also items like customized commemorative T-shirts and photos of little Sally draining one against Rebecca Lobo. Retailers, in other words, should begin to sell memorabilia -- the artifacts of various memorable experiences. (Just imagine the souvenirs: "My parents went to Wal-Mart, and all I got was this lousy T-shirt.")
Acting Up at Work
The Internet explosion has ignited a fiery demand for programmers and engineers -- workers with technical skills. But those talented folks may soon confront an altered landscape. In the experience economy, Pine and Gilmore state, "Work is theatre."
Disney, of course, is a master of the work-as-theater proposition: Employees at its stores and theme parks are called "cast members." But the proposition has spread to industries that are less obviously performance-oriented. At a Ritz-Carlton hotel, Pine and Gilmore report, you're likely to see "a bellman . . . warmly welcoming guests back by name -- accomplished by reviewing a daily printout of expected . . . guests and their distinguishing traits (much like a soap opera actor learns new scripts on a daily basis)."
This kind of practice liberates people and allows them to be more creative. It also helps businesses distinguish themselves from their competitors. Southwest Airlines, for example, encourages flight attendants to dish out comic one-liners along with roasted peanuts. And is there any American worker so beloved as the brown-suited stud in the boxy brown truck? Your UPS route driver "performs an act of theatre with every package he delivers," Pine and Gilmore explain.
Maybe all of this just goes to show that business is the most compelling drama of our time. "A two-hour performance of King Lear and the overnight performance of FedEx both compress time," the authors note. "Both also help us see the world differently -- arguably one more than the other. But which one?"
Sidebar: Cheat Sheet
Best Buzz Phrase: "Customer sacrifice": a more precise measure than customer satisfaction. The authors' definition: "Customer sacrifice = What customer wants exactly -- What customer settles for."
Best Warning: "The easiest way to turn a service into an experience is to provide poor service -- thus creating a memorable encounter of the unpleasant kind." Check, please!
Vaguely Pornographic Business Advice: "Ing the Thing": The authors want companies to focus on "the experience customers have while using" your product rather than on how the product performs. "Apparel manufacturers, for instance, could focus on the wearing experience, the cleaning experience, and perhaps even the hanging or drawering experience. . . . Any good can be inged."
Worst Industry Buzzword: "Eatertainment": the category to which some analysts assign theme restaurants like Hard Rock Cafe and Bubba Gump Shrimp Co. -- places where "food functions as a prop" (and sometimes tastes like one).
Let's Get Metaphysical: "You are what you charge for."
Sidebar: FC Recommends
Big Idea: Free, Perfect, and Now: Connecting to the Three Insatiable Customer Demands: A CEO's True Story, by Rob Rodin with Curtis Hartman (Simon & Schuster, 1999). Rodin, CEO of Marshall Industries, understands that survival in a fast-paced economy rests on one thing: giving customers what they want. His book tells you how to do it.
Best Practice: Profit Patterns: 30 Ways to Anticipate and Profit from Strategic Forces Reshaping Your Business, by Adrian J. Slywotzky (Times Books, 1999). The author of the cover story in the February:March 1999 issue of Fast Company refines his take on how winning companies achieve the sweet spot of profitability.
Sleeper: The Entertainment Economy: How Mega-Media Forces Are Transforming Our Lives, by Michael J. Wolf (Times Books, 1999). Wolf, who built Booz, Allen & Hamilton's entertainment-consulting practice, invokes Disney, MTV, and Martha Stewart to make his case: that "the line between entertainment and the rest of the economy [has] disappeared."
Keeper: Difficult Conversations: How to Discuss What Matters Most, by Douglas Stone, Bruce Patton, and Sheila Heen (Viking, 1999). From the team that brought us the classic Getting to Yes comes a user-friendly guide to mastering the talks that we dread -- from asking for a raise to ending a relationship to just saying no.
Daniel H. Pink (firstname.lastname@example.org) is a Fast Company Contributing Editor. His latest experience has been writing a book about the free-agent economy.