What is the Experience Economy?

It’s one thing to put together thoughts around what you’re seeing-- what you’re feeling based upon your interaction with the market—but it’s another to actually dig into the research and get real metrics behind those thoughts and feelings.

I started out this journey believing that we were just now entering this new stage of an economy based of and driven by the increased demand for experiences. However, when I did a simple google search, I saw the term was coined back in the 1990’s by Joe Pine and Jim Gilmore. And when I read through their description of where we have been and what the experience economy is, it made sense.

This excerpt is from Pine and Gilmore from the Harvard Business Review in 1998:

“How do economies change? The entire history of economic progress can be recapitulated in the four-stage evolution of the birthday cake. As a vestige of the agrarian economy, mothers made birthday cakes from scratch, mixing farm commodities (flour, sugar, butter, and eggs) that together cost mere dimes. As the goods-based industrial economy advanced, moms paid a dollar or two to Betty Crocker for premixed ingredients. Later, when the service economy took hold, busy parents ordered cakes from the bakery or grocery store, which, at $10 or $15, cost ten times as much as the packaged ingredients. Now, in the time-starved 1990s, parents neither make the birthday cake nor even throw the party. Instead, they spend $100 or more to “outsource” the entire event to Chuck E. Cheese’s, the Discovery Zone, the Mining Company, or some other business that stages a memorable event for the kids—and often throws in the cake for free. Welcome to the emerging experience economy.”

I still believe there’s a difference between 1990’s experience economy and where we are today, but the foundation was laid 20 years ago. Some say we’re in the Transformation Economy, which Pine and Gilmore subsequently introduced, characterized by an economic landscape in which experiences are elevated beyond mere enjoyment to become significant vehicles for personal transformation. Not all consumers, nor companies are to this transformation stage, however.

I’m a big fan of travel, and it’s really easy to notice in the airline industry just what this experience economy is all about. Airport lounges are packed, First class and business class tickets are in high demand, and people are flying further for leisure because of pent-up demand from the pandemic. Delta saw its premium revenue climb to 35% of total revenue in 2023 compared to 24% in 2014 (CNBC). While an airline’s seats are the center of the experience, the lounges have gained popularity as an extension of that experience. And while they’re not a direct cost center, Airlines are willing to invest in them because they build and maintain loyalty. With Loyalty being around 10-15% of overall revenue for larger airlines (CNBC) it’s easy to see why any investment around experience and loyalty is important.

I’ve been fortunate enough to have traveled in first class a couple times and visit one of United’s Lounges in O’Hare, thanks to a one-time pass. While not all airlines let you pay up to get this experience, it’s one that I’m going to purchase whenever possible on long layovers. If First class was always affordable, I’d never fly anything else again. And this is normal first class—not the lie-back business suites (which I have my eye on—like the Dreamliner to San Francisco.) But the service and amenities of first-class, or the experience of Frist class has won me over—especially on 2+ hour flights where you get a full hot meal.

Ok, enough about my personal experience with travel, and my favorite things… otherwise I’m going to start talking about my favorite aircraft types like the 747 and A320.

The customer experience isn’t and shouldn’t be limited to the flight or the post-security experience. Some airlines are crafting first-class check-in experiences, but they need to go back to the very beginning of the interaction—to booking the flight. My favorite experience so far (uh-oh here I go) is United because I can filter by aircraft and find that Dreamliner flight that I want fast. I know exactly which experiences I want to fly/ what aircraft is the most fun, or what tends to make me a bit…uhm… air-sick.

While the airline industry is just a small portion of what the experience economy is all about, I used it because I’m passionate and know just how much of an experience it can be. Airport staff escorting you to and from lounges, private cars to get to the jet bridge, spa sessions in airport lounges, the list goes on. (ok- I haven’t had any of those experiences, but I know they exist! Thanks YouTube!)

Companies who think through the end-to-end experience and all the touchpoints an individual has with the company, are the most successful. Furthermore, companies who are not doing this are leaving cash on the table and missing out on critical experiences for the customer. Companies who earn customer’s trust through these engagements earn more buying, loyalty, and advocacy (Edelman Trust).

Another easy to see rise in the experience economy is the rise of experience entertainment. Axe throwing, escape rooms, and TopGolf are three prominent experiences that have risen in popularity since their inception back in 2006, 2007, and 2005 respectively. Also, they all cost considerably less than a plane ticket. In these situations, you’re literally paying for the experience and nothing more. And yet, people are gladly paying for these expenses rather than spending money on more material goods.