Experience economy: what it means, where the idea came from, and what it asks of the people who deliver it

A hotel charges more than its rivals for a room that is much the same size. A coffee shop charges three times the supermarket price for a cup. In both cases the customer is paying for something beyond the product: how the visit feels, and what they remember afterwards.

This article explains the experience economy: where the idea came from, the progression from commodities to experiences, the design principles its authors proposed, how the idea has been criticised, and what it asks of the people who actually deliver the experience. That last part is where it becomes an HR question.

If experiences are delivered by people, the way those people are managed shows up in what customers feel. See how New Dynamics feedback helps managers recognise good service and coach it while it is still fresh.

For the inside view of the same idea, our post on employee experience covers the conditions an employer is already expected to manage.

What is the experience economy?

The term comes from an article by B. Joseph Pine II and James H. Gilmore, "Welcome to the Experience Economy", published in the July and August 1998 issue of Harvard Business Review. Their argument was that as services become commoditised, businesses look for the next way to add value, and that next step is the staging of experiences people will pay for and remember.

They described a progression of economic value:

1. Commodities. Raw materials, sold on price.
2. Goods. Products made from those materials.
3. Services. Activities performed for a particular customer.
4. Experiences. Memorable events, staged around the customer, in which the goods and services become the props and the stage.

Each step lets a business charge more for meeting the same underlying need, because the offer is more personal and harder to compare on price.

The birthday cake example

The article explains the idea through the history of a child's birthday cake. In the past, families made the cake by "mixing farm commodities (flour, sugar, butter, and eggs) that together cost mere dimes." Later they paid a little more for a premixed cake from a brand. Later still, they ordered the cake from a bakery or a shop. And now, the authors wrote, many parents pay a venue or another business that "stages a memorable event for the kids", often with the cake included.

The occasion is the same throughout. What changes is how much of it is done for the family, and what they pay for it.

The five design principles

Pine and Gilmore proposed principles for designing an experience that people remember. As the article's summary in the HBR Store describes them, they are:

• Theme the experience. A clear, consistent idea that ties every part together.
• Harmonise impressions with positive cues. Details that support the theme.
• Eliminate negative cues. Anything that contradicts or distracts from it.
• Mix in memorabilia. Something physical people take away.
• Engage all five senses. Sight and sound, but also touch, taste and smell where they fit.

The authors expanded the idea into a book, The Experience Economy, which Harvard Business Review Press republished with a new preface in 2019.

Experience economy examples

The idea is easiest to see in sectors where people pay for the visit rather than the object:

• Hospitality and leisure. Hotels, restaurants, theme parks and venues where the atmosphere is part of the price.
• Retail. Shops designed as places to spend time, with demonstrations, events or workshops rather than only shelves.
• Events and travel. Festivals, tours and activities, where the product is entirely the experience.
• Business services. Client onboarding, account management and support, where how working together feels shapes whether the client renews.

The examples have one thing in common. In almost all of them, the experience is delivered by staff: the receptionist, the server, the guide, the support adviser.

What the experience economy asks of employers

If the experience is the product, the people delivering it are part of the product. That makes several ordinary people processes commercially important.

Hiring for the work as it really is

A role that delivers an experience needs judgement, warmth and stamina as well as task skills. Write the job description around the moments that matter to customers, and test for them in the interview. Our post on the customer service representative job description shows the shape of that kind of role.

Training that explains the why

Scripts produce consistency, but customers notice when someone is reading one. Explain the theme and the purpose behind each part of the experience, so staff can adapt when a real customer does something the script did not expect.

Rotas and staffing

An experience cannot be delivered by someone on a double shift with no break, or by a team permanently one person short. Under-staffing is one of the most common negative cues customers notice, and it is a management decision, not a frontline failing.

Recognition and feedback close to the moment

Good service happens in moments, and is forgotten if it is only discussed at an annual appraisal. Recognise it the same week, specifically. Our post on recognition messages has examples you can adapt.

Measuring the right things

If only speed and sales are measured, staff will optimise for speed and sales, and the experience will suffer. Pair any output measure with one that reflects how the customer felt, and look at both in reviews.

Criticisms and limits

The idea has been influential, but it is worth using carefully:

• Not everything should be an experience. Many customers want a quick, cheap, predictable transaction. Turning every purchase into an event adds cost without adding value.
• The cost lands on staff. "Delivering an experience" can quietly mean asking frontline workers for constant enthusiasm without the time, staffing or pay to sustain it.
• Authenticity is hard to stage. Customers can tell the difference between a designed experience and a genuine one, and a gap between the promise and the reality is itself a negative cue.

None of these undermines the core point. They are reasons to treat the experience as something designed with, and resourced through, the people who deliver it.

Frequently asked questions

What is the experience economy?

The experience economy is the idea that businesses increasingly compete by staging memorable experiences rather than only selling goods or services. It was set out by B. Joseph Pine II and James H. Gilmore in a 1998 Harvard Business Review article.

Who came up with the experience economy?

B. Joseph Pine II and James H. Gilmore introduced the term in their article Welcome to the Experience Economy, published in Harvard Business Review in July and August 1998, and later expanded it into a book.

What is an example of the experience economy?

The authors' own example is a child's birthday cake: families moved from baking it from raw ingredients, to buying a mix, to ordering a cake, to paying a business to stage the whole party. Hotels, theme parks and restaurants that charge for atmosphere are other examples.

What are the four stages of economic value?

Commodities, goods, services and experiences. Each stage is more personal to the customer and harder to compare on price, which is why each one can command a higher price for meeting the same need.

What does the experience economy mean for employees?

In most experience businesses, staff deliver the experience. That makes hiring, training, staffing levels, recognition and the way performance is measured part of the customer offer, rather than separate HR tasks.

Your next step: map the moments your people deliver

1. List the three moments in your customer journey that customers remember most.
2. For each one, name the role that delivers it and what that person needs to do it well.
3. Check that rotas and staffing levels make those moments possible on an ordinary busy day.
4. Agree one way to recognise good service in the week it happens, and one measure of how customers felt to review alongside output.

For the habits that help people stay and do their best work, read and download our employee engagement guide. The guide is free to read, and the PDF uses our short download form.

Want feedback and recognition to reach frontline teams while it still matters? Book a New Dynamics demo and bring one customer moment you would like to improve. You can also email contact@new-dynamics.com.