In 1998, the term “Experience Economy” was outlined in an article by B. Joseph Pine II and James H. Gilmore. The Experience Economy was described as the new frontier in the economy. The authors outlined the progression of mankind's economy from agrarian to industrial to the most recent, the service economy. They argued that industries and businesses must create memorable events for their customers and that memory itself becomes the product—the “experience.” They argued that experiences are a different economy than the economy of services or goods, identifying the Experience Economy as the fourth economy. The Experience Economy is considered the main underpinning for customer experience management. The Experience Economy is independent of services and goods we consume. It is the mixture of tangibles and intangibles. It creates memories. Experiences are not the same as services. A company may provide good service to its customers; however, those services, such as cable service or cell phone coverage, are expected to meet the basic needs of the customers and be dependable. In the Experience Business Model, a company provides their guests with a series of memorable events to engage them in an inherently personal way; based on the level of experience, the company charges fees.
Traditional service industries are competing for the same customers. However, some businesses have evolved and are using experiences to captivate their guests; their guests keep coming back to the positive memory that they previously experienced during the consumption of the products, goods, and services offered by these businesses. These companies are making the experience the differentiator and the products, goods, and services a common denominator. New words such as “edutaining,” “shoppertainment,” and “entertailing” are being introduced in very traditional industries, challenging the status quo. Today, some businesses hold workshops that combine shopping with education. In all these cases, the product they offer is a second layer of the experience they are providing. These businesses realize that the products, goods, and services they offer have been commoditized, and the only differentiator is the personal and memorable connection with their guests. Traditional businesses, on the other hand, see themselves as merely performing a function. They try to operate by reducing and keeping costs down so that they can offer a low price to their customers; however, they lose their differentiator and then fall victim to commoditization.
The increasing influence of the Experience Economy is noticeably due to technology, which has driven customers to have a higher level of expectation. Another factor is leading businesses to turn to the Experience Economy as their differentiator is competition. The evolution of the economy, with its natural progression of the commodity togoods, to services, and then to experiences, is the main driver of this movement. Additionally, businesses are increasingly offering their services and goods to more affluent customers who expect a higher level of experience and are willing to pay for that experience.
For a business to create new value through memorable experiences, it must use the services it offers as the stage and its products as the props. Considering that commodities are interchangeable, goods are tangible, and services are intangible, experiences, therefore, are memorable. Experiences are not a subclass of services or a higher level of special services. Families take their children to Walt Disney World for the memorable experience and not for the restaurants or parks. Although experiences themselves lack tangibility, people greatly desire them because the value of experiences lies within them and makes them happier people. Customers are willing to pay a premium for their memorable experiences. Experiences are not physically inventoried and, therefore, create no tangible value on a balance sheet. However, by differentiating themselves from others, businesses that offer experiences can ask for higher profit margins, directly affecting their financial statements.