The Experience Economy – What This Means for the Future of Buying
In this blog we discuss the rise of the ‘experience economy’, and what that means for the future of how we buy.
Shopping for a birthday or Christmas present can often seem an impossible task, you might want to stop looking for the perfect ‘thing’ and start thinking of the perfect experience. Gilovich, Kumar and Killingsworth’s study published in Psychological Science found that experiential purchases compared to material purchases provide a more ‘enduring happiness’ – what more could you want from a gift?
“A mind that is stretched by a new experience can never be returned to its old dimensions” – Oliver Wendell Holmes Jr.
Why do experiences make us so much happier? The anticipation before an experience elicits more excitement compared to a tangible gift. Compare the lead-up to a sky-diving gift with waiting for your Amazon order to arrive. The aftermath is more enjoyable too. Compared to the receivers of tangible gifts, those that receive experience gifts compare the gift’s value less and connect with others more.
So we know that experiences bring more happiness than physical products. This isn’t exactly news. Ask anyone to describe their greatest source of happiness from the last year, and you won’t get a lot of people answering with “my new iPhone purchase”. Consumers value experiences over commodities and are acting on these desires.
Enter, the ‘Experience Economy’
The ‘experience economy’ was a term first coined in an article by B. Joseph Pine II and James H. Gilmore in 1998. The natural progression of economies – agrarian, industrial, more recently service and now experience – Pine and Gilmore exert that “leading-edge companies will find that the next competitive battleground lies in staging experiences”. Pine expertly illustrates the value of experience with the story of a coffee bean. Coffee as a commodity costs 1-2 cents per cup, roasted, ground and packed, it goes up to 25c-60c per cup (depending on whether you buy it from the supermarket or a hipster artisan roaster). A cup of coffee from 7/11 costs $1, and at your local cafe, your cup of caffeine has risen to $3.5. You’re not paying for the coffee, you’re paying for the experience surrounding its consumption.
Companies are trying to grapple with these shifting behaviours. Shopping malls have really taken a hit; sales have gone down 12% in the last 4 years while airline sales have gone up. Some of the brands that sell ‘stuff’ are creating experiences around their brand – think Niketown in London and Kellogg’s Cafe at Times Square. Companies that sell services are beginning to focus their attention on creating lasting experiences – Austrian Airways are hiring ‘Sky Chefs’. This trend is influencing the way consumers approach ‘luxury’ too. Instead of buying designer handbags, people are buying designer holidays. On-demand luxury means accessible luxury experiences – you can host fine-dining dinner parties, ride in supercar taxis and private jet seats booked from you smartphone.
Millennials are taking the lead
According to a recent Eventbrite survey, 78% of millennials say they’d prefer to buy a quality experience or event than a desirable product and 55% of millennials say they are spending more on experiences than ever before. Millennials are a catalyst in this move towards an experience economy, especially as this generation ages, their ability to spend more increases.
Pics or it didn’t happen
Online forum speak for ‘prove it’, the value of experiences grows alongside our growing ability to capture and share these experiences with others. People are taking pictures to document, share and show off experiences they’ve had. Some individuals even risk their lives to get the perfect selfie, the perfect picture to showcase their experience. Sharing experiences via social media also pushes millennials to “show-up, share and engage” – according to Eventbrite’s study, 69% of millennials experience FOMO (fear of missing out).
Why buy when you can share?
On-demand services that allow for collaborative consumption give consumers viable alternatives to buying and owning; companies like GoGet and Uber give alternatives to owning a car. People have the capacity to spend less on owning, and more on experiences. The sharing economy (something different from the experience economy entirely), describes the use of under utilised assets as “idling capacity”. When the functional items in one’s life don’t need to be purchased, consumers can spend their money elsewhere – like on their next holiday, or eating out at their favourite restaurant.
The main takeaway:
Millennials are putting their money where their mouth is and spending more on experiences and less on material goods. A few factors are fuelling this economic shift: collaborative consumption is easing pressure to buy previously essential purchases and social media is a medium that lets us show off experiences, making these memories tangible.
Experiences can shape your identity and create lifelong memories – the adage that an experience is fleeting, while a physical object will last a lifetime is flawed. We quickly become tolerant of our recent purchases, and a number of studies indicate that materialism causes unhappiness. Experiential purchases make us happier than materialistic ones, so the rise of the experience economy is something we can all be happy about.