The Evolution of Economic Value
As brand strategy evolves and the role that brands play in the lives of consumers and the world, the value exchange evolves as well. Not only are consumer expectations growing, but their appetite for paying a premium to meet their expectations grow as well. Building from Pine and Gilmore’s "Progression of Economic Value” in The Experience Economy, we can see that as brand strategy evolves, so does the economic value. Therefore, becoming an Experience Brand doesn’t just benefit the consumer, but also the bottom line of the business.
“Companies that earn $1 billion annually can expect to earn, on average, an additional $700 million within 3 years of investing in customer experience.”
Here’s how the economics of value have progressed and will continue to progress.
Horizon 1: Commodity, Product, Service
The first horizon of economic value is when commodities evolved into products and services. For example, as Pine and Gilmore point out, coffee is a raw commodity, then processed to become a product, then brewed to become a service and finally, as we’ll see in the next horizon, it has become an experience thanks to companies like Starbucks, Blue Bottle and others.
However, the thing to understand about this horizon is the growing expectations of consumers. What once was a competitive advantage in the marketplace, has quickly taken on the characteristics of a commodity. Meaning that, as competitors emulate market entrants or early adopters, that product, service or even experience gets commoditized as the cost of entry for a marketplace.
A commodity business charges for undifferentiated products.
A goods business charges for distinctive, tangible things.
A service business charges for the activities you perform.
Horizon 2: Experience
As Pine and Gilmore illustrated in their book, consumer expectations have risen to a point where the experience a brand or company provides around their product or service is becoming almost more important than the product or service itself. This experience, usually seen as a physical, immersive component to a product or service, can now become a digital or digitally connected experience for the consumer. Examples of this are:
Delta’s mobile application. Not only does it provide access to the core service of Delta, air travel, but it streamlines the travelers journey while enabling entertainment and other experiences in the air.
Starbucks has continued to push the boundary on experience. Not only do they provide the epitome of physical experience, but they have enabled a digital component through their rewards program, connecting the digital with the physical by streamlining ordering and checkout, while being rewarded along the way.
An experience business charges for the feeling customers get by engaging it.
Horizon 3: Transformation
In their revised version of The Experience Economy, Pine and Gilmore expand the idea of experience into what they call “Transformation.” This horizon is based on providing a “guest” or “membership” relationship with a brand. These can be delivered through experiences like Disney World or Wingtip, a club for a men’s fine clothing where men pay a membership to have access to the store and the experience on top of the cost of the products.
These transformative brands are changing the way that consumers interact with and invite brands into their lives. Not only are they paying for a direct experience with a product or service, but an indirect relationship with the promise the brand is offering. Increasing the economic value of the entirety of the brand.
A transformation business charges for the benefit customers (or "guests") receive by spending time there.
Horizon 4: Evolution, Ecosystem, Rundles
Finally, Horizon 4 is the expansion of how the brand and its products, services and experiences fit within the lifestyle of their consumers. It is rooted in personalization and preference and provides non interactions as much as interactions. These business models are built around recurring revenue which not only provides immediate value to a brand, but adds to the long term prospects and market capitalization.
Professor Scott Galloway uses the term ‘rundles’ to describe this evolution – brands the bundle products and services together under a subscription mindset to deliver recurring revenue. Or ‘R’ecurring B’undles.’
This evolution of brand goes far beyond physical and digital experience and into the day to day activities of the consumer’s life.
Examples of this:
Apple has built their core business around device manufacturing. But they’ve built incremental value through access with those devices. Using subscription models to different passion points, Music, Gaming, News, TV, they have been able to expand upon their core business and into a true ecosystem of value.
Nike has started to move beyond a single transaction and into an ecosystem of sport. They have introduced businesses like Nike Training Club, a content subscription for access to exercises and training, and Nike Adventure Club, a monthly subscription to real-time access to new children’s shoes.
The value created in this horizon is through the flywheel effect of the business and brand offerings, brought to consumers in a new way.
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