Experience Marketing New Name For An Old Game

Folio: The Magazine for Magazine Management, Oct, 2000 by Jane E. Zarem

"If you want to see the future of marketing, go to Las Vegas --where you'll always see what's about to happen elsewhere." Although Tim Sanders, director of Yahoo! ValueLab, a think tank in San Jose, California, admits that's not an original observation, he certainly subscribes to the premise. "Vegas used to be a service econoMY," he says. "The slots had a high return, the buffets were free. Now, all the billboards are touting an experience."

"Experience" is the basis of a new economy, Sanders continues. "And it's true across every industry. Airlines, for example, used to compete over price and safety; now they're competing over legroom in coach and beds in first class. They're creating a 'flying experience'--so that's the battlefield."

Sanders is a staunch crusader, committed to the battle. He's a believer in "The Experience Economy" and an enthusiastic disciple of authors B. Joseph Pine and James Gilmore, whose book by that title was published in 1999 by Harvard Business School Press. In that treatise, the U.S. economy is defined as having seen four stages of progression so far.

The "commodity" stage of old was based on the idea that you could extract things, whether this was related to agriculture, precious metals or energy, explains Sanders. That's what companies did to create value for the consumer.

After the Great Depression, the United States entered into a "goods" economy, where companies organized the commodities, packaged them and added value to create a "good" for which people would pay more. Companies at this stage focused on features.

In the 1970s we entered the "service" economy, which focused on delivering benefits. Service companies were able to charge demonstrably more than companies that merely made goods, Sanders says.

And now we've entered the "experience economy. Whether you make a product or sell a service, what you really need to do is stage an experience that's memorable and compelling. That's what the consumer values most, Sanders insists.

Coffee as an Experience

Sanders uses coffee to simplify the economics of what he terms the "experiential marketing phenomenon" and to illustrate the four stages.

The "commodity" version would be the ordinary ground coffee in a can that costs about 10 cents a cup. "It ruled in the old days," he says, "but people my age don't drink it."

Whole coffee beans, ground yourself at the grocery store, are fresher, taste better and smell great. For that added value, the "goods" cost more than twice as much.

Research on coffee says that two out of three cups of coffee currently consumed are not home-brewed. They're bought at a "service" establishment. So 7-11 will buy the fresh beans at 25 cents a cup, sell the steaming hot coffee for 75 cents a cup, and you're happy to pay for the convenience.

Now comes the coffee "experience." People are almost religious about Starbuck's, and they don't think twice about paying $3 for a cup of coffee. Why? It's the look of the shop, the feel of the cups, the jazz music, and the barristas who know their beans. The coffee is just a prop, and the service the stage on which to create the coffee-drinking experience.

The core competency for commodities companies is extracting; for goods companies, it's creating features; and for service companies, it's delivering benefits. "Starbuck's has entire divisions of people who do nothing but manage the experience," Sanders emphasizes. "That's a core competency of the company. It's the thing the company does well."

Sanders carries the "experiential marketing" message to all kinds of companies, but he feels publishers are particularly well positioned to provide memorable reader experiences. "Magazines," he says, "have two key things that most dot-com's don't have: editorial contacts and influence, and distribution (million of people), because the magazine serves as the way to promote the experience.

"In the experience economy," Sanders adds, "publishers have a great opportunity to use the magazine as a prop. It can be done at a live event. But online, using streaming media-audio, video, live events, seminars, interviews, etc.--the experience can be presented much less expensively and on a global scale."

"Everyone wants to be the Starbuck's of their own industry," says Sanders. "Unfortunately, that real-world example doesn't scale for large companies--unless you use the Internet's capabilities. If you're going to go to the expense and trouble of presenting a conference for a couple of hundred people, why not videotape it, Webcast it, make it interactive, feature it in the magazine-that's how a conference can be extended to scale. Then the experience that took place in the real world becomes an experience to all the readers of the magazine and beyond."

Enriching Forbes.com

Forbes.com (www.forbes.com) is a star pupil in the lessons of experiential marketing. They leverage what they have, which is their editorial influence, to create live events or to stage interviews online, according to Sanders. In turn, they leverage their audience by promoting those events in their magazines. "Yahoo!'s Broadcast.com division has worked with Forbes.com a lot," Sanders says, "with everything from live events to interview excerpts presented on the Web site." Broadcast.com is a service company that provides the on-location service (encoding, digitizing, etc.) that makes streaming work on the Web site.