How Social Media enables Experience Economy?

Apparently, there are only 3 reasons why you choose to buy a product or a service -
1. It's the cheapest
2. It's unique
3. You're sold on marketing!!

These are also the fundamental reasons that drive a company's differentiating strategy. A company can choose to:
1. Differentiate on price (Indian IT companies, Goods sold in Flea markets)
2. Differentiate on product (Apple, Tata Nano)
3. Differentiate on marketing (Pepsi, Coke, Microsoft)

For ages, companies have followed various versions of these strategies with varying degrees of success. However, during the last 2 decades, a special kind of differentiating strategy (customer experience) has been found to produce better and more sustainable returns than what other strategies produce. This interesting trend was discovered in 1998 by Joseph Pine and James Gilmore. They noticed that as goods and services became commoditized, the customer experiences that companies created, led to more sustainable differentiation. They published their seminal research in an article "Welcome to Experience Economy" in HBR and also wrote a book with the same name. Although differentiating-on-experience falls in the realm of differentiating-on-marketing, there's more to it than just marketing as discussed below.

My goal here is not to explain what “experience economy” is; rather I want to show how fundamental the roots of social media are from an "experience economy" point of view. To prove this point, let's begin by looking at an interesting example from the book "The Experience Economy" that beautifully explains this tectonic shift.

"The entire history of economic progress can be recapitulated in the four-stage evolution of the birthday cake. As a vestige of the agrarian economy, mothers made birthday cakes from scratch, mixing farm commodities (flour, sugar, butter, and eggs) that together cost mere dimes. As the goods-based industrial economy advanced, moms paid a dollar or two to Betty Crocker for premixed ingredients. Later, when the service economy took hold, busy parents ordered cakes from the bakery or grocery store, which, at $10 or $15, cost ten times as much as the packaged ingredients. Now, time-starved parents neither make the birthday cake nor even throw the party. Instead, they spend $100 or more to ”outsource” the entire event to the Discovery Zone, the Mining Company, or some other business that stages a memorable event for the kids-and often throws in the cake for free. Welcome to the emerging experience economy."

According to Pine and Gilmore, all types of experiences can be categorized into 4 realms (plotted across two dimensions). The first dimension corresponds to customer participation. The second dimension describes the connection that unites customers with the event or performance. As seen in the diagram above, the entire right-half of the 4 realms of experiences is about “active customer participation”, which is nothing but social media. The extensively researched literature on "experience economy" is filled with interesting strategies on how to stage engaging experiences using active customer participation as an important ingredient. Social Media offers unprecedented opportunities and tools for executing these "experience economy" strategies. Any company that aims to differentiate on marketing (and we know this is going to become a norm rather than exception) is left with no choice but to embrace social media. Social media strategies designed to engage users can benefit greatly by the key experience-design principles that Pine and Gilmore have identified in their research. The key principles of “experience-design” are classified under following five categories:
1.       Theme the experience
2.       Harmonize impressions with positive cues 
3.       Eliminate negative cues
4.       Mix in memorabilia
5.       Engage all five senses

The power of social media, however, is not limited to only those companies that are trying to differentiate on marketing. And this is precisely the reason why social is such a big deal - it has something to offer for all kinds of competitive strategies that a company can imagine:
1.  Differentiating on product - Use social media for crowd-sourcing, quick/easy prototyping and testing.
2.  Differentiating on price – Cut down service delivery costs by providing social platforms to users who can help themselves, Use internal social media (Enterprise2.0) to reduce transaction costs of co-ordination.

In conclusion, if we believe in Pine and Gilmore’s claim that - the next competitive battleground of business lies in staging experiences - then we must also embrace the direct conclusion that emerges from the claim - which is - social media is the most lethal weapon that companies must equip themselves with to deal with the emerging experience economy.

{Update on 27-May-2011: This is by far the most popular post on my blog and it's interesting to see that many people come here while searching for "experience economy social media". How are you making this connection? Would you mind leaving a brief comment about how you ended up here. If I find an interesting trend, maybe I'll share it with Joseph Pine. Btw, he was the first one to tweet this post for me!!}


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