How to Survive and Lead the Transformation from Service Economy to Experience Economy

The Transition

The world has moved from the Service Economy of the 80s and 90s to what we now call the Experience Economy. In 2021, a study found that 92% of business leaders prioritize managing experiences, but less than 10% have a solid plan to make this a reality. It’s crucial for executives to understand how to navigate this new landscape.

Key Differences Between Economies

In the Service Economy, employees, suppliers, and customers were seen mainly as costs. Companies focused on cutting expenses, believing that if services were adequate, they could reduce costs without consequences. However, this mindset is obsolete in the Experience Economy.

In the Experience Economy, the experiences of employees, suppliers, and customers are what truly drive a company’s success. Factors like revenue, market share, productivity, innovation, and customer loyalty depend on these experiences.

Optimizing costs without considering their impact on these experiences can be dangerous, as seen with companies like Starbucks and Disney.

The Risks of Cost-Optimization

Traditional cost-saving strategies—like reducing travel, cutting training, automating human interactions, or freezing hiring—can lead to disaster in the Experience Economy. For example, during the pandemic, many travel companies tried to survive by cutting costs, which pushed them to the brink of bankruptcy as they tried to recover once the pandemic was over.

Why Experience Matters

Despite the importance of experience, many companies still cling to outdated practices from the Service Economy. Digital expert Aarron Spinley emphasizes the need to rethink our approach and understand the current landscape. Even with skilled teams focused on customer and employee experiences, many organizations fail to connect these experiences to their overall business value. To succeed, companies must let go of old habits.

Six Deadly Delusions in The Experience Economy

Here are six common misbeliefs that companies need to abandon:

1. ROI and Time Value of Money Are Key Metrics: While useful, these concepts are outdated. The most important measure now is the “Money Value of Time,” which reflects how much customers are willing to pay for experiences based on the value they receive.
2. Experience Is Measured by Transactions: Experience isn’t about individual transactions; it’s about the overall journey over time. Traditional metrics like NPS (Net Promoter Score) don’t capture this.
3. Surveys Accurately Measure Sentiment: Many surveys are poorly designed and often don’t provide actionable insights. Forbes identified how one or more poor design choices cause customer satisfaction surveys to be inaccurate.
4. Customer Satisfaction Equals Experience Management: These are different concepts. Customer satisfaction is about whether a transaction was acceptable, while customer experience is about how people feel about their interactions. As Experience Economy expert, Joe Pine explains, “Memories are the hallmark of experience.”
5. Experience Is a Constant That Can Be Improved: Experience is not a constant and certainly not static; it changes based on customer expectations. A consistent service level will lead to varying experiences over time.
6. Experience Management Is About Individual Psychology: Instead, it should focus on broader trends and patterns. Companies should care about how groups of people feel rather than individual sentiments.

Moving Forward

Companies need to rethink their approach to experiences. Each experience should be designed to provide real value to employees, suppliers, and customers. This could apply to various scenarios, like a patient’s experience in a hospital or a customer in a car showroom. To support this, businesses should implement Experience Level Agreements (XLAs), which focus on how people experience outcomes and link those experiences to business value. XLAs help gather meaningful data and prioritize what truly matters to customers.

Conclusion

Success in the Experience Economy requires a focus on the economic value of experiences. Instead of traditional cost-optimization methods, companies should optimize for “time well spent” to boost productivity and maintain revenue. By integrating customer, user, brand, and employee experience teams, businesses can evolve beyond outdated practices and thrive in this new economy.