“Pics or it didn’t happen” is my generation’s version of “if a tree falls in a forest and no one hears it, does it make a sound?” I have spent way too much time fretting over the caption that would just perfectly complement the memory I wanted to show off (if you’ve been there, you’ve been there).
“The Experience Economy” was coined in 1998 by Pine and Gilmore to describe how consumer’s understanding of product value had evolved over time: the memory of an experience was now the product itself. They describe four key elements of creating an experience:
Millennials championed this new experiential reality into existence with our in-your-face, FOMO is real, look-how-good-of-a-time-I’m-having demeanors. A study by Harris Group found that 72 percent of millennials prefer spending money on experiences over traditional goods and a McKinsey study showed that consumers were shifting their spending from goods to experiences at a breakneck 3.9x rate.
When societal norms change like this, new types of businesses get built. I’ve been paying close attention. Here’s my take on the space:
Trends Shaping this Decade’s Experience Economy
- Social is the new Search: Consumers now discover and search for experiences on Instagram. 89% of Instagram users have bought something that they first saw on Instagram and 61% of brands say social media is their top acquisition channel.
- URL (online) isn’t enough. IRL (In Real Life) is bouncing back: People are seeking more IRL connectedness. Much has been written about how social media and the iPhone’s release ushered in a new era of loneliness; more teens report feeling lonely now than in the two decades prior. Shopping malls’ decline also left a void for unstructured “third space” hang outs. Between 2000 and 2015, the number of teens who met up with friends frequently dropped by 40%.
- Retail needs a Savior: While not all experience economy companies need physical space, many are taking advantage of the fact that department store sales have stagnated & mall vacancies increased. Since the last recession department store sales have been flat while e-commerce sales increased 3x. This trend isn’t stopping: e-commerce’s share of sales is expected to double by 2025. While all retail vacancies increased during the recession, most recovered. Malls did not. “Experiential Retail” has popped up to describe what some are calling a survival strategy for retail.
Let me summarize this with a memory. When I was in high school in Virginia, I’d go to the Fair Oaks mall to hang out. We told each other that we were going shopping, but we didn’t actually buy that much. Mostly Coldstones and Claire’s earrings! But being with my friends in the same space, at the same time, is what built both relationships and memories. Today, malls are dying and kids aren’t going there to hang. That’s left a gaping void in togetherness, an itch that needs to be scratched in some other way.
As an adult, I’ve found more excuses to hang with friends. Sometimes, it’s getting our nails done. Or hot yoga. Recently, it’s been going to SoulCycle, Barry’s, or a dance class.
If you’re like me, you may have had the experience where a friend tells you “Sign up for SoulCycle bike 37 next to me, NOW”, you emphatically agree, then promptly forget, and suddenly all the bikes are all full (Sorry Alex and Arielle). In many social groups, getting someone to commit to a pre-booked class or experience is one of the best ways to avoid being flaked on. In a generation where everyone flakes but hates being flaked on, this has an important bonding effect.
Roles Created by the Experience Economy
The solution is experiences that deliver hangout spaces. 70% of Millennials feel that attending events makes them more connected to other individuals. This isn’t just a feeling. Research from Cornell University suggests “increased sociality associated with experiential purchases…..increase[s] happiness.”
Companies are taking notice. The experience economy is, at its core, a mantra that every business now needs to live by. It’s even given rise to dedicated customer experience teams.. Over the last two decades, companies with a Chief Experience or Chief Customer Officers (CCO) went from negligible to 39% in 2016 and even higher today. It’s the same path that CTOs and Chief Product Officers have trodden, to be important members of the executive team, not buried deep in “IT” as they were a couple of decades ago. Experience is as important as product or price.
Businesses Serving the Experience Economy
Today’s businesses aren’t the first to cater to people’s desire for an experience. In the 1990s “family entertainment centers” (FECs) such as Chuck E Cheese, Dave & Busters, laser arcades and bowling centers served the space. So too did traveling shows such as Ringling Bros and Feld Entertainment’s Disney on Ice. Many were aimed at young families. Now we’re seeing experiences aimed at adults succeed as well. And they’re worth a lot. Top Golf is rumored to be going public, Soulcycle is like a cult, Cirque du Soleil plays to sold out bigtops. These companies are/were worth billions.
Experience Economy Company Valuations (examples)
- Top Golf — $3.3 billion, 2019
- Feld Entertainment — $2 billion, 2018
- Chuck E Cheese — $1.39 billion, 2004, 2019
- Soulcycle — $900M, 2015
- Dave & Busters — $2.6 billion, 2017
- Merlin Entertainment(Legoland, Madame Tussaud) — $7.5 billion, 2019
These are exciting companies, but a new generation of Experience Economy companies have been born in the past few years that are much more in tune to Gen Z and Millennials. They differ from the past because they are:
- Discovered through Instagram and social media
- Designed as anticipated, sharable memories with friends
- Designed to document your best life
- Creating a sense of belonging
- Taking advantage of cheap real estate
So which startups are serving the space today? Here’s my attempt at breaking down the landscape, using Pine and Gilmore’s Experience Realm as a framework:
As with other spaces I’ve become fond of, such as the Future of Work, this space isn’t really a “space” at all. It’s not a traditional industry. It’s a Missiondustry — a Mission-led Industry where the common thread tying businesses together is their mission. In this case, their mission is to produce an experience worth remembering. To create memories.
One of my favorite quotes has always been Maya Angelou’s wise words: “People will forget what you said, people will forget what you did, but people will never forget how you made them feel.”
That’s true of businesses and experiences too. I’m excited to fund and support businesses whose customers will never forget how it made them feel. If you’re building such a company, please reach out, I’d love to chat: mbent@lsvp.com
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