It’s safe to assume for the last 5 years we have been doubling down on the experience economy, and the ‘three big experiences’, UX, CX and EX (User, customer and employee) have become the most important drivers of value creation. Switching gears from the experience economy to a pandemic economy has felt akin to falling down Mazlow’s hierarchy of needs from self-actualisation back down to survival. For many ‘experience’ has become aspirational, dethroned by the more traditional capacity of ‘outcome’. i.e. go out to a restaurant vs. eat food.
The first experience we will look at is the experience of working. For decades now, workplaces have been built as shrines to their organisations, an experience for staff and customers alike, to come in, connect with their company and do their job. In this example the workplace helps shape employee experience to drive greater collaboration, connection and focus in the hope to drive productivity and creativity gains in their work. After all it is a work place. In the pandemic economy, those of us in the privileged position to work from home are essentially doing our same job, but with an entirely different experience. At home there a lot more phone calls and video meetings and in the pandemic economy many people are juggling kids, remote learning and an array of other distractions. For now, the workplace experience has been abandoned whilst people focus on the outcome of getting their job done at home. Same job, less social interaction and collaboration, less inspiration and less drinking from the company Kool-Aide - served up every day to remind you how great the company you work for is. The experience of working for many grossly changed, yet the outcome expectations on the job have not. Are we foolish to expect the same productivity? Or if we do get the same output, what toll does that take on other parts of the employee?
Commercially the experience economy has been shuttered. Selling whole experiences as a product such as travel and tourism, hospitality, live music and sporting events have been decimated. The pandemic economy is highly discriminative of the sectors it affects. That’s not to say that we are not all affected, but the level to which we are affected greatly differs by sector.
If we look at a restaurant the business model is pretty simple. You take raw ingredients (materials), cook them into a meal (processing) and serve them up with low lights, exceptional service, classy music, culinary artistry (the experience) and voila, you have a memorable night out. You are willing to pay a lot more for this night out, than for the materials which are readily available at the grocery store. The value you receive at a restaurant is heavily derived from the quality of the food and the quality of the experience. The below graph is a very simple model to show the reverse engineering of value from the lowest value on the left, the to the highest value on the right.
Now let’s look at one with dollars involved. Watching an NBA game on my couch at home costs $7/month for the NBA.TV subscription. Heading out to a bar with my friends to watch the game might cost $120 and watching the game live in the stadium maybe $300 (depending on which game of course). Every time the process or experiences are improved, so too does the price ratchet up. So this brings us to where we are today. We are seeing a flow through where the outcome or the product is still being delivered, but the experience has been significantly reduced due to current events. Its a lag and a more complex problem to solve. People will be thinking ‘how long am I willing to keep paying for this vastly different service clinging to the hope that it will return to full service soon, because I value full service, but I’m not getting it.’ The education sector is exhibit A. Public schooling aside (as opposed to homeschooling there isn’t really an alternative) private schools and universities sell a premium product, that is the qualification from their institution. But what customers (students and parents) are really buying is the whole experience. So using our above model the academic literature is the materials, the teaching is the process and the adventure of attending school X here with all of these other students is the experience. Through the lens of an international university student, it’s not just the education, it’s the 4 years living and studying in Australia that’s so valuable. We can’t fall back on laptop video conferencing as a replacement because they should still walk away with the same piece of paper. This is why Digital (or online) MBA’s are often so much cheaper than those delivered on campus. Don’t charge me the cost of a night out in Madison Square Garden and give me the NBA.tv subscription. It's important to remember that the best experiences often manifest inside created parameters. For example, the workplace, a school, an arena or stadium are important facilities to curate the experience allowing for the premium value capture. The only industry as yet to successfully virtualise these spatial equivalents are online gaming or esports, depending on which generation you belong to.
So therein lies the question, if experience is such a large contribution to the value proposition and in turn the price that people are willing to pay, how do you sustain through the enduring impacts of a pandemic economy.
We have to look at experience through a value lens.
As Warren Buffet so famously said, “Price is what you pay, Value is what you get.” ergo, Value is what you pay for, and its important to understand that value creation is science not art. It can be manufactured, and by pulling your value proposition apart it will help you to identify which parts have been most affected and which parts can be supercharged. In order to do this we have to categorize value. so let’s first make the assumption that all value created, both tangible and intangible, are derivatives of four key elements. These are Quality, Function, Economics, and Marketing - shown in the below pie.
Quality includes factors such as craftsmanship, experience, speed, capability, reliability etc. Function is about how it operates, does it seek to serve a purpose, educate, entertain or inspire you. Function can be as simple as a kettle boiling water, or as complex as heart surgery. Economics is about both the real environmental and engineered supply and demand factors that drive the value up and down - this drives scarcity and exclusivity - key metrics to high value. Finally, marketing looks at the stories, the brand and the psychology inside the value proposition. Ultimately, how you feel about transacting with the organisation. Is it a positive or negative reflection on you? Each of these can then overlap with another and work together to build the desired value proposition. Here are a few real world examples. A Swatch watch can cost $100, whereas a Patek Phillipe can cost $50,000 or more. Whilst obvious to the watch aficionado, where is the price difference. The function arguably is the same, they both tell the time. The other three however are vastly different. Quality and componentry in a Patek Philippe are premium, the self imposed economics of the price drive exclusivity and the marketing is absolutely aspirational. Luxury brands like LVMH Group are the best way to interrogate value creation. Just look at the profitability of the annual reports to see how successful they are with it. On the flip side if somebody is going in for a heart surgery that will save their life no component of value is more important than the function. i.e. Give me the experience of House if he will save my life!
If you have been disrupted through the pandemic economy then it’s not just about pivoting as is the mainstream narrative - but about deconstructing and reconstructing your value proposition inside this new set of rules. Just like watches at the highest and lowest spectrum of value can tell them time, so too do the canyons exist between our shopping, learning and working experiences.
This article doesn't seek to provide the answers, but a framework to challenge your historic assumptions of value when the rule book so suddenly changed. Maybe you can’t perfectly recreate your traditional experience enabled through physical locations, but you can come close by re-imagining what you offer inside these rules and rebuilding that into your new customer or employee experience.