How to extract value from the Experience Economy to gain freedom from price wars
The Experience Economy is a concept I came across back in 2003 and has moulded how I look at our industry and helped me formulate a structure in which I started creating F&B concepts. This also became the framework I use to evaluate existing businesses to identify potential areas of improvement. These principles definitely require an update in 2020 to have grounds to stand on and be relevant in today’s environment. The aim of this article is to introduce you to this idea that helped me create F&B businesses which have longevity and competitive advantage. What I also hope to do is unlock what the new framework needs to be in this current market landscape.
What is The Experience Economy?
I believe principles of this approach come from the world of theatres. The driving force is the ability to engage with customers in a personal and memorable way. This quote gives an appropriate description of the principle idea behind the Experience Economy (I apologise as I do not remember the reference of this quote): Commodities are fungible, goods are tangible, services intangible, and experiences are memorable. You can boil this down to a straight-forward formula:
Memorable Experiences = Loyal Customers = Repeat Customers = Higher Lifetime Customer Value (calculated based on customer spend per year, spend per visit x number of visits per year)
Another financial benefit to this is demonstrated in the example below relative to price points. I will use coffee to explore this idea further.
Coffee as a commodity sells for $15 to $25 per kg.
Once the same item is packaged, branded and put on retail shelves, it could fetch anything from $30 to $60 per kg. The commodity itself plays a part in the money it fetches, however, the packaging along with the brand equity and story play a bigger role in the pricing of the goods. With that said, market conditions place a ceiling on how much can be charged (with a few exceptions, of course).
I would define that as a typical cup of coffee in your neighbourhood cafe. The same “commodity” in this case can fetch anything between $3.5 to $5 per cup. Assuming 10grams per cup, then you are paying $350 to $500 per kg. You can clearly see the jump in pricing from commodity to goods, by around double, and then a ten fold spike in value from goods to service.
Let us use the example of a cup of coffee for which you pay USD 100 in Dubai. The setting is on the top floor of Burj Al Arab. The coffee itself comes with its own story. It is “kopi luwak”, the exotic Indonesian coffee (I will let you do your own research if you are not already familiar with it). Here you are not paying for the commodity of coffee, nor for it as “goods” or “service”. You are paying for the entire experience. Every element of this experience has its own story and leaves customers with vivid memories. In terms of price per kg, this experience would cost you $10,000. A price range from $15 to $10,000 for the same core ingredient, coffee. This is made possible by transforming it from a commodity to an experience.
The Business of Selling Experiences
The aim for any F&B owner / operator is to understand that they are in the business of selling experiences. Your focus should be on the value proposition, not price point.
What makes up a restaurant experience? Of course, there are the broad elements such as:
- Food / Beverage Offer
These are high-level building blocks and need to be woven together with a compelling story. Nowadays the story is as important as the actual product and service you are delivering.
The Experience Building Blocks
What do today’s customers value and how can you leave them with memorable experiences?
From my experience, I believe the below points should be considered by every restaurant owner / operator to maximise the value proposition they offer their customers.
- Hospitality Focus
- The Story
- Authentic Personality
- Emotional Connection
- Constant Evolution
- Collaboration and Community Integration
- Sustainability, Ethics & Values
- Art & Craft
- Attention to Details
Let us not forget this crucial word, hospitality, from the experience being orchestrated and delivered. My work with the world of shopping centres revealed certain flaws in how they look at and perceive our industry. They refer to it as retail. This classifies restaurants as though they retail goods, which is a box our industry should not be placed in. This misinterpretation has forced many to re-evaluate their internal processes to adapt to shifts in the marketplace.
In our industry, while not all owner/operators might coin and term what they are doing and break up the process into a systematic sequence of events, many do things instinctively.
Hospitality elements include:
- Anticipating customer needs
- Employee training
- Standards of service excellence
- Exceeding expectations
- Product quality and novelty
- Surprising and rewarding
The other aspect is knowing, understanding, listening to and tailoring messaging and offers to customers which feel customised and fill a need. While this is nothing new, do not treat all your customers the same, they are not all equal. Provide something special and exclusive only to a selection of people. Create loyalty by not treating everyone equal.
There is a reason why storytelling is the oldest and one of the most effective methods of recording our human history. Stories stick to our memories. Brand tone and character, design concept, ambience, product, communication / content strategy, design details, and service style all make up parts of the story. You need to make sure all these elements work in harmony together.
Authentic personality is key. Whether you are a fast casual or fine dining. Fake is frowned upon and your brand story which translates into the customer experience has to be soaked in your own authentic personality. This is the lifeline of your concept and what is often referred to as the soul of the restaurant. It is where, sometimes, if a restaurant is a product of pure investor backing without the hospitality passion bug, you are left with what people refer to as a “soulless” place.
Authenticity comes from your connection with your community, your backstory, what you stand for, and the non-monetary objectives you have. Yes, profits are a driver and every restaurant should be profitable. I emphasise this throughout my articles. However, profits are a by-product of passion. The spark that drove you into this challenging yet rewarding industry.
This “authentic personality” later becomes the aspirational element your target audience wants to associate with and be a part of. People will want to interact with your brand both online and in real life if they feel it aligns with their beliefs and aspirations.
Careful not to fall into the trap of wanting to fit in and “mimicking” others in the market in order to obtain those digital likes. Be individual and have your own voice by allowing your personality to shine through.
Emotions are linked to memory. Feelings affect memory. Emotional connection happens through intentional emotional design, which is multisensory. Perfectly expressed when branding and interiors are aligned and work together. I discuss this point in the Ultimate Guide to Restaurant Design articles. Your primary aim is to make people fall in love with your brand, not just like it. Multiple elements have to come together to emotionally move your customers and give them a memorable experience.
Using imagery helps; so does surprising people. In the example I gave in the other articles, humour was a tool we used in our project that really resonated well with the customers.
For this approach to work, you really need to know your target audience in order to design for them. They need to feel that “you get them”.
The world is always shifting and changing, and your brand needs to keep evolving with it. The word in vogue these days is “pivot”. I am not a big fan of it, because to me, it means sharp and sudden shifts and an urgent need to adapt in order to survive.
As I mention in the Restaurant Business Model articles:
“The key is to always live in the now with your eyes looking to the future. Customer behaviours are constantly shifting. You need to always monitor and be aware of market movements. It is a matter of having your hand on the trends pulse and to be prepared and agile enough to keep evolving.”
If you consider the above, then you will not need to pivot. Evolution will become part of your brand DNA. Customers want something familiar and something new at the same time. If you can provide both the novel and the consistent then you will have a winning formula.
You will need to adopt and nurture a culture of innovation in order to come up with “new” and fresh ideas. These need to be developed with the customer at the centre of all your ideation and development initiatives. Another thing to consider is that not all good ideas come from the top. Often, it is your team on the ground who have the best ideas.