The Experience Economy Means Everyone's Your Next Big Competitor

You'd think something called "the experience economy" would be a great thing for family entertainment centers, right? After all, what do they have to offer if not experiences? Unfortunately, FECs are not only unlikely to prosper from the experience economy, they're likely to take a hit. Here's why: The rise of the experience economy means retail stores and restaurants are adding experiences to what they already offer. For family entertainment centers and others that sell experiences, this means stiff new competition from businesses that now offer experiences for free.

It was only a little over five years ago that Joe Pine and James Gilmore welcomed the world to the experience economy. They warned consumer destination business that to stay competitive, they would need to wrap experiences around their traditional products and services. This was the only way they would be able to differentiate themselves and to raise their economic value. Otherwise, they'd be forced to compete on price alone.

In their 1998 Harvard Business Review article, "Welcome to the Experience Economy," and then a year later in their book, The Experience Economy, Pine and Gilmore identified the natural progression of economic value:

  • Commodities, such as generic coffee beans. The key competitive point is price, and people aren't willing to pay much.
  • Goods, such as ground coffee in a supermarket. People will pay a little more for goods than for commodities.
  • Services, such as a cup of coffee at a McDonald's. People will pay a little more for services than for goods.
  • Experiences, such as a venti non-fat cappuccino in a plush chair at Starbucks. People will pay the most for Starbucks coffee because the value is raised by the in-store experience.

A lot has changed in those five years, as many businesses have heeded Pine and Gilmore's advice. Examples of businesses offering experiences can be found everywhere. In retail, there is REI, Cabela's, Bass Pro Shops, Build A Bear Shop, American Girl Place, Vans Skatepark and Home Depot. Shopping centers are turning into experience destinations by offering large free children's play areas, carousels, and entertainment performances.

And it's even bigger than that. Whole cities are remaking their cores into experiences. This all started with the Rouse Company's festival marketplaces such as Faneuil Hall in Boston and Harborplace in Baltimore. Now, just about every urban revitalization district is an entertainment destination with not only cinemas and restaurants, but also street performances and festivals.

A similar phenomenon is now starting to occur with traditional entertainment destinations, especially those close to home like family entertainment centers. They now must compete for consumers' leisure time against local shopping complexes, retailers and restaurants that have begun to offer entertainment experiences. What is happening? These new hybrid entertainment/retail/shopping/restaurant destinations, in most instances, are offering the entertainment component at no extra charge, with the effect of turning entertainment into an undifferentiated commodity.

One example of this commoditization of entertainment occurred even before Pine and Gilmore revealed the concept of the experience economy. In the early 1990s, first Discovery Zone and then Leap 'n' Bounds and many entrepreneurs offered pay-for-play entertainment experiences for children by combining soft-contained-play, food and beverage and some games. Soon, fast food restaurants like Burger King and McDonald's found that if they offered free soft-contained-play systems in their restaurants, the appeal and sales of their food would skyrocket. So why would a parent pay $6 or $7 for admission to a pay-for-play facility when the kids could get almost the same experience free at a restaurant they already liked? With rare exceptions, all those pay-for-play facilities are now out of business. (This wasn't the sole reason for their demise, of course, but it was definitely a contributing factor.)

Businesses that begin to add experiences to their traditional retail or food offerings may not even intend to compete with family entertainment centers. They just want to outpace the other retailers that sell the same kinds of things. But the impact on family entertainment centers can be expected to be profound.

For example, Toys R Us is developing the new Geoffrey chain in an attempt to counteract the increasing commoditization of toy stores brought on by price competitors like Wal-Mart and Target. We first covered Geoffrey in our March 2003 issue. Geoffrey rolls Toys R Us, Babies R Us and Kids R Us into one 45,000-square-foot store with the kind of entertainment and edutainment that makes it an experience destination. What should scare the daylights out of family entertainment centers is that Geoffrey aims at the mom-and-child market. So Geoffrey's market share (in both leisure time and spending) will occur not just at the expense of Target or Wal-Mart, but also at the expense of the family entertainment center industry.

Toys R Us CEO John Eyler says he hopes Geoffrey will prove that price isn't everything, that shoppers will warm to the charms of brightly colored jungle gyms and playpens you can't find in Wal-Mart ... yet. Along with selling merchandise, Geoffrey is trying to create a "ritual of visitation" by focusing on the needs of moms related to their children's rituals and milestones of life and play. At Studio G there is a monthly schedule of events, such as a build-a-birdhouse activity that mother and child can do together at workbenches. The Geoffrey Party! area features a children's hair salon, family portrait studio and a party planning area. And, of course, there are two birthday party rooms where you can hold birthday parties, with 30 themes to choose from including SpongeBob and Harry Potter. There's also a sizable soft-contained-play unit, along with a Nibble's Café where moms can socialize.

The first four Geoffrey stores are in Jacksonville, North Carolina; Fond du Lac, Wisconsin; Meridan, Mississippi; and Abilene, Texas. The newest Geoffrey recently opened in Austin, Texas. There, the entertainment experience has been expanded to include a Ballocity unit by Koala, mini-lane bowling and a sport simulator.

The bottom line? When many consumer destinations are offering out-of-home entertainment and education for free, entertainment and education are fast becoming commodities with a decreasing perceived value in terms of the price you can charge. The traditional family entertainment destination formulas will no longer hack it and are rapidly moving to extinction. Or, as we say, to the road kill graveyard.

To survive and prosper, family entertainment destinations must reinvent themselves in a way that moves them higher up on the chain of economic value. They need to offer an experience that is more relevant and has a greater perceived value, both in terms of time and expenditure invested by the consumer, than those offered by their new destination retail and restaurant competitors.

Over the past year we've been writing about many aspects of how destination family-oriented entertainment experience facilities need to change to become more relevant to families' contemporary lifestyles, needs and values if they are to prosper. Suggested past articles (some have been expanded as white papers) are:

The article that follows on experience facilitation is another concept for improving the offerings of community-based entertainment facilities.