HGE401 Concept Behind Pine and Gilmores Experience Economy Assessment Answer
HGE401: Hotel and the Guest Experience
The main purpose of this report is to explore the concept of the Experience Economy in the hotel sector, put forward by Pine & Gilmore in 1999. Gaining a competitive advantage over other rivals is essential in the hotel and hospitality sector, and hotels all across the world are coming up with their own unique ideas to stay competitive in the market. Due to a sudden change in customer sensibility, it has become necessary for the hotel market to quickly adapt and change according to the market trends and customer demands. Hotel customers are no longer satisfied with a clean room and exceptional service. They now want to get a memorable experience during their stay at the hotel where the management is responsible for engaging them in an inherently personal way (Atwal & Williams, 2017). The report specifically discusses the implementation of the experience economy by established hotels with special focus on the economic theory progression and its driving forces. A few recommendations have also been provided based on the change in consumer behaviour and sensibility and adaptation of experience economy by hotels.
The concept behind Pine & Gilmore’s Experience Economy
Figure 1: Progression of Economic Value
Source: (Chang, 2018)
Authors Joseph Pine and James Gilmore in their 1998 article “Experience Economy” coined the title term for the first time to describe the next prominent market economy after the expiration of agrarian economy, industrial economy and service economy. Although this concept was researched by authors in the past, Pine & Gilmore was able to theorize it prominently with the help of theoretical frameworks and models and was later adopted by the hotel sector for gaining competitive advantage (Chang, 2018). The basic idea behind the experience economy is the offering of compelling experiences for the customers by companies to gain their allegiance and also increase their profit margin. In fact, the article was translated into more than 15 languages and became a must-read for leaders of big and small organizations regardless of their operational sector. However, the concept of the experience economy is most relevant to service-based industries like hotel sector where connecting with the customers is essential to secure their loyalty. As the sensibility and behaviour of customers have changed over time in the hotel sector, the idea of staging an experience that leaves a lucrative and memorable impression in their minds is crucial as well. In a time-starved world, it is in fact experience that appeals to the customers and not just the quality of service they receive from the hotel. The details and theoretical frameworks behind the experience economy have been discussed in the following section of the report.
Theory of Economic Progression
The concept of economy experience put forward by Pines & Gilmore is backed up by the theory of economic progression, otherwise known as the progression of economic value (Figure 1). In fact, this theory forms the structural framework behind the validity and adaptation of economy experience by business organizations. The theory provides evidence of the differentiation offered by the company on the basis of customer needs and values through their pricing. Moreover, the offering is customizable to meet the specific needs of the customer, and if a higher value is offered, more can be charged in return of that offering (Ali, Hussain &Ragavan,2014). In fact, business organizations can continually innovate their offerings through creative destruction with the various dynamic forces in an ever-evolving economy. The value offerings by an organization from low to high in terms of economic progression are commodities, goods, services, experiences and transformation. Among these, the experience is truly desired by most customers and hence organizations, especially hotels design and promote these experiences in return for premium pricing for their value offerings. These are more of intangible offerings which can gain more pricing than tangible ones.
Forces of Economic Progression
Based on the different value of offerings by various business sectors, each type of business has some type of value offering that attracts customers. The experienced business can charge its customers for the feeling or experience they offer and better the experience, the higher they can charge for it. The value ladder created by Pine & Gilmore in their progression of economic value model indicates how offerings move up and down the value ladder. With commodities getting the lowest value offerings, it slowly moves up to transformation, which can have the highest value offering (Cetin &Dincer, 2014). Experience being the fourth stage in the value ladder consist primarily of intangible value offerings and is quite beneficial when implemented by business organizations. For this reason, hotels that want to remain competitive in the market, have embraced the experience economy concepts and incorporated the theory to make customers loyal. In this report, two of the major driving forces of the theory of economic progression in each stage of the value ladder have been discussed to determine how hotels can utilize them in their favour. The driving forces of economic progression are as follows.
Customization: When customer need is high, it creates a greater customer value offering which helps organizations charge premium pricing in return of these value offerings. Basically, customization is the tailoring of the value offering to align it with the needs of the customer, which is most desirable in today's hotel sector. As customers look for engaging and memorable experiences during their stay at the hotel, the hotel management is designing unique experiences continue to keep up with the customer demands. Hence, it is evident that the customization of customer needs pushes the value offering up the value ladder in the progression of economic value.
Commoditization: Another major driving force behind the theory of economic progress is commoditization. Experience is considered as a real offering like that of goods, service or commodity. In fact, most business organizations who want to move up the value ladder, commoditize their offered experience to the customers who feel a good value for money in return of these offered experiences (Joseph Pine II & H. Gilmore,2014). The lowest value at the value ladder is commodity business which needs to commoditize experience and present it to customers as an intangible value offering to gain more premium pricing from them. With the change in customer behaviour and sensibility, hotels are more inclined to maintain their competitive advantage by coming up with new and unique experiences and slowly moving up the value ladder in the progression of economic value.
Impact of Consumer Behaviour Trends Within the Hotel Sector
The hotel sector in recent years has been greatly impacted by the change in consumer sensibility and behaviour. The hotel sector, is a service-based industry, is mostly driven by the behaviour trends of consumers. In the past, the hotel sector was not so competitive due to the availability of only a handful of hotels operating in a region and hotels were able to attract customers only by providing a clean room and excellent services. However, with growing competition in the hotel sector, it became tough for them to generate the necessary revenue in a shared customer pool (Loureiro, 2014). This resulted in the need to move up the value ladder of economic progress so that they can provide the necessary value offerings based on the needs of the customers. The only way, hotels could have moved up the value ladder was through shifting from offering commodity, goods and services to experience stage which would provide intangible value offering capable of gaining more premium pricing from the customers (Getz & Page, 2016). The shift of consumer behaviour trends from clean rooms and services to authentic and memorable experiences resulted in a change of value offered by the hotels as well, and they slowly went up the value ladder and finally implementing the experience economy in the hotel sector.
Evolution of Hotel Market
The hotel market has evolved slowly over time, as the sensibility of customers changed. The success and sustainability of the hotel sector greatly depend on meeting the needs and demands of the customers. As long as hotels are capable of offering the value as demanded by the customers, they are able to maintain their competitive advantage in the market. However, hotel customers who were once satisfied with only clean rooms and exceptional service quality slowly showed changes in their behaviours and sensibility. This resulted in the evolution of the hotel market as well to keep their value offerings aligned with the needs and demands of the customers. The change in consumer sensibility in the hotel sector along with the adaptation of the experience economy by established hotel brands has been discussed in details in the following section of the report.
Change in Consumer’s Sensibility
As the world became more globalized and technology-driven, people became more and more engaged in work, leaving behind very less time for increasing their personal life experience. It is obvious that regardless of these factors, consumer behaviour and sensibility changes from time to time. However, due to such major changes in a time-starved world, consumers were no longer satisfied with the basic comforts offered by hotels like clean rooms, delicious foods and exceptional services. With less time to increase their own personal life experience, consumers found it more engaging to enjoy the experiences offered by the hotels during their stay. On the other hand, the hotel market needed to upgrade their value offerings to align them with the customer demands and also maintain their competitive advantage. In fact, the introduction of experience economy in 1998 by Pine & Gilmore opened up their way to move up the value ladder where they can commoditize and customize their intangible value offerings as per the needs of the customers and provide them with the memorable experience they desire (Cohen, Prayag&Moital, 2014). As a result of this shifting of consumer sensibility, the hotel market co-evolved with it and went up the value ladder with experience value offering just below transformation which can gain the maximum economy for any business organization.
Adaptation by Established Hotel Brands
Major hotel brands all across the world adopted the experience economy to stay ahead of the competitive curve in the hotel market. In fact, it is this adoption of experience economy that had gained them the immense market success with thousands of loyal customers flying all across the world just to feel the engaging experience offered by these hotels. 4 of the major hotels that adopted the experience economy has been described below.
Walt Disney World Resort: The hotel brand views customer experience as the top priority and is aligned with the same customer satisfaction model of Walt Disney theme parks. Although their theme parks have been providing great experiences for customers over the years, their Disney World Resort has taken it to a completely new level. With an accumulation of 4 theme parks, 300 eating places, 140 attractions and 36 hotel resorts within the Orlando, Florida Disney World Resort, customers are willing to pay premium pricing just to get a glimpse of that lavish experience (Disneyparks, 2019).
Marriott: With more than 360 luxury hotels across 61 countries in the world, Marriott has also implemented the experience economy in their hotels to keep customers engaged during their stay (Marriott, 2019). Based on the customer journey across its various channels, the hotel provides maximum value for its guests through their Marriott Rewards loyalty program and loyalty Mobile Apps.
Hilton: Another major established hotel brands in the world, the Hilton has more than 60 million members in their loyalty program. These loyalty programs allow special access to members where they can use mobile apps to order their meals, book their own room and other digital experiences as well. Partnering with Uber has allowed the hotel to provide a ride to recommended places for eating and drinking based on their current location (Kelleher, 2019). Even special offers on concerts are considered “money can’t buy” experiences which attract customers to the Hilton hotels.
EVEN Hotels: This well-known hotel brand is centred around the health and wellness of the customers and allows them to maintain daily routines even when travelling. They recruit staff members who are trained in health and wellness and provide immersive customer experiences through their fitness programs. In fact, their unique customer experience is the ability to maintain a normal routine when on the road.
The report provides conclusive evidence on how a change in customer sensibility and behaviour resulted in the evolution of the hotel market and hotels have shifted their value offerings from services to experiences to meet the demands and needs of the customers. The experience economy is indeed one of the key aspects in today's hotel business, and more and more hotel brands are implementing it to gain competitive advantage.