The Experience Economy August 2017
The experience economy is driven by experience industries. As early as 1985, Jay Ogilvy, research director of the VALS™ Program, issued a Leading Edge Report about the experience industry. The report discusses the shift from manufacturing-based economies to service- and information-based economies. Ogilvy explains:
With their basic needs already satisfied, consumers are shifting much of their attention to the pursuit of experience per se.... The 'experience industry' includes such activities as education, travel, entertainment, psychotherapy and fitness, alcohol and tobacco, religion, print and other media, and art. The economics of experience is closely related to another intangible aspect of the emerging economy—information. The value of both experience and information depends critically upon the meaningfulness to their users.
More organizations than previously are paying attention to the consumer shift from material goods to experience. On 20 March 2017, Adobe (San Jose, California), a large multinational computer-software company, addressed the shift head-on at the Adobe Think Tank's The Future of Experience Business. Think-tank participants had much to say about the importance of the experience economy; no one addressed how many consumers are making the shift, which consumers are making the shift, or why some consumers are making the shift and not others.
Which consumers have the desire, the time, and the money to participate in the experience economy? Even though only a minority of today's consumers have the financial ability to participate in the experience economy, thanks to affordable technology (computers and smartphones), the majority of consumers can afford to participate in the information economy.
A look at a household's mean amount of remaining money after its typical monthly spend on necessities is instructive. Which households are in a position to purchase any but necessary goods and services? The following table reports the mean amount of discretionary income households have in a typical month by VALS type—that is, the average number of dollars remaining after paying for basic and necessary expenses such as food, clothing, shelter, and utilities. Expenses do not include, for example, health-care costs, credit-card balances, consumer- or student-loan debt payments, home-maintenance and home-improvements costs, premium TV channel subscriptions, entertainment, regular allocations to savings and investments, education and 529 Plan contributions, and retirement savings.
Amount of Money Household Has Remaining from Its Typical Monthly Income
Note: Mean dollars includes $0 and negative amount.
Source: 2016–17 MacroMonitor
Innovators, Thinkers, and Achievers are the groups with the most discretionary dollars—the groups able to participate in the experience economy most easily. Innovators are interested in living life to the fullest; they seek, and make time for, meaningful experiences. Many Thinkers can afford to participate. However, roughly one-third are retired, and many have a primary focus of saving for retirement. Thinkers always consider cost relative to value; they are the conventional Old Guard. Achievers are focused on marriage, family formation, and home ownership. They appear able to afford participation before one considers the monthly costs associated with their life stage: home ownership and child rearing are expensive. Achievers are time starved. Experiencers are interested in participation but are somewhat constrained by available discretionary dollars and available time not spent with technology—computers, smartphones—and social media.
How well are some experience-economy industry sectors doing? To size the market: Between 2000 and 2016, the US adult population has grown by 43.9 million adults—from 200.6 million to 244.5 million: an 18% increase. For a sector to have grown, the participation rate for a behavior needs to outpace population growth. For example, between 2000 and 2016, the number of adults having taken a cruise in the past three years has increased by 7.6 million—from 12 million to 21 million adults: a 38% increase. Cruising-industry growth (38%) has outpaced population growth (18%). To capitalize on current growing demand, 26 new ocean, river, and specialty ships are in the plans for 2017. During the same period, the percent of adults going to a museum in the past 12 months has declined by roughly 1% (from 14% to 12.5%). Even though the number of adults going to a museum has increased by 2.2 million individuals, the growth rate (7%) is not keeping pace with population growth (18%).
VALS™/GfK MRI fall studies provide a highlights summary of various industry sectors. Comparisons are for 2000 and 2016 (unless otherwise specified) by VALS high-resource consumer groups: Innovators, Thinkers, Achievers, and Experiencers. The summary implies the availability—or lack—of time and money and resulting trade-offs.
The Experiences Industries
- Retail. Excessive retail space—7.3 square feet per capita—and the rise of e-commerce are the most-often-cited reasons for retail contraction. CNN.com reports 3,300 store closings so far in 2017. Read more: A Retail Tale
- Education. More people than previously have a college degree, but the number of adults taking an education course in the past 12 months remains constant at 8%. Innovators are more than twice as likely as and Thinkers are 45% more likely than all adults to be enrolled.
- Travel. Domestic travel in the past 12 months for personal reasons, a honeymoon, or a vacation has declined from 48% to 45% of adults. The number of adults traveling has increased by 13 million: a 12% increase. In 2016, Innovators, Thinkers, and Achievers were more likely than average (all adults) to travel. The hotel industry reports only a 0.6% occupancy-rate increase in 2016.
- Entertainment. The performing-arts industry reports a steady decline in attendance between 2003 and 2013 alone. Attending live theater, music, and dance performances shows incidence declines, as does home entertaining, going to bars and nightclubs, and dancing/going dancing. Innovators are consistently more likely than—often more than twice as likely as—all adults to do these activities.
- Dining out. Industry reports that fewer people are currently "lunching" in a restaurant than in the past. Data show that more people than previously are eating at fast-food restaurants to counter rising food prices. Without factoring in the type of restaurant or frequency of dining, adults show only a 1% gain (from 53% to 54%) in dining out in the past 12 months. The increase of 26.1 million dining patrons (a 20% increase) keeps pace with population growth. Innovators, followed by Thinkers, have always been more likely than average to dine out; in 2016, Achievers also became more likely than all adults to do so.
- Psychotherapy. Psychiatrist visits had no measure in 2000. In 2016, some portion of all VALS groups have visited a psychiatrist in the past 12 months; Innovators are the group more likely than average to do so.
- Fitness. The percent of adults who work out on a regular schedule (two or more times a week) has increased by 1%—from 41% to 42%. Even though the number of adults working out regularly has increased by 20.8 million, the increase of 20% is roughly keeping pace with population growth. Innovators are more likely than average (followed by Thinkers and Achievers in rank order) to do so.
- Alcohol and tobacco use. Three in five adults consumed alcohol in the past six months. The 18% increase in the number of adults doing so is on par with population growth. Innovators were, and still are, more likely than other groups to imbibe. In 2016, Thinkers and Experiencers are also more likely than average to consume alcohol. The percent of US adults smoking cigarettes has dropped from 29% to 19%. The four upper-resource VALS groups are less likely than average to smoke cigarettes. The percent of cigar smokers has also declined. Experiencers (9%) are the only high-resource group to be more likely than all adults (5%) to smoke cigars in the past six months.
- Religion. Questions about regular religious-service attendance, daily prayer, and spirituality had no measure in 2000. In 2016, only one-quarter of adults attend religious services regularly. Somewhat more than one-third pray daily or say they are spiritual persons. Only Thinkers are more likely than all adults to attend services or to say they are spiritual persons.
- Art. Art-gallery attendance since 2008 (the most recent year for which data are available) has declined by 1.1 million adults. Only Innovators and Thinkers are above average for visits. Museums have fared somewhat better than galleries, with a 7% increase in attendance; Innovators are three times more likely—and Thinkers roughly 70% more likely—than all adults to attend.
- Print and other media. Both the percent of people (44% to 34%) and the number of people (88 million to 83.6 million) reading books have declined. The number of hours spent watching TV in an average week, however, has increased from almost 29 hours to slightly more than 32 hours. Given the plethora of channels available, the increase is not surprising, although some people would argue that little of value is worth watching. Only Thinkers (heavy news viewers) watch close to the average number of weekly TV hours; Innovators, Achievers, and Experiencers watch far fewer hours of TV than all Americans do.
US adults' use of the internet has increased from 53% to 87%. In fact, in 2016, adults spent an average of 22 hours a week on the internet. In the past 30 days, more than three-quarters of adults spent time visiting social-networking sites; more than 90% of Innovators and Experiencers did so. For some consumers, the time they spend playing video, computer, and electronic games may also eat into time they previously spent doing other activities. In 2016, 24% of adults played video, computer, or electronic games. Innovators (35%) are more likely than any other consumer group to play.
Innovators remain the consumer group driving the marketplace from (product) acquisition to experience. As change leaders and early adopters, they seek new, different, and unique experiences in order to live life to the fullest. The rate at which the experience economy will grow will be primarily determined by the extent to which Experiencers can participate because of higher discretionary dollars. Some traditional experience-industry sectors such as adult education and travel may also grow if Thinkers' participation increases.
By design, VALS helps your company develop strategy in the experience economy, because VALS provides an in-depth understanding of the consumers who are critical to your future.
Read more: Defining Happiness to Build Brands: Experiential versus Material Happiness (July 2016) in the Why-ology Library.
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