Why Experience Marketing Pays
By creating marketing “experiences,” companies generate new demand for core offerings.(originally published by Booz & Company)
As Peter F. Drucker rightly articulated in The Practice of Management (Harper, 1954), “The aim of marketing is to make selling superfluous.” To this we add: The aim of experiences is to make other forms of marketing superfluous.
By creating marketing “experiences” — compelling and frequently offbeat physical or virtual places designed to attract new customers and rekindle the interest of existing customers — companies generate additional demand for core offerings. The experience itself may be poles apart from the company’s core manufacturing or service business, but it becomes the entrée for a relationship and host of potential transactions.
Indeed, many companies that understand the principle that the experience is the marketing — among them American Girl Inc., Starbucks, and Recreational Equipment Inc. (REI) — find that their venues create so much goodwill (and so much economic value) they completely forgo, or do very little, traditional advertising. Moreover, some of the most innovative and successful efforts at marketing experiences actually generate enough revenue to pay for themselves.
Consider the strategy implemented by ING Direct, a retail bank with no physical branches — it conducts all transactions via Internet, phone, and mail. To promote its banking business among potential new customers, ING Direct opened a café in midtown New York. It serves coffee in a pleasing environment, with a comfortable lounge where patrons can read the financial newspapers, watch the markets’ movements on plasma screens, use the complimentary Internet access to check their portfolios — or simply chat with friends or people-watch.
Surprisingly, customers can’t perform financial transactions in the ING Direct Café. Yet this single “branch” yielded more than $200 million in new accounts and mortgages within a year of opening. ING Direct realized that financial services had become so commoditized that an engaging experience was the best way to expose potential customers to its financial offerings.
The ING Direct Café, though, isn’t a freebie. The company charges Starbucks-like prices for its coffee, tea, biscotti, and other pastries — prices that people are more than willing to pay because the experience itself is so desirable. And although ING Direct won’t reveal the finances of its café operations (it’s repeating the success of New York with openings in Philadelphia and Los Angeles), our observations persuade us that the company covers the cost of its marketing experience, and almost certainly makes a profit.
Another example: The outdoor equipment retailer REI, a pioneer of in-store experiences, created a flagship location in its hometown of Seattle, complete with a rock-climbing wall, a bicycle track, walking trails, and other amenities that enable customers to experience the gear before they buy it. This was so successful that the company built other experience-based outlets, including a Minneapolis store with a cross-country ski trail and one in Denver with a kayaking experience. Both of these stores also have 55-foot-high climbing walls. The company charges customers who are not members of its cooperative to use the climbing wall (members have already paid a $15 initiation fee). Moreover, REI’s suppliers pay for all the equipment and accessories, so REI’s marketing experiences do not cost the retailer anything.
Perhaps the most successful company at building a marketing experience for its customers is American Girl, a unit of Mattel formerly known as the Pleasant Company. Its American Girl Place, first in Chicago and now in New York just down the street from the ING Direct Café, charges its primary customers — parents and grandparents with their daughters or granddaughters — $25-plus a head for a 70-minute live production in the American Girl Theater. Visitors pay $16 and up for “grown-up dining experiences” at its own American Girl Cafe; the one in New York, although open only since November 2003, is already a hot spot with a four-month waiting list. Other fee-based experiences include photo shoots (complete with a copy of American Girl magazine with the girl’s picture on the cover), a doll hair salon, and a doll hospital.
Visitors spend scores of dollars — often a hundred or more — just for the experiences. And they spend hours, often four or more, in American Girl Place shopping for branded dolls, clothing, books, and other accessories as memorabilia of their experiences.
As a start in creating such self-funding marketing experiences, companies should consider carving out 20 percent of their public relations and advertising budgets for physical experiences. Companies should also use traditional creative resources differently. Don’t view internal marketing talent or external agencies as support solely for advertising campaigns. Rather, realize that these are the very people who can design the most creative experiences that drive demand for your company’s offerings.
Think of some of the highly imaginative advertisements of the past few years. Instead of just creating those wonderful youth-dancing commercials for Gap Inc., for example, what if Gap’s ad agency had been contracted to conceive, design, and roll out a compelling dance club experience where kids paid to learn swing dancing and show off in their khakis? What if Nike’s incredibly creative talent were used not just to put those basketball-passing, sneaker-squeaking, breath-exhaling commercials on the air, but to design real basketball experiences on courts that customers actually used in its Niketown stores? The company could really make good on its famous slogan, “Just do it.”
Physical experiences should also be connected to virtual ones. For example, REI effectively integrates its Web site, www.rei.com, into its retail channel. Store personnel show customers how to use the Web site on PCs in the stores, and online presentations drive people to the company’s physical outlets, where they can even pick up merchandise they ordered online. REI has found that people who use both channels are usually their best customers.
When companies create compelling, engaging, and memorable experiences, customers gladly pay for them — and the companies can recoup their investments. Or, put another way, with no outgoing marketing expenditures, but rather cost recovery or even profits, the denominator in the return on investment equation is zero, yielding infinite ROI on the marketing budget.
By providing the experiences consumers want today, companies can forestall the forces of commoditization and reap the economic rewards.
B. Joseph Pine II (bjp2@StrategicHorizons.com) cofounded Strategic Horizons LLP, based in Aurora, Ohio. He is the author of Mass Customization: The New Frontier in Business Competition (Harvard Business School Press, 1993) and the coauthor, with James H. Gilmore, of The Experience Economy: Work Is Theatre & Every Business a Stage (Harvard Business School Press, 1999).
James H. Gilmore (jimgilmore@StrategicHorizons.com) cofounded Strategic Horizons LLP and coedited, with B. Joseph Pine II, Markets of One: Creating Customer-Unique Value through Mass Customization (Harvard Business School Press, 2000).