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What is the transformation economy?

Explore how the latest decades of economic growth, technological development, and globalization have led to the surge of the transformation economy.
Man looking thoughtful.

Further to the concept of the experience economy defined by Pine and Gilmore in 1998, the latest decades of market dynamics, economic growth, technological development, and globalization have led to the surge of the transformation economy as the next level after the experience economy.

As previously mentioned in this course, Pine and Gilmore had described product innovation in consumer markets as a multi-staged “progression of economic value” from commodities to goods, to services, to experiences, and more recently, to personal transformations – where a better consumer becomes the product. Investing in one’s self-development has become central to consumer desires, particularly in the wealthier market segment. How good is owning a vast amount of wealth if you cannot be the best version of yourself to enjoy it? A critical element that distinguishes the idea of transformation as the next level from experiences is that once you further customize experiences, you make them more personalized, delivering what a customer desires over time more accurately, creating the opportunity for the customer to feel transformed. Customers start consuming personalized experiences suitable for their most personal needs and manage to change what means most to them and become a whole new person. Topics such as longevity and health are examples of transformative experiences and self-actualization aspirations.

The importance of personalization and further innovation of transformational experiences comes from an interesting aspect highlighted by Pine & Gilmore: when economic activity shifts away from goods and services, the brands that stage experiences alone – without considering how these experiences can change customers – will eventually see their experiences become commoditized.

If we look at the current market conditions, experiences are in many sectors of the economy: movies, sporting events, music festivals, art galleries, video games, corporate briefing centers, trade shows, tourist attractions, hotel resorts, wellness, and membership clubs, and the list goes) that together comprise the experience economy.

As we see from Pine and Gilmore’s graph, companies create offerings more relevant to the wants and needs of individual customers, differentiate their goods and services from the pool of relevant competitors, and thus increase the value provided and, therefore, the price charged to customers. Furthermore, while commodities, goods, and services all exist outside the individual customer, experiences happen inside them. The experience stager effectively reaches inside customers with the sensations, impressions, and performances they orchestrate together to engage each customer and create a memorable event. That’s why customization is so necessary to experience staging.

And what is mass customization?

Mass customizing is not about being everything to everybody, which would be a definite way to increase costs. Instead, it means producing only precisely what individual customers want.

When we look at consumer spending, more than half of the money spent on luxury items is spent on luxury experiences. And a large part of that spending is in luxury transformations: people looking to unwind and recharge, revitalize, or improve their life span somehow.

According to the Global Wellness Institute, the market for wellness tourism alone, which includes activities like yoga or meditation retreats, continues to grow over the years faster than standard tourism globally.

The Transformation Economy conceptual diagram. From Joseph Pine (2013) as a further enhancement to Pine and Gilmore's 1998 work. The graph has two Y axes and one X axis. The left-hand Y axis is labelled 'Competitive Position', going from 'Undifferentiated' at the bottom to 'Differentiated' at the top. The right-hand Y axis is labelled 'Needs of Customers', going from 'Irrelevant to' at the bottom to 'Relevant to' at the top. The X axis is labelled 'Pricing', with 'Market' on the left and 'Premium' on the right. The graph shows that as you go from extracting commodities, to making goods, to delivering services, to staging experiences, to guiding transformations, Pricing goes from Market to Premium, the Competitive Position becomes more Differentiated and it's more Relevant To the Needs of Customers.

With reference to the above image, what else do you think will drive loyal customers in the future?

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The Global Luxury Industry: From Heritage to Modern Customer Experiences (CX)

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