Sunday, March 20, 2016

The Experience Economy (Tradecraft)

“Millennials like not seeing people. I’ve been inside restaurants where we’ve installed ordering kiosks… and I’ve actually seen young people waiting in line to use the kiosk where there’s a person standing behind the counter, waiting on nobody.” -Carl’s Jr. CEO Andy Puzder
American workers are insanely productive, with US productivity growing 74% since the 1970's, while wages grew only 9%. Productivity gains clearly didn't benefit workers during that time, which is why minimum wages are being enacted to close some of that gap. While workers at minimum wage are around 4% of the workforce, when we start talking $15 minimum wages, that number includes over half the hourly workers in this country. That's going to have a huge effect on the economy.

It's clear business owners will do what they can to avoid taking big hits, but for smaller businesses, there's little they can do. At the same time, those who push for big wage increases could care less about the business road kill they leave behind. Liberals get that steely, survival of the fittest, look in their eyes, usually reserved for hardened business owners. "Some will die, and that's alright. It is the way of things. Circle of life."

Businesses like Carl's Jr. will adjust with kiosks and robots. Businesses like mine? We won't be able to afford such expensive changes. Plus, how can we possibly compete against Amazon same day delivery and big retailers with labor saving robots and kiosks? It's quite possible we even see a future without work, a move to a Star Trek like existence with a guaranteed minimum income and people doing good for the world rather than dropping another batch of fries. I believe work has intrinsic value, but I'm sure that fry cook has dreams that don't involve empty carbs.

We will survive, those of us in retail who understand the new experience economy. This is a term from the late 90's authors Pine and Gilmore use to describe the new economy following the service economy. Anyone can buy stuff online for less money and more convenience. Ask yourself why they buy from you? Why has specialty retail, game stores in particular, survived? They're not dying, their numbers are actually growing in a field that has seen clear growth over the past decade. It's because we unconsciously transitioned from a simple goods business and now run rudimentary experience businesses. Here are the stages we see from Pine and Gilmore in an experience economy:

  • commodity business charges for undifferentiated products.
  • goods business charges for distinctive, tangible things.
  • service business charges for the activities you perform.
  • An experience business charges for the feeling customers get by engaging it.
  • transformation business charges for the benefit customers (or "guests") receive by spending time there.

  • Source

    If you think of a game store as a place to buy stuff, you're thinking of it as a goods business, a place to buy distinctive things. It's passive consumption of goods. We certainly need that, but it's the model most at risk from online sales and robots. It's not particularly hard to have a store with things that people buy. Well, actually it's pretty hard, but it's nothing compared to the coordination required of a service business, which improves our competitive position and increases relevance to our customers. A service business moves from passive consumption to active participation.

    A service business is where most game stores reside right now. We sell tangible things, but we regularly hold events where we charge for our activities and customers participate. It's not a completely transformative model and for us, only about 20% of our customers participate in this way. It's only part way towards a service business transition. By the way, if your business is suffering, and you're not monetizing your game space, you're brain is stuck in the goods business and needs to kick it up a notch to the service business model.

    The higher levels, the experience and transformation business, is perfecting of the service business, becoming increasingly relevant to customer needs, which improves our competitive position. The subtitle of The Experience Economy book is "Work is theater and every business a stage." Taking your game store to this level is going to be key to survival in the age of our robot overlords. You need active audience participation in this model.

    You need to delight and entertain, and not just the 20% who engage your game space, but the full 100% of customers. We no longer employ clerks, we employ skilled theater workers. These workers not only understand the product you sell, but the experience your business is trying to provide your customers. It's more than connecting product A with customer B.

    This additional experience has somewhat been there. It's not something we're pretending to add to our businesses in this late stage. It's the intangible reasons customers shop with us now. It's your personality, your knowledge, your position as alpha in the hobby or field. This is no time to employ The 4-Hour Work Week, we need you here directing the stage. It's the opposite of kiosks and robots, it's finding ways to be increasingly relevant to your customers by creating that differentiated experience in the marketplace. Perhaps it's improving our events or adding concessions. It might include a variety of demo games that educate and delight while increasing sales substantially. We need to make that intangible, very much tangible.

    We'll need to increasingly monetize our space and our services so we can afford to improve and move in this direction. When customers won't engage your mode, they're simply not your customers. A growing market means you can turn them away. Those competitors who give away their performances for free or less than their market value need to be seen as the enemy, at least until wage increases crush them under foot. If there's an upside to an increasing minimum wage, it's that those who can't or won't adapt to the experience economy will fail, providing us a small opening to take our businesses to this next level.

    With hobby games becoming more mainstream, increased competition from big box and online and wage pressures hitting the smallest stores the hardest, not every store will be around to run a transformation business. A transformation business will include too many moving parts at too high a cost for the survival of the average Magic shop with some Magic boxes and sea of Costco folding tables (a service business model). As wages rise and businesses automate, service businesses will quietly fold or adapt to the transformation business model. As there's no guide to such a transformation, it won't come easy.

    At least that's what I'm thinking about this week.

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