Sunset in Santorini,
originally uploaded by Larry Cornett.

So many of us love a cup of coffee in our favorite cafe, but I don’t think many would call that a “transformational experience”. However, having a cup of coffee in a small cafe on the edge of the caldera at sunset in Santorini? Yes, a transformational experience that created a memory that I will never forget. What price do you put on such a cup of coffee?

The book “The Experience Economy” briefly mentions a key example that helps explain how a simple good can be economically transformed into an experience for which a customer is willing to pay one thousand times more. The following table outlines this transformation for the simple coffee bean.

We all know that a cup of coffee prepared at home is much, much cheaper than buying a coffee drink at your favorite cafe. Yet, every day so many of us are willing to stand in long lines and pay much more to have that drink prepared for us. Why? In some cases, it is for the service. Replicating the perfect cappuccino at home is no easy task. However, often people are seeking the experience provided by having that cappuccino in the cafe atmosphere. Enjoying the music, watching people, and meeting new friends are all part of the experience you quite willingly pay for.

Starbucks certainly understands this and that has been a key component of their amazing success. In the book “The Starbucks Experience” Joseph Michelli describes 5 key principles for creating a business that delivers an extraordinary experience for its customers:

1. Make it your own
2. Everything matters
3. Surprise and delight
4. Embrace resistance
5. Leave your mark

On page 11 there is a section that captures how important they realized a holistic experience was in converting a loyal customer:

“…the ambience of the store must be inviting; the store must be a place where a person will feel comfortable hanging out alone or with friends. This setting, often reffered to by Starbucks partners as the ‘third place,’ must capture a unique warmth that sets it apart from the first two places in most people’s lives: work and home.”

Consistently offering customers positive (and sometimes even transformational) experiences has been a big part of what makes Starbucks work. Even if you aren’t a fan of the chain, you have to admit they have had phenomenal global success. They get it.

Commoditization. It happens in every industry as it matures. As companies struggle to compete and differentiate themselves, they succumb to pricing pressure and feature wars. We’ve all seen it happen with both goods and services. And, we’ve seen it happen in the technology industry too. Software with even more features than the competitor with the requisite feature chart on the back of the box. Internet access pricing being driven down to almost “free” levels. Web hosting for absurdly low monthly fees with an ever-increasing set of available features.

So, what is a company to do? Well, some have spent time understanding their customers and what it is that creates loyalty. Those companies have learned that earning the loyalty of a customer goes way beyond offering the lowest prices or the most features. In fact, loyal customers will often spend more for less. As a very loyal customer of Apple Computer, I can attest to that. Why? Because we value the holistic experience of that brand and what it provides us.

An excellent book on this trend is “The Experience Economy” by Pine and Gilmore. Published many years ago, it foretold this current shift to more and more compelling experiences to win loyal customers. The following chart shows this trend as we move from an economy of goods and services to one where companies differentiate themselves through what they call “transformational experiences.”

I can personally speak to this shift, as I have experienced it during my current trip to Bangalore India. I have flown on a number of airlines during my career, but only a few airlines have stood out from the crowd and inspired my loyalty. Yes, they all try to compete on price, services, and destinations. But, only a few seem to really understand the value of the in-flight experience. Many claim that they do, but they fail to actually deliver a complete end-to-end experience. To name only one airline that I feel has succeeded: Singapore Airlines. They get it. The attendants are amazingly friendly and attentive. The food is excellent (for an airline). The seats are very comfortable, with a full recline that allows actually sleeping. And, their entertainment system is expansive. I always end up watching way too many movies on my international flights with them. So, when given the opportunity, I select Singapore Air every time. Not always the cheapest and not always the most convenient, but the experience makes it worth it.

I cannot begin to cover this topic as deeply as the book below does, so check it out for yourself. The main take away? The world is changing, as it always does. If you find yourself competing on price and features, as many of us have been, you’re behind the curve. The key is going to be understanding, really understanding, what your customers need and what will inspire their loyalty. Understanding that will allow you to offer a complete end-to-end experience that will change the game for you.