The blossoming “experience economy” suffered a major disruption due to the COVID-19 crisis. Amusement parks closed, theaters were shuttered, and travel was curtailed. At the same time, remote work flourished and isolation became the norm. The experience economy had been building for nearly two decades prior to being disrupted. Back in 1998, B. Joseph Pine II (@joepine) and James H. Gilmore, co-founders of Strategic Horizons, wrote, “The entire history of economic progress can be recapitulated in the four-stage evolution of the birthday cake. As a vestige of the agrarian economy, mothers made birthday cakes from scratch, mixing farm commodities (flour, sugar, butter, and eggs) that together cost mere dimes. As the goods-based industrial economy advanced, moms paid a dollar or two to Betty Crocker for premixed ingredients. Later, when the service economy took hold, busy parents ordered cakes from the bakery or grocery store, which, at $10 or $15, cost ten times as much as the packaged ingredients. Now, in the time-starved 1990s, parents neither make the birthday cake nor even throw the party. Instead, they spend $100 or more to ‘outsource’ the entire event to Chuck E. Cheese’s, the Discovery Zone, the Mining Company, or some other business that stages a memorable event for the kids — and often throws in the cake for free. Welcome to the emerging experience economy.” Ironically, the pandemic created a throw-back economy in which many mothers found themselves once again baking birthday cakes. In-person experiences with merchants were replaced by online experiences. As the world looks longingly for the end of the pandemic, companies are wondering how quickly the experience economy will return. They are also puzzling over what customers will expect from them in the future. Many analysts believe artificial intelligence (AI) will play an increasingly important role in customer experience in the years ahead.
The Digital Age and Customer Experience
Pine and Gilmore observed, “Economists have typically lumped experiences in with services, but experiences are a distinct economic offering, as different from services as services are from goods. Today we can identify and describe this fourth economic offering because consumers unquestionably desire experiences, and more and more businesses are responding by explicitly designing and promoting them.” Although it’s true that some businesses are strictly designed to offer experiences, for most businesses, there is a very fuzzy line differentiating customer experience from customer service. The decades since Pine and Gilmore first started writing about the experience economy witnessed the dawn of the Digital Age and the beginnings of digital transformation for many companies. Journalist Phil Britt (@Phil_Britt) reports a survey conducted by UserTesting found, “Thirty-nine percent of companies are still in the process of digital transformation.” He adds, “Most companies are still just getting off the ground with their efforts and may not know where customer experience fits in these broader initiatives.” The pandemic added to the angst of businesses still trying to transform. Ali Amarsy, Senior Vice President of Global Product Strategy at Publicis Commerce, explains, “COVID-19 has catapulted us into the future. In 2020, global e-commerce sales growth jumped three years in the first three months of stay-at-home mandates, with a share of overall retail matching 2023 predictions. … Huge shifts in consumer behavior have left many businesses, often working in outdated systems and processes, faced with new challenges as they try to capture increased demand.”
Business consultant Kate Yuan observes, “Your customers are moving online at an exponential rate.” She also notes that most online interactions between companies and consumers are now handled using artificial intelligence. She writes, “There’s a lot of hype and promise around Artificial Intelligence tools. While many of those promises are still a long way off, customer experience (CX) is an area that can benefit from AI right now. Whether your business model is B2B or B2C, providing a highly personalized, truly exceptional customer experience is one of the most important things any enterprise can leverage AI for in 2021.” Although Yuan is correct about the value of AI in providing good customer experience, Iliya Rybchin (@rybchin), a partner with Elixirr, suggests CX should be part of a larger digital transformation strategy rather than a standalone capability. He explains, “Too many enterprises jump into CX transformation and quickly launch a number of CX transformation initiatives. While the bias for action is commendable and doing something is obviously better than doing nothing — moving forward without an enterprise strategic plan is a recipe for failure.”
AI and Customer Experience
Tech writer Sony T insists, “The most important aspect of an organization is customer experience, and it is crucial to maintain a good customer experience. Customers’ expectations from companies are gradually increasing. Thus, it is vital to improve customer experience … with the help of artificial intelligence.” He adds, “Customer retention, i.e., sticking to the company for future needs, decreases when customers experience poor services from a company. [However], when customers experience good services from a company, … they get a feeling of trust and loyalty.” Obviously, virtual customer experience (i.e., customer experience as part of the digital path to purchase) and physical customer experience (i.e., in-store shopping) can be very different, and, often, require different approaches. However, today’s consumers frequently use mobile apps as part of their purchasing experience regardless of whether they are shopping online or in-store. Rick Mallon, Head of Customer & Partner Engagement at Ericsson, explains, “Today, there are many apps that excel in using AI to enhance the customer experience. … Traditional ways of engaging with customers are becoming irrelevant; people don’t necessarily want to be on the phone to somebody. To pioneering companies, this is clear, and many [companies] are investing, acquiring and partnering to make sure they capture new opportunities to enhance the customer experience.”
Despite the fact that ecommerce continues to gain market share, people miss (and will return to) shopping in physical stores. David Johnson, Senior Vice President of retail at Quotient, observes, “Don’t let the digital embrace fool you — when it comes to shopping, consumers are bigger fans of physical retail than they may appear. Research by Coldwell Banker Commercial and The Harris Poll found that, in the year before the pandemic, 99% of consumers had shopped in a physical store. Half of those surveyed visited a physical establishment to ‘“experience’ the product before making a purchase.” He then asks an interesting question, “As we head toward more of an omnichannel approach to shopping — in which consumers shop via both physical and digital retail channels — how can brands emulate the best physical experiences in the digital realm?” Fashion sites are using virtual and augmented reality technologies to help provide virtual “physical” experiences. In other areas, AI plays less of a role, but still provides important capabilities. Johnson explains, “[Consumer goods (CGs) companies] can’t digitally stream the effectiveness of baking foil and cleaning products or even the flavors of great food, but they can convey these elements virtually. Paper brands, for example, could offer an interactive experience that allows consumers to clean up a virtual mess with their paper towel to highlight its effectiveness compared to others on the market. Candy and cookie brands could offer a digital gingerbread house tool that allows consumers to design the perfect — and most delicious-looking — food fort using their products, and then print the results to build it in real life. Visual cues can also be an effective way to bring out the senses, starting with dynamic images and high-resolution zoom features. Sound effects can further add to the experience by providing the trademark sizzle of a skillet entrée, the unmistakable fizz of cola or the refreshing splash of water. Food brands can draw upon the power of video and demonstrate the product unboxed or fully prepared, as well as recipes and other tips on how to use the product.” Johnson’s point is that customer experience, in all its forms, plays an important role in today’s business environment — and AI can help ensure those experiences are positive.
Pine and Gilmore foresaw the role innovation would play in the emerging experience economy. They wrote, “The growth of the industrial economy and the service economy came with the proliferation of offerings — goods and services that didn’t exist before imaginative designers and marketers invented and developed them. That’s also how the experience economy will grow: through the ‘gales of creative destruction,’ as the economist Joseph Schumpeter termed it — that is, business innovation, which threatens to render irrelevant those who relegate themselves to the diminishing world of goods and services.” Their vision has played out and innovative companies are learning how to use AI to enhance their customers’ experiences.
 Joseph Pine II (@joepine) and James H. Gilmore, “Welcome to the Experience Economy,” Harvard Business Review, July/August 1998.
 Phil Britt, “Moving Digital Transformation Efforts Forward, With an Eye to CX,” CMS Wire, 5 April 2021.
 Ali Amarsy, “The future of commerce is here. Are you ready?” Think with Google, November 2020.
 Kate Yuan, “3 ways artificial intelligence (AI) can improve your customer experience,” The Enterprisers Project, 3 February 2021.
 Britt, op. cit.
 Sony T, “How artificial intelligence assists in improving customer experience,” TechiExpert, 19 April 2021.
 Rick Mallon, “Transforming customer experience with AI and Machine Learning,” Ericsson Blog, 10 March 2021.
 David Johnson, “How Can Brands Bring Sensory Experiences to the World of Digital?” Consumer Goods Technology, 18 March 2021.