The term Experience Economy was first used in a 1998 article by B. Joseph Pine II and James H. Gilmore describing the experience economy as the next economy following the agrarian economy, the industrial economy, and the most recent service economy. The concept had been previously researched by many authors.
Pine and Gilmore argue that businesses must orchestrate memorable events for their customers, and that memory itself becomes the product -- the "experience". More advanced experience businesses can begin charging for the value of the "transformation" that an experience offers, e.g., as education offerings might do if they were able to participate in the value that is created by the educated individual. This, they argue, is a natural progression in the value added by the business over and above its inputs.
The Experience Economy is also considered to be the main underpinning for customer experience management.
This customer behavior in the society has been acknowledged by various authors. An early example is the book of Alvin Toffler, Future Shock, which Pine and Gilmore quote in their work. In 1971, Toffler criticized how "economists have great difficulty imagining alternatives to communism and capitalism", and how they could only envision the economy in the terms of scarcity of resources. He talked about the upcoming "experiential industry", in which people in the "future", would be willing to allocate high percentages of their salaries to live amazing experiences. Later in 1982, Holbrook and Hirschman's pioneering article "The Experiential Aspects of Consumption: Consumer Fantasies, Feelings, and Fun" in the Journal of Consumer Research (Vol. 9, #2), discussed emotional experiences linked to products and services.
Then in 1992, the German sociologist Gerhard Schulze argued for the idea of the "experience society" in his book "Erlebnisgesellschaft", which was translated into English as "The Experience Society" in 1995. In 1999, it was renamed "The Experience Economy" in The Dream Society by Rolf Jensen of the Copenhagen Institute for Futures Studies, which contained many of the same ideas.
A core argument is that because of technology, increasing competition, and the increasing expectations of consumers, services today are starting to look like commodities. Products can be placed on a continuum from undifferentiated (referred to as commodities) to highly differentiated. Just as service markets build on goods markets which in turn build on commodity markets, so transformation and experience markets build on these newly commoditized services, e.g. Internet bandwidth, consulting help.
The classification for each stage in the evolution of products is:
Proceeding to the next stage more or less requires giving away products at the more commodified level. For instance, to charge for a service such as new car warranties, one must be prepared to give away new cars to replace "lemons". And to charge for transformations, one must be prepared to risk not being paid for the time one spends working with customers who don't "transform".
Pine and Gilmore's thesis has been criticized as an example of an over-hyped business philosophy arising from or in the dot-com bubble and a rising U.S. economy that was tolerant of high prices, inflated claims, and no limitations of supply or investment. Detractors contrast it with other service economy theses such as Natural Capitalism, in which there is a clear focus on making measurably better use of scarce resources, usually considered to be the basis of economics. They claim service management should stress efficiency more than effectiveness.
The thesis has also been criticized from within the fields of tourism, leisure and hospitality management studies where theories as to the role of experiences in the economy were already well established prior to the work of Pine and Gilmore but were not acknowledged by Pine and Gilmore in their work. Although continuing to influence business thinking the concept has already been superseded within much service marketing and management literature by the argument that the value of all goods and services are co-created or co-produced through the interaction of consumers and producers. Therefore, at one level of abstraction all consumption can be understood in experiential terms.