HOW TO ADD VALUE TO PRODUCTS: THE EXPERIENCE ECONOMY PERSPECTIVE - DIVA
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Master Thesis
How to add value to products:
the experience economy
perspective
A research on how companies could add value to
their products using the experience economy
Authors: Lina Abu-Sbiekh, Anton
Boiarshinov, Pavel Ordenov
Supervisor: Frederic Bill
Examiner: Dr. Åsa Gustavsson
Term: VT20
Subject: Master Thesis in Business
Administration
Level: Master
Course code: 4FE25E
Acknowledgments
We would like to say thank you to all the people who helped us throughout this
year of studies for being helpful, responsible and willing to assist. We would
also like to thank EHVS professors who provided us with a great amount of
knowledge on entrepreneurship, business administration, experience economy
and many other significant disciplines and who contributed to our analytical
and critical thinking skills.
What is more, we would like to thank Frederic Bill for being our tutor during
this project. We are grateful for his assistance in providing us with efficient
tutoring sessions, generating and helping to generate outstanding ideas that
made this paper more structured and engaging for readers.
Finally, we would like to thank Åsa Gustavsson for being our examiner, for
organizing communication and opposition seminars, thus, providing vital
feedback and by all means helping us to increase the quality of this paper.
28th of May, Växjö, Sweden
Lina Abu-Sbiekh Anton Boiarshinov Pavel Ordenov
2
Abstract
Nowadays the world is on the verge of another significant migration of value,
the value for corporate world is shifting from providing services to staging
experiences for customers. Since it is vital to understand the main
characteristics and components of the impending environment, this research
is carried out. It is aimed at determining the main elements of the experience
economy that could add value to products and the way modern retail
companies apply these instruments within their strategies. The purpose of this
paper is sufficiently fulfilled by qualitative analysis of three companies from
the clothing industry - Benetton Group, Nike, Louis Vuitton. In the paper co-
creation, gamification and digitalization are identified as the main instruments
of the experience economy that could lead to greater value of the products and
additionally contribute to other companies’ brand performance criteria as
brand loyalty and brand awareness. Furthermore, the study provides
discrepancies between retail companies from the clothing industry in terms of
implementing experience economy instruments depending on their market
segment, strategy and specialization.
Key words
Experience economy, Types of experience, Co-creation, Gamification,
Digitalization, Retail industry, Clothing, Nike, Benetton Group, Louis
Vuitton.
3
Table of contents
Acknowledgments ......................................................................................... 2
Abstract .......................................................................................................... 3
Key words ...................................................................................................... 3
1 Introduction............................................................................................ 5
1.1 Background ...................................................................................... 5
1.2 Problem discussion........................................................................... 6
1.3 Purpose ............................................................................................. 8
1.4 Research questions ........................................................................... 8
2 Methodology ........................................................................................... 9
3 Theory section ...................................................................................... 14
3.1 Defining experience economy ........................................................ 14
3.1.1 Theory of experience economy ............................................... 14
3.1.2 Types of experiences ............................................................... 17
3.2 Value-creating instruments of the experience economy ................. 19
3.2.1 From mass customization to co-creation ................................ 19
3.2.2 Digitalization and Gamification .............................................. 24
4 Empirical section ................................................................................. 30
4.1 Description of Benetton Group S.R.L. ............................................ 30
4.2 Description of Nike, Inc.................................................................. 34
4.3 Description of Louis Vuitton company ........................................... 38
4.4 Comparative analysis of companies ............................................... 41
4.4.1 Market segments ..................................................................... 41
4.4.2 Types of experiences ............................................................... 42
4.4.3 Co-creation approach analysis ................................................ 43
4.4.4 Digitalization approach analysis ............................................. 45
4.4.5 Gamification approach analysis .............................................. 46
5 Discussion ............................................................................................. 48
6 Conclusions........................................................................................... 51
7 Project limitations and further research ........................................... 53
8 Reference list ........................................................................................ 54
Appendices ................................................................................................... 61
4
1 Introduction
1.1 Background
The economy is experiencing another migration of value. In the pre-industrial
era the main added value was created in the production of raw materials; in the
industrial era – in the production of goods; at the beginning of the post-
industrial revolution the added value flew into the service economy.
In the conditions of increasing importance of global digitalization of all aspects
and activities of modern society, the role of added value as a competitive
advantage of a country, region, or organization in the international arena is
getting more significant. The higher the added value created in the process of
production and sale of goods or services is, the more efficient the business
entity's activities are.
The value added is the increment of the value of a product or service created
by an enterprise to the value of material resources used by it in the production
of goods or services (Kenton, 2019).
The theory of value added originates from the English scientist Adam Smith,
who laid the foundations of the labor theory of value, releasing his main work
"The Wealth of Nations" (Smith, 2007). He assumed that added value
consisted of wages, profits and taxes and could be calculated by subtracting
intermediate consumption from total production.
It is the subjective interpretation of value that creates prerequisites for the
search and justification of new theories in the economy - the commodity
economy, the service economy, the economy of experience. When the
mechanism linking the traditional business model and the structure of
consumer priorities becomes outdated, the migration of values begins. Values
begin to flow from staling models to new ones that are better able to meet the
5
most urgent needs and requirements of customers and at the same time take
into account the interests of stakeholders.
Value as an object of entrepreneurship flows into the sphere of emotions,
mental life or some sort of an experience which becomes an offer for
businesses and a certain need for their customers, which they are willing to
pay for (Cheng-Hsueh, 2019).
Therefore, it is relevant to mention the migration of value from service
economy to the economy of experience.
1.2 Problem discussion
The move towards the experience economy brings along new ways of adding
value to products. The concept of experience economy is rather new - it was
introduced in 1998. Nevertheless, in today`s competitive and rapidly
developing world it is not enough to lean on original drivers of experience
economy which are the following (Pine & Gilmore, 2014):
• Mass customization;
• Charging for experience;
• Work as a theatre;
• Fusing digital technologies with reality.
These drivers should be evolved and further developed. Moreover, they are
often criticized for not paying enough attention to customers in general and to
co-creation in particular (Prahalad & Ramaswamy, 2004), that is why we
believe that co-creation should be definitely added to the instruments of the
experience economy as a logical following of mass customization instrument.
Furthermore, a lot of companies try to attract customers with their emotions,
making the process of experiencing a product more grasping and fruitful by
introducing different profiles, levels, bonus cards, etc. All these are elements
6
of gamification and digitalization that are not just fusing digital technologies
with reality, but transferring most of customers data and life into virtual world.
That is why we also focus on gamification and digitalization as parts of the
experience economy.
Despite experience economy methods to reach customers, companies apply
lots of other methods, such as increasing brand loyalty, brand awareness to
increase acknowledgment of a brand in the world and keep customers from
switching to rivals. These are also extremely useful technics to add value to a
product.
At the same time in order to make our paper clearer we want to avoid
controversial and fuzzy aspects such as Charging for experience and Work as
a theatre.
On the one hand, charging customers, or guests, as it is said in Pine and
Gilmore’s book (2011) is one of the main instruments of the experience
economy - the idea is to make guests pay for the experience they get inside the
shore. But on the other hand, nowadays it would be amiss to pay a fee in order
to enter a shop. Nevertheless, it is possible that in the nearest future managers
responsible for customer attraction might be researching the possibility of
introducing an admission fee to the shopping malls (Richards, 2001). But for
now, this concept is too controversial, so we decided not to include it to our
analysis.
The second instrument of original experience economy we do not apply in our
degree project is Work as a theatre as it is too fuzzy and relies mainly on a
certain company’s culture that is very complicated to assess.
Pine and Gilmore (2014) identify enhancing services and creating work as a
theatre as another value-creating opportunity for a company to improve its
products, services and increase its profits. The underlying idea here is that
employees should represent their company in a suitable manner that would fit
7
the ensemble. They should not focus only on their aims, their actions must
create a positive company`s image in total (not a group of individual
performances).
All in all, it would be challenging to analyze in the paper whether this
economic driver is vital, so we decided to include more tangible and assessable
variables such as Mass customization and co-creation and Fusing digital
technologies with reality on example of digitalization and gamification.
We believe that our paper would be useful for business world in terms of
providing more information about experience economy concept and its main
instruments. Furthermore, we also provide an empirical analysis on how
companies from different clothing segments apply these instruments to add
value to their products. To achieve these results in this paper the following key
aspects of experience economy are studied: mass customization and co-
creation; gamification and digitalization.
1.3 Purpose
The purpose of this paper is to identify instruments of the experience economy
that could be used to add value to products and analyze how modern retail
companies implement these instruments within their business activities.
1.4 Research questions
In order to fulfill the above stated purpose, the following questions have been
raised in this paper:
1) What instruments of the experience economy could be used to
add value to products?
2) How could modern retail companies from different segments of
clothing industry implement co-creation, gamification and digitalization
within their business approaches?
8
2 Methodology
There are two opposite scientific perspectives in the literature – positivism and
hermeneutics (Bryman & Bell, 2019). However, for our thesis we have chosen
another philosophical position –realism – since it suits our goals and our
perception of this research the most. In fact, realism and positivism share two
features: 1) a belief in existence of external reality studied by scientists; 2) an
opinion that the natural and social sciences should use the same methods to
collect and analyze data. Nevertheless, unlike positivists, realists argue that
scientists` definition of reality is nonobjective and is subject to preconception.
What is more, realists are convinced that they can build their beliefs upon
theoretical terms and concepts compared to positivists who regard theory as a
supplement to prediction. In our paper we want to study experience economy
as an instrument for adding value to companies` products and to investigate
what are the benefits for companies to implement this approach within their
strategies. We would also like to study how different authors describe
experience economy and use appropriate theories to back up our results. Thus,
we share realistic scientific perspective which “asserts that, through the use of
appropriate methods, reality can be understood” (Bryman & Bell, 2019, p.17).
Scientific approach that we rely on in our thesis is deduction. We begin our
research with identifying a concept of adding value to products, then we view
various types of adding value and after that we focus on one of them – the
experience economy. In our thesis we have an explicit theoretical basis, we
start to analyze how the experience economy can be applied to the real
business world and what benefits companies can get from using it. Compared
to inductive approach where “theory is the outcome of research”, the result of
our research process is the findings and observations we manage to find out
(Bryman & Bell, 2019, p.13).
9
In our paper we analyze a small sample of companies, that is why in order to
study the elements of experience economy within enterprises` strategies and
their impact on business activity, we have decided to focus on qualitative
research strategy. The main difference between qualitative and quantitative
types is that “quantitative researchers employ measurement and qualitative
researchers do not” (Bryman & Bell, 2019, p.26).
Another important aspect in our methodology is data collection. Here it is
crucial to mention the research design and research methods we based our
paper on. According to Bryman and Bell (2019, p.41), a research method is
“simply a technique for collecting data”. Before selecting a research method,
the research design must be chosen as it “guides the execution of a research
method” (Bryman & Bell, 2019, p.41). In our case we have decided to follow
the comparative design because in order to fulfil our purpose, we need to
investigate how experience economy is integrated within several companies
and to compare the results.
Our main sources for data collection are books, articles, companies` reports
and official websites, therefore, we mainly focus on secondary data. While
looking for articles, we set some inclusion criteria – they should have been
peer-reviewed and written in the English language. We searched for them at
the university`s library search engine OneSearch and also in Google Scholar.
These two search engines are reliable and trustworthy, consequently, the
information we managed to gather is of good quality. Moreover, the articles
we found “had gone through a process of double-blind peer review” (Bryman
& Bell, 2019, p.90), therefore, they had been approved for publication by
experts in the field and could be regarded as appropriate sources for the
research.
Another way to find relevant literature is to use “the snowball method” (van
Aken, et al., 2018, p.179). We checked reference lists in the articles we studied
10and identified the most significant authors and the most frequently used
articles in the field of the experience economy.
As for the websites, we use a lot of companies` official pages and various
online magazines. We make sure that all of them are credible sources of
information, that is why we are convinced that all the received data is of high
quality.
We believe that this method of data collection suits our paper the most because
we can get a huge amount of information about types of adding value to
products, the experience economy as one of them and its integration within
companies` work in a relatively short period of time and free of charge.
The sampling method for our paper is rather simple. We select 3 well
established companies/brands that are involved in the experience economy in
the retail sector. To make our paper more representable we use companies
from different segments of clothing industry. Also, we include established
companies from different markets to make a comparative analysis of how
business world in different environment applies the experience economy
methods and to compare the results of its application.
After collecting necessary information, we analyze it. We use comparative
analysis since we revise the gathered information and organize it in the way
that would suit our purpose and research questions the best. Moreover, we
identify similar patterns in companies` behavior and therefore, manage to find
the most effective strategies and approaches that companies can adhere to
within the concept of experience economy in order to add value to their
products (Dudovskiy, 2018).
To ensure scientific credibility of our thesis, we check the reliability and
validity of the qualitative measurement process. Reliability implies that the
results of the research would be relevant over time and that they are free from
a subjective judgement (Bryman & Bell, 2019). In our thesis we study different
11views on the same issue, therefore, we manage to form an objective opinion
on types of value added especially the experience economy and the outcomes
of its implementation within companies. As for validity, it shows “whether or
not a measure of a concept really measures the concept” and in our research
we focus on construct validity (Bryman & Bell, 2019, p.159). Thus, in order
to reach the purpose of our thesis we analyze the relevant theory on value
added, base our research on it and then try to develop the theoretical ideas by
using our research results.
In order to assess credibility of the qualitative data, such criteria as
trustworthiness and authenticity are used. All articles and books we use are
trustworthy since we use relevant search engines and even set some inclusion
criteria for them. The websites and reports we base our thesis on are also
reliable sources of information because we use only official statistics and web
pages of companies. Moreover, the research is authentic since we manage to
reflect upon different viewpoints on the same concepts (Bryman & Bell, 2019).
Also, we would like to point out that our thesis conforms to main ethical
principles that are used to work with data published online. Therefore, we
adhere to “netiquette” (Bryman & Bell, 2019, p.669) - we follow the policies
and data protection legislation recognized by online communities and
appropriate institutions – we do not use any private
statistics/messages/posts/discussions, we only use the information published
on companies` official websites or in their official reports.
To summarize the methodology part, we use the following instruments in our
paper:
• Scientific perspective: realism;
• Scientific approach: deduction;
• Research strategy: qualitative;
• Research design: the comparative design;
12• Research method: secondary data analysis;
• Sampling method: 3 retail companies/brands from different segments
of the clothing industry;
• Data collection: secondary data, books, articles, companies` reports
and official websites found in search engines or with the help of the
“snowball method”;
• Analysis method: comparative analysis;
• Scientific credibility: qualitative data we use is reliable, valid,
trustworthy and authentic;
• Ethical considerations: in the thesis we conform to principles of
“netiquette”.
133 Theory section
3.1 Defining experience economy
3.1.1 Theory of experience economy
As we have discussed in the introduction, every economic shift is correlated
with the migration of value. According to Pine and Gilmore (2013, p.25),
“every economy is defined by its predominant economic offering: what a
buyer obtains from a seller in exchange for money”. The difference between
various economic types could be illustrated with the following figure (Figure
1):
Figure 1. The progression of economic value
Source: Pine & Gilmore, 2011, p.111
It is clear from the figure that every economy type provides its own values for
customers. This idea could be explained even by using coffee as an example.
In agrarian economy coffee was grown and sold as a commodity, there were
no other instruments or options to create anything more than that. The only
difference between various kinds of coffee could be a place where it had been
grown, weather conditions, etc. Then customers’ needs developed, people
became more sophisticated and pickier and the economy had to shift to the
14goods instead of commodities. Entrepreneurs were not trying to sell coffee
beans anymore; they developed their supply into goods such as packs of coffee
and other products. In that case they could add more distinctive features to the
goods, thus adding more value to them and making them more adjusted for
customers.
The following step after the industrialization and mass production of goods
was the development of services and another shift in the economy. What at
first was seen as “unproductive labour” (Smith, 2007) became a major part of
economy for every developed country. That migration of value was also
connected with a desire of businesses to increase sales of their products and
meet the needs of customers.
Nowadays we are experiencing another economic shift which was described
by Pine and Gilmore more than 20 years ago. That is the shift to the experience
economy.
In this paper we focus a lot on a concept of the experience economy, thus we
believe it is important to provide a complete understanding of this
phenomenon and show it from different perspectives. So, what is the
experience economy? This term appeared in the scientific world in 1994 when
Pine and Gilmour published their first book on this topic (Pine and Gilmore,
2013).
In their book “The Experience Economy” Joseph B. Pine and James H.
Gilmore assume that experience is the fourth economic proposal, which is as
strikingly different from services as services from goods (Pine & Gilmore,
2011). The consumer is willing to pay for their own feelings and sensations.
The main goal of any enterprise at this step is to establish a strong emotional
connection with a consumer.
As it was mentioned before, services as well as goods are related to
impressions. When using a service, the consumer experiences certain
15emotions. If the experience was strong enough, the client would love to use
this service again, thus it is an important source of increasing loyalty (Pine &
Gilmore, 2013)
Marketers claim that the interaction of the customer and supplier has been
transformed due to the decreasing influence of traditional advertising,
increasing consumer awareness and independence. In an era of healthy
egocentrism, a product or service must be as personalized and unique as
possible in order for it to find its buyer. When all the products and services are
available on the market and can be obtained in many different places,
companies which are not using the experience economy approaches risk to
lose loyalty of their customers (Prahalad & Ramaswamy, 2004).
The class boundaries of consumption are blurred. As goods are available in
various price categories, the modern consumer cannot be attracted by
commoditized goods and services any more, he/she follows their psycho-
emotional desires and seeks to satisfy the needs of a higher order from the field
of emotions and impressions. As the basic physiological needs are met, the
need for security, belonging, and respect, the need for the upper stages of the
Maslow pyramid grow: cognitive, aesthetic, and self-actualization needs are
to be satisfied. The experience economy is a natural stage of development that
corresponds to human psychology (Rampen, 2013).
The experience economy is regarded by Pine and Gilmore (2011) as a new
stage after a service economy and they see it as a logical development of global
economy (Figure 1). They explain that with the development of technologies,
digital revolutions, customers have become more and more sophisticated, they
obtain more information about any product and expect from businesses more
openness and transparency towards them (Prahalad & Ramaswamy, 2004).
That is why it is important to create a connection with the customers and be
able to maintain it not only through good quality services but also through the
experience customers get from the products.
163.1.2 Types of experiences
Pine and Gilmore (2011) suggest the following figure (Figure 2) while
discussing the types of experiences. They identify 4 experience realms that are
formed by the intersection of two axes. The horizontal axis characterizes guest
participation that can be either passive or active depending on whether
customers can directly affect the performance or not. As for the vertical axis,
it reflects the connection between the customer and the event and there are two
ends of the spectrum – absorption (a customer gets the experience from the
outside) and immersion (a customer is physically a part of the experience). As
a result of axes` crossing, the “4Es” can be defined – entertainment,
educational, escapist and esthetic.
Figure 2. Experience realms
Source: Pine & Gilmore, 2011, p. 46
Entertainment – customers passively absorb the experiences with the help of
their senses, for example, while listening to music or reading a favorite book.
This type of experiences is considered to be the oldest one and the most
familiar to people.
Educational – unlike the previous type, it implies customers` active physical
or mental participation in the experience while at the same time absorption of
the events that evolve in front of them. Here great examples would be a session
17with a personal trainer or an interactive class (the one where the focus is on
communication between a teacher and a student rather than on strict
obedience).
Escapist – it is the “polar opposite of pure entertainment” (Pine & Gilmore,
2011, p. 49). Here customers completely immerse in experiences by taking an
active part in them. Such experiences help people to escape from reality and
find themselves in totally new surroundings. It can be an online chat, a video
game or any other simulator that brings customers to an alternative reality and
enable them to influence it.
Esthetic – customers are immersed in the event but they neither affect nor
change it. They get fascinated by being in a specific place, for example, they
might get impressed by the views, history and architecture sitting at the Caffe
Florian in Venice (the oldest coffeehouse in the world). The same would apply
to Disney shop where customers can listen to music from Disney movies, see
nicely painted themed walls and enjoy the décor.
In general, the following conclusion can be made – participants of an
entertainment experience are eager to enjoy, of an educational experience – to
learn, of an escapist experience – to do/go and of an esthetic experience – to
just be.
Fiore et al. (2007) continue the research on types of experience economy and
identify 4 groups of techniques that companies should use to enhance
customers` experiences. Authors propose a classification of “4Ps”:
• People – the way companies interact with their potential customers.
For instance, if guests can watch a chef impressively cooking a meal
right in front of their table, it would leave them with a myriad of
emotions and they would come again to the same place to get immersed
in this kind of experience.
18• Product Presentation – the sales of goods and services must be thought
through in a precise way. Managers must take into account every little
detail – how the goods are displayed or packaged, how exactly the hall
should be illuminated and what scents should be present there. Every
detail matters because it can either attract or repel a potential customer.
• Promotion – any form of advertising should be accompanied by a
special detail that differentiates a company from its competitors. For
example, a hotel brochure tells a mysterious story about a strangely-
shaped tree in its garden.
• Properties – the way that interior, architecture and the landscape are
presented by a company. Customers` experience can be affected even
by some exterior elements like the colors and the style of a signage or
the name of the company itself.
These 4Ps are based on categories that were offered by Schmitt and Simonson
(1997). After identifying them Fiore et al. (2007) analyze 4Es and 4Ps and give
examples of how each of 4Ps can positively affect each of 4Es.
It must be noted that the 4Es model is used not only as a base for further
research but can also be applied independently in various contexts (Seo, 2013).
Thus, there are authors who conduct research on the role of 4 realms of
experience in tourism (Hayes & McLeod, 2007), wine tourism (Quadri-Felitti
& Fiore, 2012)or retail (Kozinets, et al., 2004).
3.2 Value-creating instruments of the experience
economy
3.2.1 From mass customization to co-creation
Nowadays we can see the transition of mass and large-scale production to the
production of individual or small series of modified products. This transition
as well as a set of tools for its implementation has been called as a
customization concept (Pine, 1993).
19Toffler (1980) in his work studied the features of the customer behavior. He
came up with a model in which he introduced a new term “prosumer", which
is the combination of "consumer" and "producer". According to this model, as
soon as basic goods and services are no longer able to meet consumer demand,
further increase in production will be possible due to implementation of
customization.
There are many different reasons for the transition from the service economy
to the experience economy, such as (Pine, et al., 1995):
1. Individualization and a need for authenticity as powerful driving
forces of the experience economy.
2. The emergence of a new need for customers of getting additional
emotions and experiences during purchases.
3. Current trends of individualizing methods of solving customer
problems, i.e. some things are produced in one of a kind piece.
4. Individualization of preferences for customers of service-oriented
businesses. Companies tend to learn about customer problems and
find an appropriate solution to each case.
Customization is one of the key aspects of the experience economy. It is due
to the unique approach to each client that the service begins to turn into an
experience. Pine and Gilmore (2011) claim that customization is an essential
tool for reducing the "consumer concession" - the difference between what a
consumer wants to get and what he/she actually gets. This concept refers to
the perception of the same product by different consumers. Since each person
is unique, the response to a particular product or service differs. In case of
customization, there will be no consumer concessions at all (Kamis, 2012).
At the end of the 20th century, customization was seen as a tool for
differentiating the company's offer, as well as creating a special product for a
narrow audience and attracting new consumers.
20Chase, et al. (2006) describe this concept in a different way. Customization
helps to save the resources of the company by letting customers get engaged
in the mass product differentiation. In this interpretation, customization
practically does not affect the essence of the product. Customization efforts
are focused on its service support, sales and delivery organization. According
to the results of experiments, customers feel more benefits and get more
experience from the customized interface of retail offline and online trade.
Customization by its nature of product changes can be of several types (Chase,
et al., 2006):
1. Expert, when a product is created for each client. In this case it can
also be called individual customization;
2. Modular, which means that it allows customers to choose the
necessary configuration from the options offered by the company;
3. Based on appearance, i.e. based on external attributes such as
packaging design, product shape etc.
There is also a division based solely on the production approach (Pine &
Gilmore, 2011):
1. Horizontal customization, that is the modification of existing
products with the same components;
2. Vertical customization, i.e. creating a unique product from unique
components that were originally created for a specific customer.
In 2018, a research firm Researchscape conducted a study on customization in
the United States and found that 44% of customers were willing to return to
the store if they received an offer based on their shopping experience. 39% of
these customers will tell their friends and family about the store and 32% will
leave a positive review (Researchscape International, 2018).
21Another survey conducted by Epsilon in 2017 showed that 89% of customers
were ready to cooperate with those financial companies willing to take into
account their personal experience (Epsilon Data Management, 2018).
Companies tend to become more customer-oriented and focused on solving
their problems. There are various solutions which might customize the client's
communication with a business such as: correct settings of websites, storing
payment history and preparing offers based on them, as well as tips about other
products that may be useful in the current situation (Stump, et al., 2002).
Customization is one of the factors which can help to motivate customers to
use a service or a product frequently. If a business involves the user into either
creating a part of the product or in its customization, then it is getting greater
chances of “binding” such clients and gathering new experience for its further
implementation and development (Tseng & Jiao, 2001).
In fact, customization is a special strategy of enterprise management, which is
based on the desire to fully take into account the requirements of a particular
consumer in the design, marketing and operation of the product.
Customization requires the formation of a new customer-oriented management
system.
However, there are scholars who tend to believe that muss customization is
neither relevant nor efficient anymore. They say that sophisticated customers
want more “influence in every part of the business system” (Prahalad &
Ramaswamy, 2004, p.6), they seek interaction with firms in order to co-create
value of the products and in the end get better personalized experiences.
Mass customization, according to Piller et al. (2004), can be characterized by
lack of customer integration and interaction because companies and
consumers do not have a dialogue. Customers are integrated into value
creation only in terms of designing or modifying their product out of pre-
defined options. Therefore, the “prosumer” definition of customers that was
22mentioned by Toffler (1980) is not correct when applying to mass
customization. Customers are rather co-designers than co-producers in this
case.
Mass customization or non-interactive marketing does not meet all demands
of the modern market, products and services must be produced and delivered
“in a person-to-person communication with less left to mass communication”
(Gummesson, 1987, p.11). Therefore, it is time for companies to move from
mass customization to co-creation to gain competitive advantage.
Pine and Gilmore (2011) do not mention co-creation as a value-creating
instrument of the experience economy. Researchers attribute their book and
articles to the first-generation experience economy, However, those scholars
who focus on customers as co-producers and co-creation as a value creation
tool are considered to be the advocates of the second-generation experience
economy (Alexiou, 2020).
Co-creation is “joint creation of value by the company and the customer”
(Prahalad & Ramaswamy, 2004, p.8) and it is beneficial for both of them:
• Companies can improve the end product by allowing customers to take
part in the production process beginning from the ideation stage;
• Customers receive superior personalized products and services (Kotler,
et al., 2016, p.50).
Co-creation of value is built on 4 main blocks that are presented in
Figure 3.
23Figure 3. Building blocks of co-creation of value
Source: Prahalad & Ramaswamy, 2004, p.9.
Dialogue implies interaction, interest and engagement on both sides and it can
be active only if two parts are equal and have access to the same amount of
information. Therefore, companies must be transparent which in turn leads to
customers` better assessment of all involved risks or benefits in making this or
that decision.
All in all, if companies not only want to stay afloat, but also remain
competitive, they must be able to co-create unique experiences with their
customers.
3.2.2 Digitalization and Gamification
Nowadays it is absolutely evident that modern digital technologies affect our
life more and more. According to statistical data, 29% of smartphone users
spend 3-5 hours per day in their smartphones and other gadgets (Statista
GmbH, 2017). What is more, there will be approximately 4 billion of
smartphone users in the world by 2021 (Statista GmbH, 2020). These figures
demonstrate a huge role of digital technologies and also imply that companies
should adapt to this tendency and try to find new ways of satisfying their
24buyers by offering them an unforgettable experience with the help of digital
advancements.
It must be noted that consumers` power in the modern economy is increasing
because of the growing access to information. Now buyers can easily compare
different products online and affect companies’ choices and decisions through
feedback and other communication channels (Fokina & Barinov, 2019).
According to World Economic Forum (2018) “vision of companies selling
experiences is now becoming a reality”. Due to the rapid innovations,
increasing connectivity, development of analytics and artificial intelligence, a
lot of companies on different markets have to reconsider if their strategies and
business models are relevant and competitive in such circumstances.
In this case Pine and Gilmore (2014) suggest that it would be inevitable for
companies to put more and more resources into ‘virtuality’ and creation of new
types of experiences that never existed before. A good example of infusing
digital technologies into real life could be an IKEA mobile application based
on augmented reality (AR) technologies that can be used to see how IKEA
furniture would fit the room. That creates a strong additional connection
between the company and its customers and also attracts more people of
younger generations which are keen on new technologies.
Digitalization:
According to Gartner Glossary (2020), digitalization is “the use of digital
technologies to change a business model and provide new revenue and value-
producing opportunities”. However, there are some scholars who believe that
digitalization should not only be referred to the economic sphere of life, but
should also be associated with the changes in people`s daily routine. Thus,
Brennen and Kreiss (2014) think of digitalization as “the way in which many
domains of social life are restructured around digital communication and
media infrastructures”. Therefore, they believe that digitalization is related to
25social life and changes the way people interact. The following figures
(including Figure 4) illustrate the scale and speed of technologies` expansion
(Muro, et al., 2017):
• Microsoft Office in 2017 had more than 1.2 billion users worldwide;
• Annual sales of personal computers reached 260 million in 2017
compared to 700 thousand units in 1980.
Figure 4. Worldwide digital device penetration from 1980 to 2015, in billions
Source: Muro, et al., 2017, p.6
Nevertheless, the arrival of technologies into everyday life resulted in the
creation of digital business models. Consequently, it is more correct to use the
definition of digitalization that would include both social and economic
aspects (Jason, 2018). Thus, digitalization is “the process of employing digital
technologies and information to transform business operations” (Gartner, Inc,
2020)
Datafication - the conversion of people`s daily activities, preferences,
shopping habits etc. into the data format – is highly useful for businesses when
it comes to learning customer`s preferences (Flyverbom, et al., 2019). As a
result, customers` data that can be easily collected, stored, exchanged and
26analyzed with the help of digital tools might help companies to develop new
products or improve the existing ones (Muro, et al., 2017). Therefore,
digitalization plays an important role in terms of adding value to enterprise`s
goods.
What is more, digitalization results in reduced marginal costs, more
comprehensive analysis and new formats of work, for example, remote work,
e-commerce, internet marketplaces and many more (Muro, et al., 2017).
Gamification:
Gamification is a very popular concept in the modern world and a lot of
companies are trying to adapt it to their needs. It is proved that involvement
into a game creates stronger connection between a company and a customer
(Strong, 2014). At the same time, gamification as a concept is not the same as
games and gaming, thus a lot of people have wrong perception of this
approach. In order to provide a general understanding of what a gamification
is the following quote can be used: “the process of game-thinking and game
mechanics to engage users and solve problems” (Zichermann & Cunningham,
2011, p.xiv). Gamification is a very effective tool in terms of rousing the users`
interest as it makes ordinary tasks funny, challenging and rewarding ( (Kappen
& Nacke, 2103).
What is more, gamification instruments can be applied to reach a variety of
goals for both employees and consumers of a company. In this paper
gamification is studied as a supplement to affect consumer’s behaviour.
Another significant theoretical aspect of gamification is that it should not be
implemented to solve core business problems, but to attract customers’
attention, increase brand awareness and foster loyalty (Zichermann &
Cunningham, 2011).
27In order to keep customers attracted and engaged it is important to use a
phenomenon of “flow”, which states for keeping customers between boredom
and anxiety as it is shown in Figure 5 (Zichermann & Cunningham, 2011).
Figure 5. The state of flow diagram
Source: Zichermann, & Cunningham, 2011, p.18
To keep customers in that zone gamification offers a bunch of different tools
and mechanics, which can be seen as rewards and ways to motivate humans
and divided into two big groups: extrinsic and intrinsic. While extrinsic
motivation includes doing actions that lead to external rewards, such as money,
trophies, prizes, etc., intrinsic motivation implies getting intangible rewards
such as status, sense of fun, acknowledgement of society and others (Yang, et
al., 2017; Patricio, et al., 2018).
It must be noted that several researches were carried out regarding the most
important aspects of applying the gamification tool. Final results, achieved by
Yang, et al. (2017), state that the most important parameters in terms of user
engagement and positive influence on brand attitude are usefulness and
enjoyment. At the same time ease of use does not seem to affect consumers’
decisions while social influence is important only in terms of enhancing brand
attitude.
In the following chapter we are going to have a look on several retail
companies working in the clothing industry and analyze what experience
economy approaches they use and what is the difference between various
28segments of the market. Moreover, in the conclusion part we describe how
chosen companies add value to their products with the experience economy
technics.
294 Empirical section
4.1 Description of Benetton Group S.R.L.
Co-creation
United Colors of Benetton, an Italian company with the headquarters in
Ponzano Veneto, uses some co-creation tools in order to engage customers
within its work and get to know them better. The company launched the global
interactive competition “It`s my time” in 2010 where people could upload their
pictures or videos on company`s website and had a chance to become models
for the advertising campaign for autumn-winter 2010/2011 (Design Scene
Magazine, 2010). Thus, United Colors of Benetton gave customers an
interactive form of experience by letting them take a part in that whole event.
The competition made it possible for buyers to share their tastes, personal style
and meet like-minded people while the company managed to increase its brand
awareness and attract more customers to its shops (Benetton Group, 2010).
Digitalization
Since there is a fierce competition between brands, Benetton also implements
digitalizaton techniques in order to attract more customers. Thus, Digital
Signage systems was introduced. The idea was to create a unique multimedia
channel in order to communicate with potential customers. The project
involved flagship stores in various cities of the world: Milan, Barcelona,
Munich, London, Moscow, New Delhi, Paris and many others (Benetton
group, 2018).
The project was designed to get the attention of passers-by, which would help
outstand the rivals and interact with potential buyers. In order to achieve these
goals, video walls were installed in store window frames, which became some
sort of a bridge of communication between the brand and the consumer. It also
let everyone feel like a part of a world-famous company.
30Interactive technologies were used for this idea to come true. Due to cameras
and special equipment, which broadcasted the image of the person standing in
front of them on video screens, the passers-by could feel like the face of the
brand (Zanotti, 2018).
This project was carried by the communication research center of Benetton
Group in Italy named Fabrica. It is worth noting that none of the solutions
presented on the market fully met the requirements of Fabrica specialists.
Therefore, they developed their own technique that allowed them to create
content and centrally manage the entire Digital Signage system, including
interactive applications (Benetton group, 2018).
Content was given priority in the project. As a rule, fashion brands focus on
demonstrating their collections on displays. It is a different story with Benetton
Group, as it was important for the company to settle close relations and be able
to communicate with its audience closer.
Moreover, the content reflected its brand philosophy with the latest news and
updates. In addition, the Benetton Live window project provided an
opportunity for talented students of art schools and universities to express
themselves. Interesting works of young people were selected by Fabrica
employees and broadcasted in different cities of the world (Zanotti, 2018).
Another significant feature of the installation was its interactivity. Several
ideas were implemented as part of the project. For instance, standing in front
of the window of Benetton store in London, it was possible to see what was
happening in front of the window in New Delhi in real life time. Another
option was to replace the picture of a customer`s face with the one on the
screen, so that a potential buyer could literally try different clothes on without
even going inside of the store with just a few clicks on one’s mobile phone or
any electronic device (Zanotti, 2018).
31Non-standard solutions arouse people's interest and positive emotions. This
was confirmed by passers-by who were happy to stop in front of the interactive
windows of Benetton. The project spread positive emotions and made it
possible for passers-by to take photos and post them on social networks, which
helped to increase brand awareness of the company around the world.
Moreover, another significant bonus for the company was that people were
sharing their impressions with others, therefore boosting Benetton`s brand
loyalty (Zanotti, 2018).
Today, the store is rapidly changing from a regular shopping place to a special
unique world, where the customer gets emotions from communicating with the
brand. The Benetton interactive displays project rejected the concept of a one-
way communication between the brand and the buyer and with the help of
modern technologies created a new way of communication, that allowed to
obtain huge amount of feedback and establish closer relations with their
customers.
Moreover, Benneton Group is developig the website`s personalization system
– a new mechanic that can display the number of people who had purchased a
certain product was added (Appendix A). As an experiment, the company
decided to divide the audience in half. At the same time, half of the people
could see this mechanic, while others could not. A month after the introduction
of this feature, it turned out that the group of people who could observe this
indicator, carried out their orders 10% more often.
What is more, the company introduced another feature, which provided
additional information about the advantages of a particular product offered to
the customer (Appendix B). It gave the buyers all sorts of information about
the manufacturer, the country of origin, the possible delivery time, the material
in the product. According to the results of this test, where this function was
also displayed for only half of the site's visitors, sales increased by 6.5%
compared to those who did not see this information (Figure 6).
32Figure 6. Personalization mechanic effectiveness
Source: MindBox, 2019
Thus, the company came to the conclusion that the personalization of the
website directly affected the number of sales made online. In addition, this
gave the company an impetus to implement a detailed recommendation
function for each customer, which would be based on their previous purchases
or products that they had viewed earlier.
It is important for the company to understand who their clients are and what
motivates them to become loyal - this is critical in terms of building a brand.
Therefore, the main priority for the last 2 years for Benetton Group has been
digitizing the customer's interaction with the brand by settin up website`s
personalization and integrating personal product recommendations based on
machine learning into emails and on the site (Medvedev, 2019). This
knowledge helps company to rebuild the processes of creating and allocating
collections in different places and select position of the products more
accurately, as well as build point-to-point communications and provide
additional services to the loyalty program members (Boujena & Johnston,
2013).
Gamification
Besides implementing digitalization features, Benetton Group moves further
and introduces gamification models that result in its greater development. One
33of the main examples is the Color Club loyalty program. The authorization is
effected with the mobile phone number or a virtual card in the wallet-apps of
iOS and Android (Medvedev, 2019).
After launching the Color Club loyalty program offline and online, United
Colors of Benetton customers received an omnichannel loyalty program with
a single personal account on the website, a virtual card, authorization via SMS
and the ability to save and spend points anywhere. The team of United Colors
of Benetton was able to recognize its customers, started tracking repeat
purchases offline, and set up automatic campaigns and personal promotions to
increase repeat purchases (Segura, 2019).
As a result, automatic communications and personal promotions increased the
average revenue per customer and order conversion among loyalty program
participants.
In this analysis we have researched a successful implementation of modern
digital technologies (Benetton Live) that allowed to acquire new customers
around the world, enhance connection with the old ones and create an event
with positive experience and emotions for people in general. What is more, the
company also introduced several gamification elements, such as a profile with
points, what provides additional engagement for customers while using
Benneton Group’s products. In addition, it can be seen how experience
economy instruments allow to increase company’s results.
4.2 Description of Nike, Inc.
Nike is a worldwide famous sportswear and sport apparel brand. The company
is also the largest in footwear and athletic apparel and has the greatest market
share in footwear in all markets and all major categories (Danziger, 2018).
What is more, Nike managed to create a huge number of fans around the world
34who are very passionate about company’s products and are often called
“sneakerheads” (Cooper, 2019).
Co-creation
Co-creation concept is significant for Nike`s strategy as the company tries to
personalize approach to every customer. Clients co-create together with Nike
in several different ways. First of all, there is a Nike by you service which
allows people to modify and personalize footwear and athletic apparel.
Personalization implies not only changing a color of a shoe, but also choosing
materials and a possibility to modify almost every part of a shoe separately.
Therefore, it provides an ability to create a completely unique footwear and
apparel for customers (Grover, 2019). According to one of the footwear
creators, “when a shoe that you've designed arrives at your door, it changes
the way you feel about Nike” (Oser, 2005, p.4).
Moreover, all the customers take part in co-creation with Nike indirectly as all
the data from purchases and customer activity is processed and used as an
instrument for further company development. The most data is collected from
NikePlus users as nowadays a lot of communication with the company goes
through the application, users can even reserve items they want or buy
instantly through it not using cashiers (Grover, 2019).
Digitalization
Nike company started its path towards digitalization around 15 years ago when
it developed an application Nike+ allowing customers to track how much they
walk and run. What is very specific here is that Nike did not follow a desire to
just sell more shoes and other products, but the company tried to transfer its
mission and purpose into the application as distinct from many other
companies (Cameron, 2016).
Nowadays Nike continues to enhance its technological and digital
performance. The main approach here is constant upgrades of its application
35(the Nike app), collecting data from customers and providing more and more
perks for NikePlus loyalty program members. Today it is not only an
instrument for measuring how much people run, but it is one of the main
elements for Nike buyers (Danziger, 2018). For example, in 2018 Nike opened
a new type of shop in Los Angeles which is called Nike by Melrose (name of
the street in Los Angeles). This shop was the first one of “Nike Live” concept
and its name reflects not only the name of the street where it is located, but
also that this shop is opened by people of Melrose and for them (Bird, 2018).
First of all, the shop was made specifically for NikePlus members so they can
experience it the most. Nike collects data from members in the nearby districts
and alters the shop’s stock according to their preferences. Due to the received
data they manage to streamline the product assortment and swap out 15% of
apparel and 25% of footwear every 2 weeks (Danziger, 2018). Moreover,
NikePlus members can make a lot of use out of the application as they can
reserve items in the shop, scan and order items of their size and color they want
and many more. The shop system even recognizes who exactly is coming to
the shop when a person enters a certain area, so that person’s size of clothes
and items they like are set aside (Bird, 2018). Though the shop is extremely
digital, Nike understands how important the social part of shopping is, that is
why customers have a possibility to book 15-minute sessions with Nike
footwear experts at the Sneaker bar in the shop to get more in-depth knowledge
and information they need.
Another example of Nike digitalization implementation is its flagship store in
New York. According to Heidi O’Neill, the president of Nike’s direct-to-
consumer business, “this store is built to come alive for members”, meaning
Nike Plus program members (Green, 2018). For instance, through the app
members can scan and instantly buy the whole look of any mannequin in the
shop, they can also have access to shoes in demand and reserve them and book
a place in a lounge zone on the top floor for a consultation with a Nike expert
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