In this extract from their seminal book The Experience Economy, Joe Pine and Jim Gilmour explain the concept of “money value of time (MVT)” and why it should matter to experience creators everywhere.
Pine and Gilmour take us through how to measure MVT and how it could liberate businesses from the phoniness of advertising, create better connections with customers, and deliver infinite ROI.
- Money spent on experiences is the most explicit way for customers to express the value you’re infusing into their time, whether it’s through a membership or admission fee or some other form of time-based payment.
- Companies must align what they charge for with what customers value, and with experiences that means explicitly charging for the time customers spend with them.
- Experience stagers need to alternatively understand the money value of time, or MVT, recognizing that the amount of money customers willingly pay for any experience, is directly proportional to the value they receive from the time they spend.
- Experiences also have a much higher return on investment! The ROI of any advertising or other marketing campaign is simply the incremental revenue generated divided by the cost. When the money customers are willing to pay meets or exceeds the costs, the denominator goes to zero and the resulting calculation therefore goes to infinity!
- Advertising doesn’t work the way it used to; it’s increasingly difficult to capture customers’ attention with traditional advertising or other marketing campaigns. Experience staging so easily resolves this problem, for while advertising interrupts what people want to do, experiences can actually offer them something they want to do.
Every company should understand that information about customers used to sell advertising is fundamentally different from information provided from any one customer to benefit that same customer. In the long-term, using customer intelligence to customize offerings provides the winning formula.
Robust, cohesive, personal, dramatic and transformative experiences all serve to get customers to value the time they spend with you. But there’s only one foolproof way to know your experience offerings are worthy of their attention: your customers are willing to pay for the time they spend with you.
Indeed, money spent on experiences is the most explicit way for customers to express the value you’re infusing into their time, whether it’s through a membership or admission fee, or some other form of time-based payment. Your investment in experiences results in making each customer-hour more valuable than it would be without buying the experience from you, and the return on your investment can be directly measured via increased revenue. Thus experience staging provides the means to create demand more directly and more profitably than most any marketing campaign, which spend a lot of money to rather indirectly influence purchase decisions.
Charging for Time
You would never go to a movie or a play, a concert or a sporting event, a museum or a theme park, or any number of other such experiences, and not expect to pay admission. Why? Because you view each of these as worthwhile experiences! Why should the experiences your company offers be any different?
When faced with today’s shift from the Service Economy to the Experience Economy, too many companies give away any experiences they add in order to better sell their goods and services. “Theme” restaurants create elaborately immersive environments, but only charge for meals. Many retailers let you try out, play with, and sample products in their stores, but only charge to purchase the merchandise. Even Starbucks still only charges for the coffee it prepares, not the time people spend in its places. But eventually, companies must align what they charge for with what customers value, and with experiences that means explicitly charging for the time customers spend with them.
One cafe chain that understands this: Ziferblat in Russia and the United Kingdom. At such venues, customers pay eight pence per minute or so (depending on location) for the time spent there – and the coffee is free! Sure, guests can’t order anything like a tall, half-sweet caramel macchiato and must serve themselves, but they get an experience to call their own for however long they want to stay to take a break, work, read, play games, or just socialize.
In Chapter 3’s section “You Are What You Charge For” you will find a key question for readers to ask themselves: What would we do differently if we charged admission? When Ami Arad, co-founder of Wingtip, a men’s store in San Francisco, read this question, he was taken aback. He wondered how he could possibly charge admission for a clothing store, even one as well-appointed as Wingtip, with its theme of “Solutions for the Modern Gentleman”. Taking the question seriously, Arad finally hit on exactly the right approach: start a club worthy of a membership fee. After prototyping an incredibly small space – no bigger than a conference room – he discovered that some people were indeed willing to become members to experience a respite from their hectic days. He then found expanded space in the old Bank of Italy across from the Transamerica building, placing the Wingtip Store on the first level and basement, while fashioning the Wingtip Club on the top two floors.
Open to both men and women, the 13,000-square-foot Club has a common bar and eating area, private dining rooms, wine lockers, a golf simulator, billiards room, boardroom, and roof deck. While the Wingtip Store remains open to anyone, the Wingtip Club (with over 1,000 paying members) has three levels of membership: visiting, social, and the highest level, regular, which requires a $3,000 initiation fee plus $200 per month for unlimited access. All members receive a 10 percent discount on merchandise and other perks, as the store and club feed off one another: the store creating demand for the club and the club creating demand for the store.
Wingtip is not alone, with scores of companies now charging admission for places or for experiences within their places that seemed crazy when we first published The Experience Economy. Retailers such as American Girl, Eataly, and REI charge admission, as do restaurants such as Next in Chicago, The Clove Club in London, and Noma in Copenhagen, and manufacturers such as LEGO, Heineken, Guinness, Coca-Cola, Land Rover, Volkswagen, Swarovski, and so very many others. Most every startup in new-to-the-world experience genres charge admission, such as the Museum of Ice Cream, the Rosé Mansion, Circus Trix, Sleep No More, the College of Extraordinary Experiences, axe-throwing venues galore, and Topgolf (with its 60 and counting locations). Even some tourist destinations charge admission, such as 17-Mile Drive in Pebble Beach, California; the city of Wuzhen, China; and now in 2019, Venice, Italy.
Not only does charging for time align what you charge for with what your customers value, while ensuring that your experience is worthy of customers’ time and attention, but charging admission further signals that this is a place worth experiencing. Simply put, revenues directly derived from charging for experiences provide the most straightforward means to measure the economic value you’ve created. Yet there are additional ways by which experiential value can be measured.
Money Value of Time
Once you charge for time you can further measure the value of your experience offerings by seeing how they stack up against other admission-feed experiences.
You may already be aware of the concept of the time value of money, or TVM, which recognizes that money received in the future is worth less than an equivalent amount of money received today. Experience stagers need to alternatively understand the money value of time, or MVT, recognizing that the amount of money customers willingly pay for any experience is directly proportional to the value they receive from the time they spend.
The money customers spend on your experiences via admission, membership, and other forms of time-based fees provides a proxy for the degree of time well spent in any experience. This has several implications. One, if you do not charge for time, as we shift deeper into the Experience Economy people will naturally assume that your place is not worth experiencing. Two, the more time well spent you offer, the more money you will be able to charge. And three, you can measure your experience against others on the MVT scale of expenditure per minute.
Movies provide a good benchmark against which to compare, since they’re a familiar experience for most everybody. Movie-ticket pricing varies across the US and the world, with most tickets priced between US$8 and $15. Assuming a US$12 charge and two hours as an average movie length, moviegoers find movies worth about 10¢ per minute.
Now, how much are your experiences worth in terms of the money value of time? If you can charge around 10¢/minute for an experience, you’re staging one on par to a movie. Charging more than that indicates a great experience, and less just a so-so experience. If you’re in the so-so bucket, look at enhancing your experience-staging prowess through all of the ideas, principles, and frameworks in this book. If your money value of time is on par with that of a movie, congratulations! But don’t rest on your laurels. Competition ever intensifies, business gets tougher year after year, and customer expectations for experiences continually expands. (Witness the production values in movies vs. just a few decades ago.)
If you’re significantly above the MVT baseline of 10¢/minute, guess what, there are huge opportunities to go even higher! A day at Disneyland costs about 17¢ a minute, and at Walt Disney World 23¢. Can you approach this 20¢/minute territory? A round of golf at most public courses will gross around a dime per minute for a 4.5-hour round; but Pebble Beach gets almost $2/minute for each round! Tickets to Hamilton can amazingly cost on the order of $5/minute, which is why a lottery system exists at about 6¢ per minute for people who otherwise couldn’t afford it – even less than a typical movie (which makes that lottery one of the best deals in the Experience Economy).
But there are many experiences that soar even higher than that. Skydiving costs around $200 per minute of air time, although an iFly skydiving simulator garners “just” $43/minute. And those are nothing compared to the price of a precious few seconds of bungee jumping, which go for around $400/minute.
The world’s record for MVT? As far as we know, it’s back in 2001 when Dennis Tito paid $20 million for eight days in outer space, which works out to about $1750/minute! No wonder Jeff Bezos, Richard Branson, and others are seeking to “democratize” space tourism by offering launches for “only” $200,000. These trips will last far less time, however, so current estimates anticipate people spending $2,000 or more per minute of space time, even more than Tito.
When it comes to staging experiences that people value, the sky is literally the limit.
Return on Experience Investment
Another important measurement applies to companies employing experiences to generate demand for its core offerings – such as when the manufacturers and retailers mentioned earlier create places (or experiences within places) for potential customers to experience their goods before buying them; when service providers expose customers to capabilities at new venues, such as Capital One utilizing its Cafes to showcase its financial offerings; and even when experience stagers layer event upon event, such as Las Vegas resorts stage non-gambling experiences to entice people to come into their casinos.
Such businesses could all just advertise their core offerings. But demand-generating experiences represent a much more effective use of marketing resources. Even though such experiences may reach fewer people than ads generally do, each customer spends far more time in an experience (minutes or hours instead of seconds), gives their undivided attention, and undergoes a much more intense encounter than any ad can provide—all of which yields much greater memorability. And, of course, these experiences can generate greater demand for core offerings. Any back-of-the-envelope calculation will demonstrate that experiences offer a much better use of marketing money than advertising.
Experiences also have a much higher return on investment! The ROI of any advertising or other marketing campaign is simply the incremental revenue generated divided by the cost. But when you stage an admission-feed, demand-generating experience its cost is not the only below-the-line factor. Charging for time generates revenue in and of itself, lowering the net investment made. Admission fees thus reduce the denominator of the equation and can therefore make ROI increase commensurately. And if you create an unquestionably compelling experience worth an admission fee with a high MVT, well, you may not only recoup your costs but could even generate a profit!
That’s not fantasy, but reality. Let’s cite just a few examples: The Land Rover Experience makes a profit for Jaguar Land Rover Automotive PLC, so much so that it’s able to franchise the driving experience around the world. Although parent Mattel will not divulge figures, American Girl’s Cafe, doll hair salons, and especially birthday party experiences certainly all more than pay for themselves. As does REI with its climbing mountain in its “flagship” stores (which is at least partially paid for by suppliers, also lowering cost and thus increasing ROI). LEGO System A/S makes profits on its many admission-feed experiences, especially its LEGOLAND theme parks and LEGOLAND Discovery Centres.
When the money customers are willing to pay meets or exceeds the costs, the denominator goes to zero and the resulting calculation therefore goes to infinity! Such profit-making, demand-generating experiences can actually yield infinite ROI on the incremental revenue produced.
Advertising to Experience Ratio
Companies should therefore look intensely at where they spend their demand-generation money and seek to shift the ratio of advertising to experiences. Doing so effectively turns marketing into a profit center as it makes money in and of itself, precisely because the activity provides time well spent.
Advertising doesn’t work the way it used to; it’s increasingly difficult to capture customers’ attention with traditional advertising or other marketing campaigns. Experience staging so easily resolves this problem, for while advertising interrupts what people want to do, experiences can actually offer them something they want to do.
Moreover, advertising has largely become a phoniness-generating machine. We discussed this in our book Authenticity: What Consumers Really Want, so here let us just state that the easiest way to be perceived as phony is to advertise something you are not. Companies do this all the time, overstating what they offer (just think of all the advertisements depicting hamburgers that nowise resemble the actual hamburger encountered at the restaurant) or exaggerating who they are (think of all the greenwashing out there, most notably BP’s campaign to proclaim itself as “beyond petroleum” – which after the Deepwater Horizon oil spill commentators described as “beyond belief”). By understanding the primacy of place, you can wean yourself off most advertising and instead create places where potential and current customers can experience who you are, not only generating demand but also rendering your offerings authentic.
Allow us to further discourage advertising by also pointing out how corrosive it can be to companies, particularly to those willing to do most anything to make money off of it. Two companies with whom people arguably spend the highest amounts of time on the Internet come immediately to mind: Google and Facebook.
Both businesses made the same choice early in their existence (and ratified ever since) to grow as fast as they could by giving their offerings away for free – an approach that almost every consumer-focused company on the Internet now follows. So how do they make money? By selling advertising, obviously. They commodify the data of their users – the ones who should be their customers – into products being sold to their actual customers, namely advertisers. (A customer, after all, is the one who pays you money.)
We don’t have to go through the litany of privacy issues that result – you already know what they are. But contrast Amazon’s fee-charging Prime membership with the fact that Google and Facebook have no such offerings. Amazon Prime members not only gain free shipping but also an increasing number of other member-only offerings, such as movie- and TV-viewing experiences. Such increasing value – particularly focused on time well spent with Amazon – enabled Amazon to raise membership fees in 2018 from $99 to $119 a year.
But – and it’s a big “but” – Amazon has also turned its internal search function into an advertising platform business, with the intention of rivaling Google and Facebook. It knows so much about each customer’s searching and buying habits – a huge amount of leverageable information to package up and offer to advertisers – that there’s a real risk it will also corrode the relationships it now has with its members. We sincerely hope the fact that all its users are customers and a huge percentage of its customers are Prime members – combined with the intense “customer obsession” that Jeff Bezos personally exemplifies and inculcates throughout the organization – will focus Amazon’s advertising ambitions on ways that benefit its members, and not turn their data into just another set of weapons in advertising’s never-ending bombardment on people and their psyche. How so?
Every company, not just Amazon, should understand that information about customers used to sell advertising is fundamentally different from information provided from any one customer to benefit that same customer. In the long-term, using customer intelligence to customize offerings provides the winning formula. And how better to gain that intelligence than by enticing customers into a relationship based on an admission- or membership-fee-based offering?
That doesn’t mean you have to zero out your advertising to experience ratio; for most companies that would admittedly go a bit too far. There are still good reasons to advertise, such as when you do need to reach a large number of people about something truly new, for image purposes, or for damage control after some unfortunate misstep. And the very, very best of advertising does in fact entertain and engage, rising to the level of an experience.
So it’s okay to reserve, say, 20 to 30% of your marketing budget for such endeavors when it really is the right approach. But with the rest, wean yourself off the increasingly unfit and intrusive activity that is advertising. Instead, create an entire portfolio of memorable and engaging experiences – a rich mix that in total can even reach an equally great number of people as advertising does, maybe more, especially when amplified via social media to quickly disseminate news, photographs, and videos of unique experiences.
And of course, be sure that each experience in your portfolio is robust, cohesive, personal, dramatic, and perhaps even transformative – experiences that, in fact, prove worthy of an admission fee. To do so means truly embracing the Experience Economy.
The WXO’s Take-Out: Next Steps for MVT
The WXO aims to take this further. We believe this concept of the “money value of time” is very useful. How would it be if more firms shared their estimated MVT and we could create a wide, industry wide yet sector specific set of indices about MVP? Then, firms could benchmark the MVT that they provide. It would make determining value and price-setting easier. Firms may discover that they create more value than they realised, and change their pricing. They may discover that they are not creating enough value compared to their pricing, and strive harder to discover what value means for their audience, and deliver that. If you would like to be involved in this effort, please let us know.
About the Authors
Joe Pine is an internationally acclaimed author, speaker, and management advisor, who coined the term Experience Economy through the seminal book The Experience Economy (now in its third edition). Since then, Joe has led the Experience Economy, and brought many people along with him. He runs the management advisory firm Strategic Horizons with The Experience Economy’s co-author Jim Gilmore.
To get more insights from experts in the experience economy and members of our Founding Circle like Joe – and to be the first to know about our membership programme, events and more – sign up to the WXO community here.