The Experiential Economy
I recently wrote/created (though the graphic design is not mine) the below infographic for Good Magazine in an issue dedicated to societal trends. The idea here is that the material economy (which produces physical goods like cars and electronics) is being replaced by the experiential economy (which produces experiences like food and vacations). The psychological data is based on a paper we recently had accepted by the Journal of Positive Psychology (along with Ryan Howell and Paulina Pchelin at San Francisco State University) and my dissertation research, all of which focused on the longer term characteristics of people who tend to buy experiences (e.g. dinner at a restaurant) rather than material goods (e.g. clothing).
The take home message is that, convergent with lab research using experimental manipulations, people who report having a preference for experiential purchasing report being happier relative to people who report having a preference for material goods.
The reasons for this have been detailed by other researchers who report that people adapt to experiences less quickly, meaning that good experiences last longer. As well, people who buy experiences are less apt to compare their purchases to others, with the inevitable disappointment that exists when someone out there gets a better deal. For example, I recently bought a Prius and still find myself visiting priuschat.com to see if I got the best deal, an exercise which has no utility whatsoever. On the other hand, my recent hike to Machu Picchu remains an unequivocally positive memory.
I’d like to thank the editor at Good Magazine for asking me to frame things in terms of the direction of the economy as that led me to this Forbes Magazine article, which has data on how Americans spend their discretionary income. Spending generally has gone down due to the recession, but from the perspective of experiential vs. material purchasing, it’s clear that experiential purchases (e.g. dining out) are becoming a greater percentage of discretionary spending compared to material purchases (e.g. jewelry). Anecdotally, I’ve noticed startups that seem to be trying to capitalize on the preference for experiences and my credit card won’t just reward me with stuff, but with experiences.
Perhaps if economists want to consider ways to jump start the American economy, they should consider the trend toward experiences, which are intrinsically difficult to outsource. The world doesn’t need increasingly more stuff, but there is an experiential deficit out there. Just think of all the elderly who lack humane care, the homeless for whom personal attention is needed, or the way that Zappos has thrived by making customer service a positive experience. In economic terms, if experiences really do create more value for consumers, then the economy should necessarily shift in that direction and I’m hopeful that thinking of “the experiential economy” explicitly will be generative for business leaders, policy makers, economists, and perhaps most importantly, for consumers.
- Ravi Iyer