When someone is deciding on a present they will give this Christmas, one of their options may be buying an electronic gadget such as a smart speaker or a concert ticket to a music festival such as Glastonbury. Increasingly people are going for the festival ticket ahead of the smart speaker. The choice of the Glastonbury ticket is representative of a switch away from consumer goods to what economists call the ‘experience economy.’

In recent years, the global economy has experienced a shift towards the experience economy. This shift represents a departure from a model of consumption, where the focus was primarily on acquiring goods to where consumers look to buy memorable experiences.

Here are five experience economy gifts on offer this Christmas:

• REI Events offers a guided three-hour nighttime hike to experience the ‘beauty of nature after dark.’
• The US company Getaway has over 25 outpost sites throughout the US that all feature tiny house-style cabins in quiet and secluded forest locations.
• iFly offers its buyers an indoor skydiving experience which does not involve jumping out of a plane!
• The world-famous US guitar manufacturer, Fender offers a set of online guitar lessons.
• The events business, Ticketmaster offer sports stadium tours of some of the most iconic sports venues in the world.

Many people argue that the growth of the experience economy comes from younger people (often millennials) who are increasingly prioritising experiences over possessions. It is difficult to identify a single reason for the growth of the experience economy but economists have looked at the following factors:

• The falling price of consumer goods relative to household incomes over time so that average households have as many TVs, computers, and phones as they want and they are looking at the experience economy for something different.
• As part of the service sector, the products that make up the experience economy have a relatively high positive income elasticity of demand which means demand for them grows as incomes rise over time.
• Younger people are seeking more ‘in-the-moment satisfaction' from an experience rather than owning a physical good. The pleasure of those experiences has been enhanced by growth in social media platforms such as TikTok and Instagram, which have helped people to share their experiences.

The industry response to the growth of the experience economy has included the travel and hospitality sector promoting unique and unusual experiences.  Concerts and festivals have become increasingly popular as people look for a shared, memorable experience and the businesses that organise these events look to tailor them to meet the needs of consumers.

The retail sector faces a big challenge from the experience economy. Retail spaces are responding by creating their own ‘experiences’ by offering increasing amounts of entertainment in shopping centres and activities within stores to create a memorable shopping experience.  Nike’s flagship New York City store is designed to make you feel like you’ve entered a high-tech museum rather than a shop.

Some possible questions to discuss with a class.

1. The experience economy is part of which sector of the economy?

2. What value of income elasticity of demand would you expect goods in the experience sector of the economy to have?

3. Discuss the reasons why the experience economy is a growth market.

4. How can the production possibility curve model be used to show the growth of the experience economy market and the decline of the physical consumer goods market?

5. Research some goods on offer in the experience economy.