|A key growth driver for the experience economy is the millennials’ complex relationship with their smartphones. / Photo by View Apart via Shutterstock|
As kids, millennials -- anyone born between 1981 and 1996 -- saw their parent’s lives fall apart because of financial meltdown and how their life savings were lost to the multibillion-dollar Ponzi scheme. Seeing people in their 70s still working in grocery stores when they should already be retired has become the new normal and because of the changing times, many millennials prefer to seize the moment. They prefer to skip buying things and fully experience what life has to offer.
Swapping experiences for things
The rise of services, such as Airbnb and Uber, and social media nurtured a culture that is focused on events, travel, and dining. But this consumption pattern may soon be replaced with the same consumption patterns of the older generations: buying stuff over experiences.
Business news platform BloombergQuint shared that a post-coronavirus world will change people’s lifestyles as there is still fear of getting the virus and social distancing still exists. More likely, consumers will still spend more time in their homes instead of choosing experiences that involve crowds and public spaces.
After the global financial crisis of 2007 to 2008, there were three reasons why people shifted their preferences from buying stuff to experiences. The first occurred between 2006 and 2014 when several owner-occupied households in the US declined by almost 1 million while renter households rose to 7 million. The increased number of young renters, most of those flocked the cities for dating and career prospects, meant people have more buying power for stuff than going on trips during the weekend.
Technology and experience-based consumption
The second reason why consumption shifted to experiences was the advancement of technology that made experience-based purchases better. Social media and smartphones made it convenient for people to gather groups of acquaintances and friends and discover entertainment and restaurants in a way that was impossible a generation ago. The likes on Instagram and Facebook implied the social status to dine and travel. Furthermore, the ridesharing company Uber made it easy to find a vehicle in cities that are amply served by taxi firms.
The third main reason mentioned was demographic. The housing market was stagnant in the early 2010s and technological shifts grew strong, especially among the millennial generation who are mostly in their 20s. This ensured a big and welcoming market.
A key growth driver for the experience economy is the millennials’ complex relationship with their smartphones. The meticulously curated social media profiles, online forums, and memes are considered as real life. An average millennial spends about 5.7 hours on their phones every day despite the link between excessive use of mobile devices and the internet, and increased rates of depression and anxiety as well as interpersonal conflict.
Senior community Provision Living conducted a study to know Americans' smartphone habits. The survey found that social media takes the bulk of their smartphone screen time. Millennials spend an average of 69 minutes per day on Facebook, 52 minutes on Instagram, 48 minutes texting, 40 minutes internet, 34 minutes on podcasts, 27 minutes on Snapchat, and 27 minutes listening to music, among others.
Consumer spending on experiences vs. overall expenditures
Meanwhile, global management consulting firm McKinsey & Company found that the quest for likes in social media accelerated the growing demand for experiences. This made Instagram and Facebook the ultimate social currency for many millennials.
Pre-pandemic, consumer spending on experiences was growing faster compared to overall experiences. Spending on spectator sports (10.0%), amusement parks and campgrounds (8.0%), live entertainment (5.9%), membership clubs and sports centers (5.6%), casino gambling (4.8%), movie theaters (3.9), foreign travel (6.6%), hotels and motels (6.0%), package tours (3.3%), and food services (6.4%) rose faster compared to personal consumption expenditures.
FOMO is driving the experiential appetite
One of the most important elements for successful marketing in the experience economy is the ability to understand people’s behavior. This is achieved by understanding what encourages customers to make a decision and what makes their loved ones and friends follow along. This leads to FOMO or the fear of missing out. Decisions, whether that be conscious or subconscious, are usually motivated by limited-time opportunities, exclusivity, and social pressure. This is the reason brands are creating experiences that are FOMO-worthy.
Some people believe that experiences are better than things because they provide better memories, resulting in greater happiness, and mean less clutter that takes up the physical space of our home. It also provides greater opportunity to connect with others and allow one to stay present in a given moment. Of course, the theory that one is happier spending money on experiences over stuff does not apply to all income groups. A study published in the Association for Psychological Science explains that low-income people are happier or felt the same when they bought possessions rather than experiences.
Experience economy after the pandemic
The experience economy may change a lot after the pandemic until a vaccine for Covid-19 is introduced. It remains unclear when large gatherings, including trips to theme parks, football games, and concerts can go back to normal. Bars and restaurants will also continue to follow social distancing measures. Wedding culture may also change and attendees will prioritize family members and close friends.
Between the decreased number of entertainment options and dining and the growing health risks, traveling to different places will no longer be as fun as before. As a result, it will mean a loss of employment and economic output. For people, it would also mean fewer experiential things to spend their money on.
Many consumers will spend their money on their homes rather than going to restaurants or bars to jetting overseas. Since they spend more time at home, they would prefer to upgrade their bathroom, kitchen, television, or sound system, for example.
Millennials are also growing older and those who still have jobs despite the pandemic may already be thinking of buying homes, a preference that they did not appreciate much before. Once a vaccine for Covid-19 is available, a new group of young people will join the workforce and bring a new age of experiential economy. Yet, for now, we are back to choosing things and focusing consumption around the home.