You’re leaving value on the table.
Whatever you sell to your customers today, I guarantee you they want more. I’m not talking about being better, faster, and cheaper, or delivering higher quality or greater convenience. It’s not about having more features and benefits, more engagement and sensory delights.
All those things, and everything else you do for customers, are not enough. People don’t buy what you sell because they value your offerings in and of themselves. The offerings are means, when what customers truly want are ends.
The ends they desire are to have a better life or a better business. To be healthier, wealthier, wiser. To have meaning and purpose. To not just buy, but to become who they want to become. To not just have, but to be who they are meant to be. To not just go through life, but to flourish.
If you do not offer such ends, then you’re on your way to becoming a commodity supplier to some other company, one that understands that what customers seek today is the achievement of their aspirations.
What people want, in short, is to be transformed.
So how can your company create lasting value by helping customers reach their greatest aspirations? To start, you must answer the fundamental question, What business are we really in? Doing that intelligently requires understanding the history of economic progress.
There are five and only five genres of economic output:
• Commodities (fungible stuff)
• Goods (tangible things)
• Services (intangible activities)
• Experiences (memorable events)
• Transformations (effectual outcomes)
These five offerings form the Progression of Economic Value, from least valuable (commodities) to most valuable (transformations).
The creation of economic value has changed over time. In the beginning were commodities: the fungible stuff we raise on the ground, pull out of the ground, or grow in the ground – animal, mineral, vegetable – and then sell on the open marketplace. Commodities were the basis of the Agrarian Economy that lasted for millennia. In 1776, the year Adam Smith published The Wealth of Nations, over 90 percent of people employed in the United States worked on farms. Today it’s down to 1.5 percent. What happened in the past 250 years? Agricultural output skyrocketed! Thanks to vast technological and productivity improvements, it simply takes fewer and fewer people to produce more and more output.
So people moved from farms into factories, where they used commodities as raw material to make or manufacture physical, tangible things. These goods became the basis of the Industrial Economy, which overtook the Agrarian one in the early part of the twentieth century. Commodity extraction still employed about 40 percent of US workers, but the success of mass production soon vaulted goods manufacturing into the position of economic engine of the country (and, soon after that, the world).
As the Industrial Economy progressed, however, it became less and less of a job creator, as once again massive technological and productivity improvements meant it took fewer workers to produce more output. So people moved out of factories and into office jobs, retail, fast food and restaurants, maintenance and repair, childcare, finance, and numerous other service occupations where companies deliver a set of intangible activities on behalf of individual customers.
Over time, the Service Economy displaced the Industrial Economy, with services becoming the primary economic offering. In the United States, service delivery actually overtook manufacturing as the top employment sector in the 1950s, but that wasn’t widely understood until the 1980s, when pundits began decrying the hollowing out of American manufacturing as such jobs increasingly moved overseas. Service employment was denigrated as “McJobs,” and there was a lot of truth to that. But every economic shift creates many losers – and always many more winners. Eventually, thanks to the “gales of creative destruction” identified by economist Joseph Schumpeter, the number of jobs created swamped the number of those displaced at higher levels of salaries and wages.
From services to experiences
While most economists recognize only the first three genres of economic output – commodities, goods, and services –experiences are a distinct economic offering. They have always been around but have been lumped economically into services. There’s great distinction, however, between such uneventful activities as having mail or packages delivered, visiting a gas station, repairing an appliance, eating at a fast-food outlet, or signing up for internet service, and such memorable events as going to a concert or a movie, learning to play the piano, immersing yourself in a video game, or sitting down to a five-course meal at a fine-dining establishment.
Experiences are memorable events that engage each individual in an inherently personal way. As the Progression of Economic Value shows, experiences are built atop services, just as services are formed around goods and goods are made from commodities. With experiences, a company uses goods as props and services as the stage to engage guests in a personal way. Those are exactly the right terms: where commodities are extracted, goods made, and services delivered, experiences are staged. And where commodities have markets, goods users, and services clients, experiences have guests.
Recognize that experiences are a distinct economic offering, as distinct from services as services are from goods. Where goods are tangible and services intangible, experiences are memorable. If you do not create a memory within your guests, then you did not stage an experience. Further, while goods are standardized and services customized, experiences are inherently personal. No two people can have the same experience, even if they are in the same place at the same time, for the experience actually happens inside of them, in reaction to the events staged outside of them.
Today we live in an Experience Economy. It has supplanted the Service Economy, which displaced the Industrial Economy based on goods, which overtook the Agrarian Economy based on commodities. Experiences have become the predominant economic offering, effectively causing services to be more and more commoditized, just as goods were before.
Beyond experiences
Now the economy is shifting from experiences to that final offering, transformations. From creating memories to achieving aspirations. From ephemeral events to lasting change. From time well spent to time well invested.
Many enterprises are naturally in the transformation business: health-care systems, counselors, fitness centers, financial firms, educational institutions, spiritual organizations, and coaches of all stripes, to name a few. They all work on personal transformations; many other enterprises are naturally in the business of B2B or organizational transformations, including management consulting, employee training, and outsourcing, as well as much of technology, accounting, and finance.
However, far too many view their offerings as mere services and fail to compete on guiding their customers in truly achieving their aspirations. Think of higher education, such as business schools. Why do people spend tens, even hundreds of thousands of dollars for an MBA? Is it because of the ideas they get? No, those are the commodities; every university has the same ideas, more or less. Is it because of books, computers, and other educational equipment? No. How about teaching, homework analysis, and other activities professors deliver? Not that either. (“C’s get degrees,” as the old saying goes.) Certainly, the in-classroom experience, knowledge sharing, and MBA environment – particularly networking – have a great deal to do with it. But fundamentally, people go to business school to gain insight and skills; to have a better career; to increase their earning potential; and to be a new you. They get an MBA to be transformed.
As John Quelch, former dean of London Business School, once told Fast Company magazine:
We’re not in the education business. We’re in the transformation business. We expect everyone who participates in a program at the London Business School – whether it’s for three days or for two years – to be transformed by the experience. We want people to look back on their time here as something that significantly influenced their career and possibly even their entire life.... One nice thing about declaring that we’re in the transformation business is that everyone here—from custodians to deputy deans – has become much more motivated. People are eager to take part in having an impact on the students who come here.
That’s a different mindset, and a different economic offering. And impact is a great word for it, for without an impactful change there is no transformation.
No matter where you are on the progression or what you offer, there’s opportunity in this new economy. Manufacturers and service providers will (and must) continue to exist, even if on a commoditized basis, to offer what customers – both people and businesses – value. And they can still take advantage of the new economy by transformationalizing their offerings – making them transformation al, if not full transformations – as well as by being valued suppliers to those enterprises that do offer the highest value of economic offering. But no matter what, goods and services will continue to employ fewer people, lessen their contribution to GDP, create less economic value by comparison, and largely become commoditized.
We’re undergoing a radical shift from increasingly commoditized goods & services to more highly valued experiences & transformations. And while the Experience Economy has made great strides, we have yet to see its full flowering, and companies have not yet completely embraced the ideas, principles, and frameworks that will enable them to create the Transformation Economy.
You can begin with what you have today, reflect on what you already do for the aspirations of your customers – the why of what they buy from you – and then innovate, add, or purchase everything else you need to guide them to achieve those aspirations.
Reprinted by permission of Harvard Business Review Press. Excerpted from The Transformation Economy: Guiding Customers to Achieve Their Aspirations by B. Joseph Pine II. Copyright 2026 B. Joseph Pine II. All rights reserved.
