How to Add Value to Products: the Experience Economy Perspective a Research on How Companies Could Add Value to Their Products Using the Experience Economy

Master Thesis

How to add value to products: the experience economy perspective A research on how companies could add value to their products using the experience economy

Authors: Lina Abu-Sbiekh, Anton Boiarshinov, Pavel Ordenov Supervisor: Frederic Bill Examiner: Dr. Åsa Gustavsson

Term: VT20 Subject: Master Thesis in Business Administration

Level: Master Course code: 4FE25E

Acknowledgments We would like to say thank you to all the people who helped us throughout this year of studies for being helpful, responsible and willing to assist. We would also like to thank EHVS professors who provided us with a great amount of knowledge on entrepreneurship, business administration, experience economy and many other significant disciplines and who contributed to our analytical and critical thinking skills.

What is more, we would like to thank Frederic Bill for being our tutor during this project. We are grateful for his assistance in providing us with efficient tutoring sessions, generating and helping to generate outstanding ideas that made this paper more structured and engaging for readers.

Finally, we would like to thank Åsa Gustavsson for being our examiner, for organizing communication and opposition seminars, thus, providing vital feedback and by all means helping us to increase the quality of this paper.

28th of May, Växjö, Sweden

Lina Abu-Sbiekh Anton Boiarshinov Pavel Ordenov

Abstract Nowadays the world is on the verge of another significant migration of value, the value for corporate world is shifting from providing services to staging experiences for customers. Since it is vital to understand the main characteristics and components of the impending environment, this research is carried out. It is aimed at determining the main elements of the experience economy that could add value to products and the way modern retail companies apply these instruments within their strategies. The purpose of this paper is sufficiently fulfilled by qualitative analysis of three companies from the clothing industry - Benetton Group, Nike, Louis Vuitton. In the paper co- creation, gamification and digitalization are identified as the main instruments of the experience economy that could lead to greater value of the products and additionally contribute to other companies’ brand performance criteria as brand loyalty and brand awareness. Furthermore, the study provides discrepancies between retail companies from the clothing industry in terms of implementing experience economy instruments depending on their market segment, strategy and specialization.

Key words Experience economy, Types of experience, Co-creation, Gamification, Digitalization, Retail industry, Clothing, Nike, Benetton Group, Louis Vuitton.

Table of contents Acknowledgments ...... 2 Abstract ...... 3 Key words ...... 3 1 Introduction...... 5 1.1 Background ...... 5 1.2 Problem discussion ...... 6 1.3 Purpose ...... 8 1.4 Research questions ...... 8 2 Methodology ...... 9 3 Theory section ...... 14 3.1 Defining experience economy ...... 14 3.1.1 Theory of experience economy ...... 14 3.1.2 Types of experiences ...... 17 3.2 Value-creating instruments of the experience economy ...... 19 3.2.1 From mass customization to co-creation ...... 19 3.2.2 Digitalization and Gamification ...... 24 4 Empirical section ...... 30 4.1 Description of Benetton Group S.R.L...... 30 4.2 Description of Nike, Inc...... 34 4.3 Description of Louis Vuitton company ...... 38 4.4 Comparative analysis of companies ...... 41 4.4.1 Market segments ...... 41 4.4.2 Types of experiences ...... 42 4.4.3 Co-creation approach analysis ...... 43 4.4.4 Digitalization approach analysis ...... 45 4.4.5 Gamification approach analysis ...... 46 5 Discussion ...... 48 6 Conclusions ...... 51 7 Project limitations and further research ...... 53 8 Reference list ...... 54 Appendices ...... 61

1 Introduction

1.1 Background

The economy is experiencing another migration of value. In the pre-industrial era the main added value was created in the production of raw materials; in the industrial era – in the production of goods; at the beginning of the post- industrial revolution the added value flew into the service economy.

In the conditions of increasing importance of global digitalization of all aspects and activities of modern society, the role of added value as a competitive advantage of a country, region, or organization in the international arena is getting more significant. The higher the added value created in the process of production and sale of goods or services is, the more efficient the business entity's activities are.

The value added is the increment of the value of a product or service created by an enterprise to the value of material resources used by it in the production of goods or services (Kenton, 2019).

The theory of value added originates from the English scientist Adam Smith, who laid the foundations of the labor theory of value, releasing his main work "The Wealth of Nations" (Smith, 2007). He assumed that added value consisted of wages, profits and taxes and could be calculated by subtracting intermediate consumption from total production.

It is the subjective interpretation of value that creates prerequisites for the search and justification of new theories in the economy - the commodity economy, the service economy, the economy of experience. When the mechanism linking the traditional business model and the structure of consumer priorities becomes outdated, the migration of values begins. Values begin to flow from staling models to new ones that are better able to meet the

most urgent needs and requirements of customers and at the same time take into account the interests of stakeholders.

Value as an object of entrepreneurship flows into the sphere of emotions, mental life or some sort of an experience which becomes an offer for businesses and a certain need for their customers, which they are willing to pay for (Cheng-Hsueh, 2019).

Therefore, it is relevant to mention the migration of value from service economy to the economy of experience.

1.2 Problem discussion

The move towards the experience economy brings along new ways of adding value to products. The concept of experience economy is rather new - it was introduced in 1998. Nevertheless, in today`s competitive and rapidly developing world it is not enough to lean on original drivers of experience economy which are the following (Pine & Gilmore, 2014):

• Mass customization; • Charging for experience; • Work as a theatre; • Fusing digital technologies with reality.

These drivers should be evolved and further developed. Moreover, they are often criticized for not paying enough attention to customers in general and to co-creation in particular (Prahalad & Ramaswamy, 2004), that is why we believe that co-creation should be definitely added to the instruments of the experience economy as a logical following of mass customization instrument.

Furthermore, a lot of companies try to attract customers with their emotions, making the process of experiencing a product more grasping and fruitful by introducing different profiles, levels, bonus cards, etc. All these are elements

of gamification and digitalization that are not just fusing digital technologies with reality, but transferring most of customers data and life into virtual world. That is why we also focus on gamification and digitalization as parts of the experience economy.

Despite experience economy methods to reach customers, companies apply lots of other methods, such as increasing brand loyalty, brand awareness to increase acknowledgment of a brand in the world and keep customers from switching to rivals. These are also extremely useful technics to add value to a product.

At the same time in order to make our paper clearer we want to avoid controversial and fuzzy aspects such as Charging for experience and Work as a theatre.

On the one hand, charging customers, or guests, as it is said in Pine and Gilmore’s book (2011) is one of the main instruments of the experience economy - the idea is to make guests pay for the experience they get inside the shore. But on the other hand, nowadays it would be amiss to pay a fee in order to enter a shop. Nevertheless, it is possible that in the nearest future managers responsible for customer attraction might be researching the possibility of introducing an admission fee to the shopping malls (Richards, 2001). But for now, this concept is too controversial, so we decided not to include it to our analysis.

The second instrument of original experience economy we do not apply in our degree project is Work as a theatre as it is too fuzzy and relies mainly on a certain company’s culture that is very complicated to assess.

Pine and Gilmore (2014) identify enhancing services and creating work as a theatre as another value-creating opportunity for a company to improve its products, services and increase its profits. The underlying idea here is that employees should represent their company in a suitable manner that would fit

the ensemble. They should not focus only on their aims, their actions must create a positive company`s image in total (not a group of individual performances).

All in all, it would be challenging to analyze in the paper whether this economic driver is vital, so we decided to include more tangible and assessable variables such as Mass customization and co-creation and Fusing digital technologies with reality on example of digitalization and gamification.

We believe that our paper would be useful for business world in terms of providing more information about experience economy concept and its main instruments. Furthermore, we also provide an empirical analysis on how companies from different clothing segments apply these instruments to add value to their products. To achieve these results in this paper the following key aspects of experience economy are studied: mass customization and co- creation; gamification and digitalization.

1.3 Purpose

The purpose of this paper is to identify instruments of the experience economy that could be used to add value to products and analyze how modern retail companies implement these instruments within their business activities.

1.4 Research questions

In order to fulfill the above stated purpose, the following questions have been raised in this paper:

1) What instruments of the experience economy could be used to add value to products?

2) How could modern retail companies from different segments of clothing industry implement co-creation, gamification and digitalization within their business approaches?

2 Methodology

There are two opposite scientific perspectives in the literature – positivism and hermeneutics (Bryman & Bell, 2019). However, for our thesis we have chosen another philosophical position –realism – since it suits our goals and our perception of this research the most. In fact, realism and positivism share two features: 1) a belief in existence of external reality studied by scientists; 2) an opinion that the natural and social sciences should use the same methods to collect and analyze data. Nevertheless, unlike positivists, realists argue that scientists` definition of reality is nonobjective and is subject to preconception. What is more, realists are convinced that they can build their beliefs upon theoretical terms and concepts compared to positivists who regard theory as a supplement to prediction. In our paper we want to study experience economy as an instrument for adding value to companies` products and to investigate what are the benefits for companies to implement this approach within their strategies. We would also like to study how different authors describe experience economy and use appropriate theories to back up our results. Thus, we share realistic scientific perspective which “asserts that, through the use of appropriate methods, reality can be understood” (Bryman & Bell, 2019, p.17).

Scientific approach that we rely on in our thesis is deduction. We begin our research with identifying a concept of adding value to products, then we view various types of adding value and after that we focus on one of them – the experience economy. In our thesis we have an explicit theoretical basis, we start to analyze how the experience economy can be applied to the real business world and what benefits companies can get from using it. Compared to inductive approach where “theory is the outcome of research”, the result of our research process is the findings and observations we manage to find out (Bryman & Bell, 2019, p.13).

In our paper we analyze a small sample of companies, that is why in order to study the elements of experience economy within enterprises` strategies and their impact on business activity, we have decided to focus on qualitative research strategy. The main difference between qualitative and quantitative types is that “quantitative researchers employ measurement and qualitative researchers do not” (Bryman & Bell, 2019, p.26).

Another important aspect in our methodology is data collection. Here it is crucial to mention the research design and research methods we based our paper on. According to Bryman and Bell (2019, p.41), a research method is “simply a technique for collecting data”. Before selecting a research method, the research design must be chosen as it “guides the execution of a research method” (Bryman & Bell, 2019, p.41). In our case we have decided to follow the comparative design because in order to fulfil our purpose, we need to investigate how experience economy is integrated within several companies and to compare the results.

Our main sources for data collection are books, articles, companies` reports and official websites, therefore, we mainly focus on secondary data. While looking for articles, we set some inclusion criteria – they should have been peer-reviewed and written in the English language. We searched for them at the university`s library search engine OneSearch and also in Google Scholar. These two search engines are reliable and trustworthy, consequently, the information we managed to gather is of good quality. Moreover, the articles we found “had gone through a process of double-blind peer review” (Bryman & Bell, 2019, p.90), therefore, they had been approved for publication by experts in the field and could be regarded as appropriate sources for the research.

Another way to find relevant literature is to use “the snowball method” (van Aken, et al., 2018, p.179). We checked reference lists in the articles we studied

and identified the most significant authors and the most frequently used articles in the field of the experience economy.

As for the websites, we use a lot of companies` official pages and various online magazines. We make sure that all of them are credible sources of information, that is why we are convinced that all the received data is of high quality.

We believe that this method of data collection suits our paper the most because we can get a huge amount of information about types of adding value to products, the experience economy as one of them and its integration within companies` work in a relatively short period of time and free of charge.

The sampling method for our paper is rather simple. We select 3 well established companies/brands that are involved in the experience economy in the retail sector. To make our paper more representable we use companies from different segments of clothing industry. Also, we include established companies from different markets to make a comparative analysis of how business world in different environment applies the experience economy methods and to compare the results of its application.

After collecting necessary information, we analyze it. We use comparative analysis since we revise the gathered information and organize it in the way that would suit our purpose and research questions the best. Moreover, we identify similar patterns in companies` behavior and therefore, manage to find the most effective strategies and approaches that companies can adhere to within the concept of experience economy in order to add value to their products (Dudovskiy, 2018).

To ensure scientific credibility of our thesis, we check the reliability and validity of the qualitative measurement process. Reliability implies that the results of the research would be relevant over time and that they are free from a subjective judgement (Bryman & Bell, 2019). In our thesis we study different

views on the same issue, therefore, we manage to form an objective opinion on types of value added especially the experience economy and the outcomes of its implementation within companies. As for validity, it shows “whether or not a measure of a concept really measures the concept” and in our research we focus on construct validity (Bryman & Bell, 2019, p.159). Thus, in order to reach the purpose of our thesis we analyze the relevant theory on value added, base our research on it and then try to develop the theoretical ideas by using our research results.

In order to assess credibility of the qualitative data, such criteria as trustworthiness and authenticity are used. All articles and books we use are trustworthy since we use relevant search engines and even set some inclusion criteria for them. The websites and reports we base our thesis on are also reliable sources of information because we use only official statistics and web pages of companies. Moreover, the research is authentic since we manage to reflect upon different viewpoints on the same concepts (Bryman & Bell, 2019).

Also, we would like to point out that our thesis conforms to main ethical principles that are used to work with data published online. Therefore, we adhere to “netiquette” (Bryman & Bell, 2019, p.669) - we follow the policies and data protection legislation recognized by online communities and appropriate institutions – we do not use any private statistics/messages/posts/discussions, we only use the information published on companies` official websites or in their official reports.

To summarize the methodology part, we use the following instruments in our paper:

• Scientific perspective: realism; • Scientific approach: deduction; • Research strategy: qualitative; • Research design: the comparative design;

• Research method: secondary data analysis; • Sampling method: 3 retail companies/brands from different segments of the clothing industry; • Data collection: secondary data, books, articles, companies` reports and official websites found in search engines or with the help of the “snowball method”; • Analysis method: comparative analysis; • Scientific credibility: qualitative data we use is reliable, valid, trustworthy and authentic; • Ethical considerations: in the thesis we conform to principles of “netiquette”.

3 Theory section 3.1 Defining experience economy

3.1.1 Theory of experience economy

As we have discussed in the introduction, every economic shift is correlated with the migration of value. According to Pine and Gilmore (2013, p.25), “every economy is defined by its predominant economic offering: what a buyer obtains from a seller in exchange for money”. The difference between various economic types could be illustrated with the following figure (Figure 1):

Figure 1. The progression of economic value

Source: Pine & Gilmore, 2011, p.111

It is clear from the figure that every economy type provides its own values for customers. This idea could be explained even by using coffee as an example. In agrarian economy coffee was grown and sold as a commodity, there were no other instruments or options to create anything more than that. The only difference between various kinds of coffee could be a place where it had been grown, weather conditions, etc. Then customers’ needs developed, people became more sophisticated and pickier and the economy had to shift to the

goods instead of commodities. Entrepreneurs were not trying to sell coffee beans anymore; they developed their supply into goods such as packs of coffee and other products. In that case they could add more distinctive features to the goods, thus adding more value to them and making them more adjusted for customers.

The following step after the industrialization and mass production of goods was the development of services and another shift in the economy. What at first was seen as “unproductive labour” (Smith, 2007) became a major part of economy for every developed country. That migration of value was also connected with a desire of businesses to increase sales of their products and meet the needs of customers.

Nowadays we are experiencing another economic shift which was described by Pine and Gilmore more than 20 years ago. That is the shift to the experience economy.

In this paper we focus a lot on a concept of the experience economy, thus we believe it is important to provide a complete understanding of this phenomenon and show it from different perspectives. So, what is the experience economy? This term appeared in the scientific world in 1994 when Pine and Gilmour published their first book on this topic (Pine and Gilmore, 2013).

In their book “The Experience Economy” Joseph B. Pine and James H. Gilmore assume that experience is the fourth economic proposal, which is as strikingly different from services as services from goods (Pine & Gilmore, 2011). The consumer is willing to pay for their own feelings and sensations. The main goal of any enterprise at this step is to establish a strong emotional connection with a consumer.

As it was mentioned before, services as well as goods are related to impressions. When using a service, the consumer experiences certain

emotions. If the experience was strong enough, the client would love to use this service again, thus it is an important source of increasing loyalty (Pine & Gilmore, 2013)

Marketers claim that the interaction of the customer and supplier has been transformed due to the decreasing influence of traditional advertising, increasing consumer awareness and independence. In an era of healthy egocentrism, a product or service must be as personalized and unique as possible in order for it to find its buyer. When all the products and services are available on the market and can be obtained in many different places, companies which are not using the experience economy approaches risk to lose loyalty of their customers (Prahalad & Ramaswamy, 2004).

The class boundaries of consumption are blurred. As goods are available in various price categories, the modern consumer cannot be attracted by commoditized goods and services any more, he/she follows their psycho- emotional desires and seeks to satisfy the needs of a higher order from the field of emotions and impressions. As the basic physiological needs are met, the need for security, belonging, and respect, the need for the upper stages of the Maslow pyramid grow: cognitive, aesthetic, and self-actualization needs are to be satisfied. The experience economy is a natural stage of development that corresponds to human psychology (Rampen, 2013).

The experience economy is regarded by Pine and Gilmore (2011) as a new stage after a service economy and they see it as a logical development of global economy (Figure 1). They explain that with the development of technologies, digital revolutions, customers have become more and more sophisticated, they obtain more information about any product and expect from businesses more openness and transparency towards them (Prahalad & Ramaswamy, 2004). That is why it is important to create a connection with the customers and be able to maintain it not only through good quality services but also through the experience customers get from the products.

3.1.2 Types of experiences

Pine and Gilmore (2011) suggest the following figure (Figure 2) while discussing the types of experiences. They identify 4 experience realms that are formed by the intersection of two axes. The horizontal axis characterizes guest participation that can be either passive or active depending on whether customers can directly affect the performance or not. As for the vertical axis, it reflects the connection between the customer and the event and there are two ends of the spectrum – absorption (a customer gets the experience from the outside) and immersion (a customer is physically a part of the experience). As a result of axes` crossing, the “4Es” can be defined – entertainment, educational, escapist and esthetic.

Figure 2. Experience realms

Source: Pine & Gilmore, 2011, p. 46

Entertainment – customers passively absorb the experiences with the help of their senses, for example, while listening to music or reading a favorite book. This type of experiences is considered to be the oldest one and the most familiar to people.

Educational – unlike the previous type, it implies customers` active physical or mental participation in the experience while at the same time absorption of the events that evolve in front of them. Here great examples would be a session

with a personal trainer or an interactive class (the one where the focus is on communication between a teacher and a student rather than on strict obedience).

Escapist – it is the “polar opposite of pure entertainment” (Pine & Gilmore, 2011, p. 49). Here customers completely immerse in experiences by taking an active part in them. Such experiences help people to escape from reality and find themselves in totally new surroundings. It can be an online chat, a video game or any other simulator that brings customers to an alternative reality and enable them to influence it.

Esthetic – customers are immersed in the event but they neither affect nor change it. They get fascinated by being in a specific place, for example, they might get impressed by the views, history and architecture sitting at the Caffe Florian in Venice (the oldest coffeehouse in the world). The same would apply to Disney shop where customers can listen to music from Disney movies, see nicely painted themed walls and enjoy the décor.

In general, the following conclusion can be made – participants of an entertainment experience are eager to enjoy, of an educational experience – to learn, of an escapist experience – to do/go and of an esthetic experience – to just be.

Fiore et al. (2007) continue the research on types of experience economy and identify 4 groups of techniques that companies should use to enhance customers` experiences. Authors propose a classification of “4Ps”:

• People – the way companies interact with their potential customers. For instance, if guests can watch a chef impressively cooking a meal right in front of their table, it would leave them with a myriad of emotions and they would come again to the same place to get immersed in this kind of experience.

• Product Presentation – the sales of goods and services must be thought through in a precise way. Managers must take into account every little detail – how the goods are displayed or packaged, how exactly the hall should be illuminated and what scents should be present there. Every detail matters because it can either attract or repel a potential customer. • Promotion – any form of advertising should be accompanied by a special detail that differentiates a company from its competitors. For example, a hotel brochure tells a mysterious story about a strangely- shaped tree in its garden. • Properties – the way that interior, architecture and the landscape are presented by a company. Customers` experience can be affected even by some exterior elements like the colors and the style of a signage or the name of the company itself. These 4Ps are based on categories that were offered by Schmitt and Simonson (1997). After identifying them Fiore et al. (2007) analyze 4Es and 4Ps and give examples of how each of 4Ps can positively affect each of 4Es.

It must be noted that the 4Es model is used not only as a base for further research but can also be applied independently in various contexts (Seo, 2013). Thus, there are authors who conduct research on the role of 4 realms of experience in tourism (Hayes & McLeod, 2007), wine tourism (Quadri-Felitti & Fiore, 2012)or retail (Kozinets, et al., 2004).

3.2 Value-creating instruments of the experience economy

3.2.1 From mass customization to co-creation

Nowadays we can see the transition of mass and large-scale production to the production of individual or small series of modified products. This transition as well as a set of tools for its implementation has been called as a customization concept (Pine, 1993).

Toffler (1980) in his work studied the features of the customer behavior. He came up with a model in which he introduced a new term “prosumer", which is the combination of "consumer" and "producer". According to this model, as soon as basic goods and services are no longer able to meet consumer demand, further increase in production will be possible due to implementation of customization.

There are many different reasons for the transition from the service economy to the experience economy, such as (Pine, et al., 1995):

1. Individualization and a need for authenticity as powerful driving forces of the experience economy. 2. The emergence of a new need for customers of getting additional emotions and experiences during purchases. 3. Current trends of individualizing methods of solving customer problems, i.e. some things are produced in one of a kind piece. 4. Individualization of preferences for customers of service-oriented businesses. Companies tend to learn about customer problems and find an appropriate solution to each case.

Customization is one of the key aspects of the experience economy. It is due to the unique approach to each client that the service begins to turn into an experience. Pine and Gilmore (2011) claim that customization is an essential tool for reducing the "consumer concession" - the difference between what a consumer wants to get and what he/she actually gets. This concept refers to the perception of the same product by different consumers. Since each person is unique, the response to a particular product or service differs. In case of customization, there will be no consumer concessions at all (Kamis, 2012).

At the end of the 20th century, customization was seen as a tool for differentiating the company's offer, as well as creating a special product for a narrow audience and attracting new consumers.

Chase, et al. (2006) describe this concept in a different way. Customization helps to save the resources of the company by letting customers get engaged in the mass product differentiation. In this interpretation, customization practically does not affect the essence of the product. Customization efforts are focused on its service support, sales and delivery organization. According to the results of experiments, customers feel more benefits and get more experience from the customized interface of retail offline and online trade.

Customization by its nature of product changes can be of several types (Chase, et al., 2006):

1. Expert, when a product is created for each client. In this case it can also be called individual customization; 2. Modular, which means that it allows customers to choose the necessary configuration from the options offered by the company; 3. Based on appearance, i.e. based on external attributes such as packaging design, product shape etc.

There is also a division based solely on the production approach (Pine & Gilmore, 2011):

1. Horizontal customization, that is the modification of existing products with the same components; 2. Vertical customization, i.e. creating a unique product from unique components that were originally created for a specific customer.

In 2018, a research firm Researchscape conducted a study on customization in the United States and found that 44% of customers were willing to return to the store if they received an offer based on their shopping experience. 39% of these customers will tell their friends and family about the store and 32% will leave a positive review (Researchscape International, 2018).

Another survey conducted by Epsilon in 2017 showed that 89% of customers were ready to cooperate with those financial companies willing to take into account their personal experience (Epsilon Data Management, 2018).

Companies tend to become more customer-oriented and focused on solving their problems. There are various solutions which might customize the client's communication with a business such as: correct settings of websites, storing payment history and preparing offers based on them, as well as tips about other products that may be useful in the current situation (Stump, et al., 2002).

Customization is one of the factors which can help to motivate customers to use a service or a product frequently. If a business involves the user into either creating a part of the product or in its customization, then it is getting greater chances of “binding” such clients and gathering new experience for its further implementation and development (Tseng & Jiao, 2001).

In fact, customization is a special strategy of enterprise management, which is based on the desire to fully take into account the requirements of a particular consumer in the design, marketing and operation of the product. Customization requires the formation of a new customer-oriented management system.

However, there are scholars who tend to believe that muss customization is neither relevant nor efficient anymore. They say that sophisticated customers want more “influence in every part of the business system” (Prahalad & Ramaswamy, 2004, p.6), they seek interaction with firms in order to co-create value of the products and in the end get better personalized experiences.

Mass customization, according to Piller et al. (2004), can be characterized by lack of customer integration and interaction because companies and consumers do not have a dialogue. Customers are integrated into value creation only in terms of designing or modifying their product out of pre- defined options. Therefore, the “prosumer” definition of customers that was

mentioned by Toffler (1980) is not correct when applying to mass customization. Customers are rather co-designers than co-producers in this case.

Mass customization or non-interactive marketing does not meet all demands of the modern market, products and services must be produced and delivered “in a person-to-person communication with less left to mass communication” (Gummesson, 1987, p.11). Therefore, it is time for companies to move from mass customization to co-creation to gain competitive advantage.

Pine and Gilmore (2011) do not mention co-creation as a value-creating instrument of the experience economy. Researchers attribute their book and articles to the first-generation experience economy, However, those scholars who focus on customers as co-producers and co-creation as a value creation tool are considered to be the advocates of the second-generation experience economy (Alexiou, 2020).

Co-creation is “joint creation of value by the company and the customer” (Prahalad & Ramaswamy, 2004, p.8) and it is beneficial for both of them:

• Companies can improve the end product by allowing customers to take part in the production process beginning from the ideation stage; • Customers receive superior personalized products and services (Kotler, et al., 2016, p.50).

Co-creation of value is built on 4 main blocks that are presented in Figure 3.

Figure 3. Building blocks of co-creation of value

Source: Prahalad & Ramaswamy, 2004, p.9.

Dialogue implies interaction, interest and engagement on both sides and it can be active only if two parts are equal and have access to the same amount of information. Therefore, companies must be transparent which in turn leads to customers` better assessment of all involved risks or benefits in making this or that decision.

All in all, if companies not only want to stay afloat, but also remain competitive, they must be able to co-create unique experiences with their customers.

3.2.2 Digitalization and Gamification

Nowadays it is absolutely evident that modern digital technologies affect our life more and more. According to statistical data, 29% of smartphone users spend 3-5 hours per day in their smartphones and other gadgets (Statista GmbH, 2017). What is more, there will be approximately 4 billion of smartphone users in the world by 2021 (Statista GmbH, 2020). These figures demonstrate a huge role of digital technologies and also imply that companies should adapt to this tendency and try to find new ways of satisfying their

buyers by offering them an unforgettable experience with the help of digital advancements.

It must be noted that consumers` power in the modern economy is increasing because of the growing access to information. Now buyers can easily compare different products online and affect companies’ choices and decisions through feedback and other communication channels (Fokina & Barinov, 2019).

According to World Economic Forum (2018) “vision of companies selling experiences is now becoming a reality”. Due to the rapid innovations, increasing connectivity, development of analytics and artificial intelligence, a lot of companies on different markets have to reconsider if their strategies and business models are relevant and competitive in such circumstances.

In this case Pine and Gilmore (2014) suggest that it would be inevitable for companies to put more and more resources into ‘virtuality’ and creation of new types of experiences that never existed before. A good example of infusing digital technologies into real life could be an IKEA mobile application based on augmented reality (AR) technologies that can be used to see how IKEA furniture would fit the room. That creates a strong additional connection between the company and its customers and also attracts more people of younger generations which are keen on new technologies.

Digitalization:

According to Gartner Glossary (2020), digitalization is “the use of digital technologies to change a business model and provide new revenue and value- producing opportunities”. However, there are some scholars who believe that digitalization should not only be referred to the economic sphere of life, but should also be associated with the changes in people`s daily routine. Thus, Brennen and Kreiss (2014) think of digitalization as “the way in which many domains of social life are restructured around digital communication and media infrastructures”. Therefore, they believe that digitalization is related to

social life and changes the way people interact. The following figures (including Figure 4) illustrate the scale and speed of technologies` expansion (Muro, et al., 2017):

• Microsoft Office in 2017 had more than 1.2 billion users worldwide; • Annual sales of personal computers reached 260 million in 2017 compared to 700 thousand units in 1980.

Figure 4. Worldwide digital device penetration from 1980 to 2015, in billions

Source: Muro, et al., 2017, p.6

Nevertheless, the arrival of technologies into everyday life resulted in the creation of digital business models. Consequently, it is more correct to use the definition of digitalization that would include both social and economic aspects (Jason, 2018). Thus, digitalization is “the process of employing digital technologies and information to transform business operations” (Gartner, Inc, 2020)

Datafication - the conversion of people`s daily activities, preferences, shopping habits etc. into the data format – is highly useful for businesses when it comes to learning customer`s preferences (Flyverbom, et al., 2019). As a result, customers` data that can be easily collected, stored, exchanged and

analyzed with the help of digital tools might help companies to develop new products or improve the existing ones (Muro, et al., 2017). Therefore, digitalization plays an important role in terms of adding value to enterprise`s goods.

What is more, digitalization results in reduced marginal costs, more comprehensive analysis and new formats of work, for example, remote work, e-commerce, internet marketplaces and many more (Muro, et al., 2017).

Gamification:

Gamification is a very popular concept in the modern world and a lot of companies are trying to adapt it to their needs. It is proved that involvement into a game creates stronger connection between a company and a customer (Strong, 2014). At the same time, gamification as a concept is not the same as games and gaming, thus a lot of people have wrong perception of this approach. In order to provide a general understanding of what a gamification is the following quote can be used: “the process of game-thinking and game mechanics to engage users and solve problems” (Zichermann & Cunningham, 2011, p.xiv). Gamification is a very effective tool in terms of rousing the users` interest as it makes ordinary tasks funny, challenging and rewarding ( (Kappen & Nacke, 2103).

What is more, gamification instruments can be applied to reach a variety of goals for both employees and consumers of a company. In this paper gamification is studied as a supplement to affect consumer’s behaviour. Another significant theoretical aspect of gamification is that it should not be implemented to solve core business problems, but to attract customers’ attention, increase brand awareness and foster loyalty (Zichermann & Cunningham, 2011).

In order to keep customers attracted and engaged it is important to use a phenomenon of “flow”, which states for keeping customers between boredom and anxiety as it is shown in Figure 5 (Zichermann & Cunningham, 2011). Figure 5. The state of flow diagram

Source: Zichermann, & Cunningham, 2011, p.18 To keep customers in that zone gamification offers a bunch of different tools and mechanics, which can be seen as rewards and ways to motivate humans and divided into two big groups: extrinsic and intrinsic. While extrinsic motivation includes doing actions that lead to external rewards, such as money, trophies, prizes, etc., intrinsic motivation implies getting intangible rewards such as status, sense of fun, acknowledgement of society and others (Yang, et al., 2017; Patricio, et al., 2018).

It must be noted that several researches were carried out regarding the most important aspects of applying the gamification tool. Final results, achieved by Yang, et al. (2017), state that the most important parameters in terms of user engagement and positive influence on brand attitude are usefulness and enjoyment. At the same time ease of use does not seem to affect consumers’ decisions while social influence is important only in terms of enhancing brand attitude.

In the following chapter we are going to have a look on several retail companies working in the clothing industry and analyze what experience economy approaches they use and what is the difference between various

segments of the market. Moreover, in the conclusion part we describe how chosen companies add value to their products with the experience economy technics.

4 Empirical section

4.1 Description of Benetton Group S.R.L.

Co-creation

United Colors of Benetton, an Italian company with the headquarters in Ponzano Veneto, uses some co-creation tools in order to engage customers within its work and get to know them better. The company launched the global interactive competition “It`s my time” in 2010 where people could upload their pictures or videos on company`s website and had a chance to become models for the advertising campaign for autumn-winter 2010/2011 (Design Scene Magazine, 2010). Thus, United Colors of Benetton gave customers an interactive form of experience by letting them take a part in that whole event. The competition made it possible for buyers to share their tastes, personal style and meet like-minded people while the company managed to increase its brand awareness and attract more customers to its shops (Benetton Group, 2010).

Digitalization

Since there is a fierce competition between brands, Benetton also implements digitalizaton techniques in order to attract more customers. Thus, Digital Signage systems was introduced. The idea was to create a unique multimedia channel in order to communicate with potential customers. The project involved flagship stores in various cities of the world: Milan, Barcelona, Munich, London, Moscow, New Delhi, Paris and many others (Benetton group, 2018).

The project was designed to get the attention of passers-by, which would help outstand the rivals and interact with potential buyers. In order to achieve these goals, video walls were installed in store window frames, which became some sort of a bridge of communication between the brand and the consumer. It also let everyone feel like a part of a world-famous company.

Interactive technologies were used for this idea to come true. Due to cameras and special equipment, which broadcasted the image of the person standing in front of them on video screens, the passers-by could feel like the face of the brand (Zanotti, 2018).

This project was carried by the communication research center of Benetton Group in Italy named Fabrica. It is worth noting that none of the solutions presented on the market fully met the requirements of Fabrica specialists. Therefore, they developed their own technique that allowed them to create content and centrally manage the entire Digital Signage system, including interactive applications (Benetton group, 2018).

Content was given priority in the project. As a rule, fashion brands focus on demonstrating their collections on displays. It is a different story with Benetton Group, as it was important for the company to settle close relations and be able to communicate with its audience closer.

Moreover, the content reflected its brand philosophy with the latest news and updates. In addition, the Benetton Live window project provided an opportunity for talented students of art schools and universities to express themselves. Interesting works of young people were selected by Fabrica employees and broadcasted in different cities of the world (Zanotti, 2018).

Another significant feature of the installation was its interactivity. Several ideas were implemented as part of the project. For instance, standing in front of the window of Benetton store in London, it was possible to see what was happening in front of the window in New Delhi in real life time. Another option was to replace the picture of a customer`s face with the one on the screen, so that a potential buyer could literally try different clothes on without even going inside of the store with just a few clicks on one’s mobile phone or any electronic device (Zanotti, 2018).

Non-standard solutions arouse people's interest and positive emotions. This was confirmed by passers-by who were happy to stop in front of the interactive windows of Benetton. The project spread positive emotions and made it possible for passers-by to take photos and post them on social networks, which helped to increase brand awareness of the company around the world. Moreover, another significant bonus for the company was that people were sharing their impressions with others, therefore boosting Benetton`s brand loyalty (Zanotti, 2018).

Today, the store is rapidly changing from a regular shopping place to a special unique world, where the customer gets emotions from communicating with the brand. The Benetton interactive displays project rejected the concept of a one- way communication between the brand and the buyer and with the help of modern technologies created a new way of communication, that allowed to obtain huge amount of feedback and establish closer relations with their customers.

Moreover, Benneton Group is developig the website`s personalization system – a new mechanic that can display the number of people who had purchased a certain product was added (Appendix A). As an experiment, the company decided to divide the audience in half. At the same time, half of the people could see this mechanic, while others could not. A month after the introduction of this feature, it turned out that the group of people who could observe this indicator, carried out their orders 10% more often.

What is more, the company introduced another feature, which provided additional information about the advantages of a particular product offered to the customer (Appendix B). It gave the buyers all sorts of information about the manufacturer, the country of origin, the possible delivery time, the material in the product. According to the results of this test, where this function was also displayed for only half of the site's visitors, sales increased by 6.5% compared to those who did not see this information (Figure 6).

Figure 6. Personalization mechanic effectiveness

Source: MindBox, 2019

Thus, the company came to the conclusion that the personalization of the website directly affected the number of sales made online. In addition, this gave the company an impetus to implement a detailed recommendation function for each customer, which would be based on their previous purchases or products that they had viewed earlier.

It is important for the company to understand who their clients are and what motivates them to become loyal - this is critical in terms of building a brand. Therefore, the main priority for the last 2 years for Benetton Group has been digitizing the customer's interaction with the brand by settin up website`s personalization and integrating personal product recommendations based on machine learning into emails and on the site (Medvedev, 2019). This knowledge helps company to rebuild the processes of creating and allocating collections in different places and select position of the products more accurately, as well as build point-to-point communications and provide additional services to the loyalty program members (Boujena & Johnston, 2013).

Gamification

Besides implementing digitalization features, Benetton Group moves further and introduces gamification models that result in its greater development. One

of the main examples is the Color Club loyalty program. The authorization is effected with the mobile phone number or a virtual card in the wallet-apps of iOS and Android (Medvedev, 2019).

After launching the Color Club loyalty program offline and online, United Colors of Benetton customers received an omnichannel loyalty program with a single personal account on the website, a virtual card, authorization via SMS and the ability to save and spend points anywhere. The team of United Colors of Benetton was able to recognize its customers, started tracking repeat purchases offline, and set up automatic campaigns and personal promotions to increase repeat purchases (Segura, 2019).

As a result, automatic communications and personal promotions increased the average revenue per customer and order conversion among loyalty program participants.

In this analysis we have researched a successful implementation of modern digital technologies (Benetton Live) that allowed to acquire new customers around the world, enhance connection with the old ones and create an event with positive experience and emotions for people in general. What is more, the company also introduced several gamification elements, such as a profile with points, what provides additional engagement for customers while using Benneton Group’s products. In addition, it can be seen how experience economy instruments allow to increase company’s results.

4.2 Description of Nike, Inc.

Nike is a worldwide famous sportswear and sport apparel brand. The company is also the largest in footwear and athletic apparel and has the greatest market share in footwear in all markets and all major categories (Danziger, 2018). What is more, Nike managed to create a huge number of fans around the world

who are very passionate about company’s products and are often called “sneakerheads” (Cooper, 2019).

Co-creation

Co-creation concept is significant for Nike`s strategy as the company tries to personalize approach to every customer. Clients co-create together with Nike in several different ways. First of all, there is a Nike by you service which allows people to modify and personalize footwear and athletic apparel. Personalization implies not only changing a color of a shoe, but also choosing materials and a possibility to modify almost every part of a shoe separately. Therefore, it provides an ability to create a completely unique footwear and apparel for customers (Grover, 2019). According to one of the footwear creators, “when a shoe that you've designed arrives at your door, it changes the way you feel about Nike” (Oser, 2005, p.4).

Moreover, all the customers take part in co-creation with Nike indirectly as all the data from purchases and customer activity is processed and used as an instrument for further company development. The most data is collected from NikePlus users as nowadays a lot of communication with the company goes through the application, users can even reserve items they want or buy instantly through it not using cashiers (Grover, 2019).

Digitalization

Nike company started its path towards digitalization around 15 years ago when it developed an application Nike+ allowing customers to track how much they walk and run. What is very specific here is that Nike did not follow a desire to just sell more shoes and other products, but the company tried to transfer its mission and purpose into the application as distinct from many other companies (Cameron, 2016).

Nowadays Nike continues to enhance its technological and digital performance. The main approach here is constant upgrades of its application

(the Nike app), collecting data from customers and providing more and more perks for NikePlus loyalty program members. Today it is not only an instrument for measuring how much people run, but it is one of the main elements for Nike buyers (Danziger, 2018). For example, in 2018 Nike opened a new type of shop in Los Angeles which is called Nike by Melrose (name of the street in Los Angeles). This shop was the first one of “Nike Live” concept and its name reflects not only the name of the street where it is located, but also that this shop is opened by people of Melrose and for them (Bird, 2018). First of all, the shop was made specifically for NikePlus members so they can experience it the most. Nike collects data from members in the nearby districts and alters the shop’s stock according to their preferences. Due to the received data they manage to streamline the product assortment and swap out 15% of apparel and 25% of footwear every 2 weeks (Danziger, 2018). Moreover, NikePlus members can make a lot of use out of the application as they can reserve items in the shop, scan and order items of their size and color they want and many more. The shop system even recognizes who exactly is coming to the shop when a person enters a certain area, so that person’s size of clothes and items they like are set aside (Bird, 2018). Though the shop is extremely digital, Nike understands how important the social part of shopping is, that is why customers have a possibility to book 15-minute sessions with Nike footwear experts at the Sneaker bar in the shop to get more in-depth knowledge and information they need.

Another example of Nike digitalization implementation is its flagship store in New York. According to Heidi O’Neill, the president of Nike’s direct-to- consumer business, “this store is built to come alive for members”, meaning Nike Plus program members (Green, 2018). For instance, through the app members can scan and instantly buy the whole look of any mannequin in the shop, they can also have access to shoes in demand and reserve them and book a place in a lounge zone on the top floor for a consultation with a Nike expert

(Appendix C). Moreover, with the help of the app users can buy products without using cashiers, it is possible to scan any product and instantly buy it and go out.

With the help of digitalization Nike tries to reach every customer and better understand what exactly they need. The company collects a lot of data, analyzes it and then provides its clients with products and services they desire. Also, Nike tries to make life of loyalty program members easier in physical shops giving them a lot of advantages and perks.

Gamification

Gamification approaches were used by Nike in 2006 for the first time. It was the same application that started an era of digitalization for company – Nike+. A lot of people had a chance to use it for tracking their running progress, thus, connecting themselves with the company (Gamewheel Ltd, 2020). Nowadays Nike has plenty of apps for different purposes. For example, there is an application for running -Nike Run Club (NRC) and one for fitness – Nike Training Club (NTC). Both of them have a similar structure and goals and contain many gamification mechanisms. For example, in the running application people create their own profile, choose an avatar, set goals and complete challenges alone or with friends. For completing goals and certain events users receive achievements which they can share in social networks (Appendix D). What is more, Nike online shopping system is also integrated into the application always tempting its users to buy new Nike products (Appcues, 2019).

Furthermore, a Chinese department of Nike in collaboration with other companies held an event where people could try new Nike footwear on a treadmill. The main feature of the event was its integration with VR technologies, thus people tried to run in fantasy worlds and scenarios for several minutes (Howland, 2018).

4.3 Description of Louis Vuitton company

Louis Vuitton is one of the brands owned by LVMH – a world leader in luxury goods (LVMH Group, 2020). The whole luxury segment is in the way of its digital transformation – data collected with digital techniques can help companies to build close relationships with the customers, capture customers` preferences and therefore, offer them more valuable experiences (McKinsey&Company, 2018).

Even though online sales of luxury goods account for less than 15% of the whole luxury market, according to McKinsey&Company (2018), by 2025 this figure will reach almost 20%, or about €74 billion. Figure 7 shows that the most famous luxury brands increase their spendings on events and digital techniques in order to adapt to the new reality and keep up with customers` changing demands.

Figure 7. Marketing investment by channel in 2016, percent

Source: McKinsey&Company, 2018, p.8

LVMH group realized the significance of implementing digital elements within its strategy, that is why the group created a new position of chief digital officer in 2015 and offered it to Ian Rogers. He pays significant attention to the omnichannel commerce that is taking place at LVMH in order to ensure

constant interaction between the company and its customers (White, 2018). Luxury retailing is all “about the customer experience, personalization and customer service…it`s all down to the service that you get” (Hoang, 2019) and that is what Louis Vuitton is always working on.

Just like any other luxury brand, Louis Vuitton is based on the idea of exclusivity, therefore, the brand itself represents a specific experience – the shopping in the luxury store as well as the emotions that a customer gets having an item from Louis Vuitton in possession (Kompella, 2014). However, the brand also uses experience economy instruments in order to have a one-to- one experience with every customer to maintain its brand value.

Co-creation

In 2017 Louis Vuitton started “Make It Yours” campaign giving customers an opportunity to customize their purchases (Louis Vuitton, 2020). However, the selection of patches and travel stickers presented on the website is limited, therefore, Louis Vuitton has not managed to adhere to co-creation principles yet – customers can only take part in the design of the already existed bag or any other accessory.

Digitalization

Not only does Louis Vuitton use digital technologies to facilitate the shopping process and ensure personalized customer experience, but also to integrate customers in the brands` events and communicate with them. Thus, in 2010 when a new boutique in London was open, Louis Vuitton had a great opening ceremony. Many TV stars, bloggers and journalists were invited there and customers and company`s fans could follow the event online. Moreover, in the special application viewers could update their status and post comments related to the opening ceremony (Mosca & Civera, 2017).

The next example is Louis Vuitton`s pop-up shop that was open From July 12 to 21 in 2019 to celebrate the new fall collection. The interior as well as the

exterior of the store was painted neon green in order to attract customers (Appendix E). The most interesting part of the pop-up shop was that director of the collection – Virgil Abloh – invited his followers to use the green wall as the green screen and turn it into whatever they could think of. As a result, the whole Instagram was full of creative pictures in front of the store (Fenner, 2019).

Another example of digitalization technique is Louis Vuitton`s digital assistant that operates in the United Kingdom. This chatbot is accessible through Facebook Messenger and provides customers with any information they might need as they complete their purchase – “it can be help with finding a desired item or advise on product availability in the UK stores” (Louis Vuitton, 2019). The digital assistant works everyday 24 hours a day and ensures real-time personalized communication.

One of the biggest Louis Vuitton`s market is China; therefore, it is reasonable to offer the Chinese customers some extra digital possibilities. Thus, the brand uses China`s most popular application – WeChat – to interact with local consumers. By clicking on Louis Vuitton`s account, users are greeted with an avatar holding a branded bag. Then they get the information on what they can expect from the program: read articles about Louis Vuitton, get the addresses, opening hours and product line of all brand`s stores. What is more, sometimes users can take part in different competitions. For example, to promote the program, Louis Vuitton gave the first 2000 users a chance to win branded badges (Zheng, 2019).

Gamification.

Louis Vuitton is getting into gaming in order to get closer to its millennial customers and offer them the kind of the emotions they were looking for. The brand collaborated with Riot Games, a famous game developer, and together they created outfits for characters in a popular video game League of Legends.

At the same time Louis Vuitton launched a capsule collection that “featured unique and original references true to the universe of League of Legends” (Louis Vuitton, 2019). Character`s “skin” and Louis Vuitton`s pieces of collection are presented in Appendix F.

Louis Vuitton also implements some of the gamification elements within its temporary exhibitions. The interactive “Louis Vuitton X” exhibition that was held in Beverly Hills offered an exclusive experience – using a smartphone guests could scan a bar-code and receive specifically developed for the exhibition three Instagram and Snapchat camera effects (Scharf, 2019).

4.4 Comparative analysis of companies

4.4.1 Market segments

Currently, there are many different classifications for market segmentation in terms of the clothing industry. However, in our work, we use a classification that is based on price levels, as well as on the availability of goods. According to this simplest classification, there are clothing classes, such as luxury, middle and mass-market. In the modern clothing market, there is no single clear classification system yet, as many of the existing concepts are blurred or floating (Choi, 2014).

The luxury category is the most expensive segment, where the brand name is often associated with the name of the designer. This category, in addition to the pricing policy, is characterized by a small series of models, as well as high quality of applied materials and a high level of skill (Gardetti & Muthu, 2015). In addition, it should be noted that this segment is characterized by increased customer loyalty. This assumption is confirmed by the uniqueness and sometimes unavailability of some products. In this case, clients are looking for additional expression of their own status (Kashmiri, 2015).

Middle segment brands aim at mass production of clothing at medium and low price categories. Thus, in this segment brands provide their customers with well-established basic standards of clothing of average quality, which limits the usage time of the product. Consequently, there is a frequent need to buy new things, which causes excessive consumption (Gardetti & Muthu, 2015). However, customer loyalty in this segment is much lower. During the economic crisis, the target audience may temporarily leave it and go to the mass-market segment. Medium segment gives its client fashion, but based on their own pre-established individual style (Choi, 2014).

The mass-market segment of the market is represented by brands, which specialize in selling products at a low price. At the same time, they do not set themselves any goals to provide their customers with the opportunity to individualize their own style, which is why the product line is limited by the demand for standardized lines. In this case, loyalty is almost nonexistent. This segment offers its customers a sense of choice, a wide variety of goods at a low price. The consumer, in fact, does not care what brand to buy, he/she seeks only the price/quality ratio (Choi, 2014).

In this degree project we chose several companies as representatives of certain market segment: Benetton Group – middle segment, Nike – middle segment with athletic apparel and footwear spesialization and Louis Vuitton – luxury market segment.

4.4.2 Types of experiences

As it is seen from companies` descriptions, they tend to use different experience economy instruments and approaches depending on their market segment, brand image, strategy and other factors. The same is applicable for types of experiences that companies provide for their customers.

To begin with, all the companies (Benetton Group, Nike, Louis Vuitton) have a major goal to increase the number of customers around the world and also increase the brand loyalty among them. But at the same time companies apply different approaches to reach that goal. For instance, Benetton Group tends to use more of Entertaining and Escapist types of experiences as their projects include attracting buyers` by using some digital techniques. At the same time other projects require customers` active participation so that they could immerse into the “new reality”.

Nike company has a lot in common with Benetton Group in that area as it also provides customers with Entertaining experience when they use their mobile phones for doing lots of activities and receiving perks from the company. Moreover, Nike has a very specific and recognizable interior and exterior of its shops what additionally provides Esthetic experience for buyers.

On the contrary, Louis Vuitton differs from Benetton Group and Nike. In most of campaigns the company tries to provide customers with Esthetic experiences, to show that its products and designs are close to becoming an art than just a piece of fabric. The most evident example of such approach is company`s exhibition in Beverly-Hills where people can admire its products and learn more about them having Educational experience as well. But at the same time when it comes to a certain group of customers, Chinese millennials for instance, Louis Vuitton shows its flexibility and offers both Entertaining experience during online games championships and Escapist experience as the company did at the pop-up shop letting customers to take pictures with custom backgrounds.

4.4.3 Co-creation approach analysis

The companies studied in this paper show different level of co-creation implementation within their strategies. It must be noted that none of the

companies fully use co-creation as a form of collaboration with their customers.

Nike as well as Louis Vuitton let their buyers customize the purchase by adding the initials or badges to the item, choosing color and even the material (as it is in the case of Nike) of the goods. However, Benetton Group does not have such option – customers can buy the existing product with no opportunities to personalize it anyhow.

It also must be mentioned that Benetton Group is the only company among the three mentioned in our paper that is ready to co-create its advertising campaigns with the customers. The competition run by Benetton Group implied that the winners would be ordinary customers that like company`s product range. On the contrary, Nike usually films sports stars and Louis Vuitton – famous actors, musicians and so on. These two companies have a specific image – Nike is usually associated with professional sports while Louis Vuitton is associated with luxury.

In general, Louis Vuitton does not have any form of co-creation in its business strategy. It is a very conservative luxury brand that is valued for its unchanging and unique style and for its status and limited availability. Therefore, co- creation would contradict the principles of the brand. However, Louis Vuitton had to adapt to customers` demand for personalization and as a result, the brand offered such mass customization technique as “Make it Yours” campaign studied in our paper.

As for Nike, the company embraces indirect co-creation meaning that it collects all the necessary data about customers` preferences and then uses it to modify the products. Thus, customers do not directly co-create any goods but their purchase history, wish lists and many other activities on the website or in the application might affect the next Nike`s product line.

Benetton Group does not offer any customizing tools but it embraces some of the co-creation instruments. The company is a representative of the middle segment, therefore, it produces large volumes of standard goods and benefits from economy of scale. Consequently, from an economic point of view it would not be efficient for Benetton Group to implement co-creation in its production process.

4.4.4 Digitalization approach analysis

Nowadays digitalization is one of the key instruments for many companies in terms of data collection, communication with clients, developing online shopping, etc. In our case all three companies use digitalization technics, but they do it with different purposes and goals. For example, Louis Vuitton almost does not use digitalization for providing exceptional opportunities for the company’s clients, thus, most of digitalization instruments are used to develop online shopping, particularly website and services, and to collect data from clients, providing personal advertising and personal offers via e-mail and other communication sources. But in overall digitalization of the company is not a huge strategic goal for Louis Vuitton and it is not as actively used as in Benetton Group and Nike.

Hence, on the other hand, Benetton Group uses digitalization to, firstly, attract new customers through different campaigns such as the one with TV screens around the world and, consequently, increase its market share and also, to develop company’s online shopping service. What is more, Benetton Group uses digitalization to provide its customers with better shopping experience by sharing all the necessary information about the product they might need.

Furthermore, Nike uses the most of digitalization instruments compared to two other companies (Benetton Group and Louis Vuitton) - it embraced a strategic approach to develop in this field back in 2006 with implementation of the first training application. Since then the company has been successfully using

digitalization to fuse together online and physical shopping and providing many more perks to those customers who are involved in the Nike’s digital platforms, NikePlus for instance. Moreover, the company has reached such level of development when coming to its shop with a smartphone can help to avoid lines, get personal consultation or even buy products without using cashiers. The last but not least, Nike also uses digitalization to collect massive amounts of data about its customers and then the company analyzes it and uses to create new products reflecting customers’ taste. In Nike Live concept of stores the company goes even further and changes the assortment quiet often relying on customers` application data.

4.4.5 Gamification approach analysis

As for gamification, the companies that were previously studied in this paper use this strategy in different ways, because each of them has different goals and objectives. As far as the the loyalty program is concerned, it appears to be applied by many companies from both the middle and luxury segments. As it provides customers with an opportunity to receive personalized offers, as well as additional bonuses and rewards for making purchases and participating in the company's activities, retailers can benefit from this both by attracting new customers and by increasing loyalty among existing ones. This model, as it was noted earlier, is widely used by companies such as Nike and Benetton.

On the contrary, if we consider the example of Louis Vuitton as a representative of the luxury segment, we can note, that the company does not have this initiative, since it has no need in increasing retaining buyers. It can be attributed to great customers` loyalty, therefore, the introduction of additional rewards would not play a significant role.

On the other hand, as one of the ways to increase its brand awareness especially among younger generations, Louis Vuitton tries to create unique images inside one of the most famous online games League of Legends. The

main goal for the company in this case is to create a special kind of appeal for the buyers so that they wish to make a purchase.

If the type of gamification is being discussed, which is manifested in the form of creating additional applications for electronic devices, such companies as Nike and Louis Vuitton might be good examples. For instance, Louis Vuitton uses this technique to provide additional information and a special experience for the visitors of its exhibitions. Nike, on the other hand, uses such technologies more widely. In addition to creation of an application to simplify and personalize shopping process, the company is creating a unique software, which aims to penetrate into various areas of the life of its customers, in order to create some sort of a bridge between the company and the consumer for the sake of better interaction and communication.

5 Discussion

The analysis carried out in the degree project helps to fulfill the stated purpose. Thus, it is reasonable to look into the findings concerning the experience economy instruments and their practical implementation.

Types of experiences

Depending on a market segment, companies tend to provide different types of experiences for their customers. For example, Benetton Group and Nike tend to be more entertaining by providing digital amenities like street screens or digital purchases and escapist in case of Nike sport applications, while Louis Vuitton, a representative of a luxury segment, tends to be more of esthetic brand and sometimes entertaining allowing customers to watch and appreciate beautifully designed stores, clothes and shop opening ceremonies.

Co-creation

In terms of co-creation companies from middle-market segment (Nike and Benetton Group) have different approaches. Thus, Nike allows its customers to personalize products while for Benetton Group this move would be economically non-efficient. As for the luxury segment which is represented by Louis Vuitton in this paper, the company already offers customers unique and fancy products, therefore, there is no great need to modify them. Nevertheless, Louis Vuitton gives its customers an opportunity to customize some of the products so that the buyers could have a greater emotional connection with their purchases.

Therefore, for luxury brands it is not beneficial to let customers change products as general meaning of being luxury is to buy clothes designed by professional, world-famous designers. As for the middle market companies, co-creation provides their products with added value since customers get

closer with enterprises and obtain stronger feeling of loyalty towards certain brands.

Digitalization

Here middle market companies show almost the same pattern. Both Benetton Group and Nike use digitalization to attract new customers and provide better opportunities for them. Nike has gone much further as it fuses technologies with physical shopping to provide the best experience for clients.

Louis Vuitton, in turn, uses digitalization instruments to highlight events and create esthetic satisfaction for customers. However, for Chinese market Louis Vuitton recourses to digitalization to capture growing market share.

Thus, by using digitalization technics companies try to add value to their products by taking into account customers` feedback and by offering them a unique experience.

Gamification

In terms of gamification all three analyzed companies have different approaches and use different instruments. Even within middle segment Nike and Benetton Group share only one gamification technic which is a loyalty program. Almost every loyalty program is based on retaining customers and attracting new ones by offering them a “fun game” – they should collect points that can further be used to get a discount or a special offer. Moreover, Benetton Group implements some AR technologies to attract passers-by and boost its sales while Nike uses gamification in order to popularize sports and foster loyalty.

While loyalty program plays a significant role for middle segment companies, Louis Vuitton, a luxury brand, does not really apply this technic. On the contrary, the company uses gamification in terms of collaborating with gaming

industry to attract more customers and increase brand awareness, but there is no application of truly gamified mechanisms within the company.

To conclude, companies from middle segment use gamification not only as a mechanism to add value to their products, but also as an advertisement and an instrument for attracting potential customers. Louis Vuitton as a representative of luxury segment does not adhere to traditional gamification technics, but tries to connect with gaming industry to reach new audience and increase brand awareness.

6 Conclusions

To sum up, we would like to conclude our degree project by answering our research questions.

Question 1. What instruments of the experience economy could be used to add value to products?

In this paper we identified theoretical aspects of the experience economy, provided a detailed definition of what this concept represents and its main components. They include 4 types of experiences and 3 major drivers that become more and more dominant in the modern corporate world.

4 types of experiences differ from each other in terms of customers` activity and participation or involvement:

• Esthetic – customers are immersed into an event, but do not take active part in it; • Entertainment – customers absorb an event without acting directly, mostly with feelings and senses; • Escapist – customers are immersed into event and take an active part in it; • Educational – customers absorb an event acting mentally or physically;

The major instruments of the experience economy analyzed in the paper are the following:

• Co-creation – nowadays this phenomenon gains more power substituting mass customization as its predecessor; • Digitalization – becoming more and more popular due to technological development and growing usage of smartphones and other gadgets around the world;

• Gamification – this concept is actively implemented by many companies in order to engage customers with enterprise’s products and services.

Question 2. How could modern retail companies from different segments of clothing industry implement co-creation, gamification and digitalization within their business approaches?

In the empirical part of the paper we described 3 retail companies from different market segments of the clothing industry (Benetton Group, Nike, Louis Vuitton) in terms of applying the experience economy instruments into their strategy. Furthermore, we also provided an analysis of companies’ activities and discovered several major differences between segments.

Companies come up with absolutely various initiatives using experience economy instruments, including application development and digital technologies in order to attract and satisfy customers. However, there is a certain difference between segments as luxury segment tends to highlight exclusiveness and provide esthetic satisfaction for clients using digitalization and sometimes uses it to raise brand awareness among selected group of customers. While middle segment uses other kinds of approaches such as applications, more sophisticated loyalty programs and campaigns to reach the goal of capturing bigger market share and fostering loyalty around the world.

In this paper we also considered three necessary aspects, which are scientific, societal and ethical. Scientific aspect is presented by identification of the experience economy and its main instruments and also by analysis of 3 retail companies from the clothing industry. Societal aspect is taken into account as we are convinced that our paper would be useful for businesses in terms of adding value to their products. Ethical aspect is fulfilled in our paper as we do not disclose any insight corporate data or sensitive information and moreover, we use only officially published materials.

7 Project limitations and further research

Despite the relevance and contribution of our paper, it is still a subject to some limitations. To begin with, it was problematic to arrange interviews with the representatives of the companies we analyzed in our paper because of the COVID-19 pandemic. As a result, we had to focus mainly on the information we managed to gather ourselves and therefore, our analysis might lack objectivity.

Another limitation is the process of data collection that can be attributed to market`s immaturity in the field of experience economy. Thus, most of the companies do not reflect this phenomenon neither in their annual reports nor on their websites.

What is more, due to the time constraints of the study we managed to use only qualitative research strategy. However, it would be highly beneficial and useful to apply some quantitative methods of analysis such as a survey in order to get customers` feedback and attitude towards the experience economy instruments.

Finally, because of the specific format of the paper and its time limits, we based our analysis only on 3 companies from the same industry and we focused only on 3 instruments of the experience economy even though there are more of them. Consequently, our analysis is not comprehensive and could be further developed.

We, therefore, suggest that further research on the experience economy and its practical application should be made with companies from different industries and countries and even of different size and maturity in order to make the implications of the research more accurate, unbiassed and correct.

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Appendices Appendix A. Mechanic. “N amount of people bought this item”

Source: MindBox, 2019

Appendix B. Mechanic “Item advantages”

Source: MindBox, 2019

Appendix C. Top floor lounge zone in Nike flagship store in New York.

Source: Green, 2018 Appendix D. Example of achievments in NRC application.

Source: Appcues, 2019

Appendix E. Louis Vuitton’s pop-up shop.

Source: Fenner, 2019 Appendix F. Louis Vuitton’s League of Legends skin and collection samples.

Source: Rapp, 2020; Louis Vuitton, 2019