Experience Economy as an Instrument to Create Economic

Profitability:
• What is experience economy?
• Instrumental experience economic models
• Case study: Use of experience economy in three forerunner hotels in
Copenhagen
• Business cycle dependency
• Model and guideline for use of experience economy

Lise Lyck
Centre Director
Center for Tourism and Culture Management
Copenhagen Business School
Solbjerg Plads 3, C 5.14
DK-2000 Frederiksberg
Phone: +45 38153450
E-mail: ll.tcm@cbs.dk

Guest Lecture at Grythytte Akademi, Örebro University, February 2010

ABSTRACT
Different understandings of experience economy are presented and the concept used in this article is
presented. Experience economy is here considered as an instrumental concept implying that
experiences can be created and that experience economy shall create benefits/economic
profitability. Instrumental experience economy models are presented. A survey of hotels in
Copenhagen applying experience economy is presented and evaluated. Based on this a model and a
guideline for use of experience economy in relation to the business cycle phase is developed. The
overall result is that experience economy thoroughfully dealt with can add to economic profitability.
In other words, experience economy investment has to be based on business cycle position plus
actual tailor-made information on consumer behaviour trends if the investment shall be profitable.

Key words: Experience economy concepts, experience economic instrumental models, experience
economy and business cycle model, hotel experience economy, guideline for use of experience
economy in hotels.

Introduction
Experience economy is in this article considered as an economic instrument to create profitability
and competitiveness for a corporation or a destination. An experience is totally dependent on the
perception of a phenomenon by one or more persons. It initiates a reaction by the persons who take
part in the phenomenon. The phenomenon can be created as a production or it can be caused by
exogenous factors. In this article focus is on created experience production. Experience economy

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production often includes a combination of culture and curiosity combined with economic
considerations.
Experience economy has roots back to Bentham, an English philosopher who lived from
1748-1832 and also to the foundation of modern economics by Adam Smith (1723-1790).
The focus in this article is, however, on modern experience economy, mainly based on
Richard Florida and Pine & Gilmore’s theories, i.e. on publications and articles published within the
last ten years, i. e. focus is on the development and use of modern instrumental experience
economy.
George Katona (1901-1981) can with his theories be considered as a link between the old
roots to experience economy and the new modern theories by creating economic psychology and
thereby creating a platform for modern experience economy.

Modern Experience Economic Theories

Richard Florida
Richard Florida has formulated a theory based on economic and regional development and on
instruments to promote both economic and regional development. In his book “The Rise of the
Creative Class” (2002) he develops a theory based on three decisive factors, the so called 3Ts –
Technology, Talent and Tolerance. If a corporation/city/region has all these 3Ts it will be possible
to attract creative labour with competences to generate innovation and economic growth. When the
creative labour is attracted the capital will follow the labour force and innovative corporations will
be established. To attract creative labour it is needed to have a diversified society, cultural offers
from sport to theatres with both active and passive participation, high quality schools and
universities and a government/governance system that promotes and supports an infrastructure that
is attractive for the creative people.

Pine & Gilmore

Pine & Gilmore published in 1999 the book “The Experience Economy.” They analyze the
development in the society and argue for that commodities and services no longer are enough to
satisfy consumers 1. Corporations must create experiences for each of their customers if they will
achieve success in a global world with increasing competition. The corporation can set a frame for
the experience, but it is the consumer that creates the experience herself as the reactions to the
frame are individual. The ultimate state is achieved when a transformation of the customer has
taken place by use of the offerings.
Pine & Gilmore see the production development over time as shown in figure 1.

1
Pine & Gilmore also operate with a change of the demanders from customers to guests. This has not included in this
article as it is not considered to be of real importance for the main understanding of their experience economic models.

2
Figure 1: Product differentiation and price and consumer relevance.
Transformation

Differentiated Relevance
product to guest
Experiences

Service

Goods

Commodities

Non-differentiated Irrelevance to
product Market price Non-market guest
for product price for product

Source: Pine & Gilmore, “The Experience Economy”, 1999.

Figure 1 illustrates a development from homogenous products towards still more differentiated
products and services related to the prices the producers can obtain. As the products are produced to
meet individual preferences, the prices paid by the consumers can be fixed related to the specified
preferences, i.e. monopoly or premium pricing will replace a price setting based on intensive market
competition. The increased willingness-to-pay that is a consequence of products and services
mirroring individual preferences helps corporations to obtain a higher profitability.

Experience Economic Models to Apply

In order to provide persons with interest in experience economy with instruments to create
experiences that can increase the attractiveness and profitability three models will be presented in
this article based on the theories and approaches to experience economy: 1) The Creative Class
Model, 2) Pine & Gilmore’s 4E Model, and 3) The Experience Wheel (Lise Lyck).

The Creative Class model

It is an index based model measuring level and development in an index for technology, an index
for tolerance and an index for talent (the 3Ts). The model can be used to increase profitability and
to create economic growth.
The decision makers must invest in attracting open-minded people with higher education
and creative competences and in a society building that favours such a human capital development.
It demands investments in culture, schools, universities, sport, green environment, hospitals etc. At
the macro level it demands an economic policy to promote that kind of infrastructure, and it will
often be supported by a fiscal policy in form of public expenditures and a taxation that favours this
kind of investments. It can be seen as a production where the human resources are the decisive
factors for economic growth.

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Pine & Gilmore’s experience model
Pine & Gilmore’s model see figure 2, is the most used model when it comes to creation of
experiences.

Figure 2: Elements of an experience

Absorption

Entertainment Learning

Passive Active
participation participation

Aesthetics Escapism

Immersion

Source: Pine & Gilmore, “The Experience Economy”, 1999.

The idea embedded in the model is that experiences can be of different kind and of different
importance. The highest value achieved by creating an experience will arise when all four
dimensions are included, i.e. entertainment, learning, aesthetics, and escapism. Furthermore, both
active and passive participation shall be included as well as elements of absorption and immersion.
The model can be used to create experiences and to decide on additional investments.

The Experience Wheel

The Experience Wheel is an instrument that via dialog functions to materialize the experience
concept and to development and measurement of the value of the experiences. As an example take
arrangements as a visit in a museum or another cultural or sport event. The measurement and dialog
can include both economic and innovative elements. The model is developed on background of
other models from the experience economy and combined with a balanced scorecard system. Each
dimension in the wheel is given a value from 1 to 5 with 5 as the best, and the values given are the
base for the dialog.
The model can be used in different ways:
1) Experts from the supply side evaluate the experience value of different attractions
in order to identify an expert-based quality measurement. Each expert put values
in the wheel for themselves. Then the evaluations are compared in order to see if
there is a common pattern or if there is a big spread in the evaluations. This gives
space for dialog on the character of the experience and thereby on how to see the
experience as an object for economic management.

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Figure 3: The experience economy wheel
Sense of
hearing

Entertainment
Sense of
taste

Learning

Sense of
smell

Sense
of sight Aesthetic

Escapism

Sense of
touch
Accessibility
(physical)

Participation
Accessibility
(psychological)
Lyck, Lise (2008). Service- og oplevelsesøkonomi i teori og praksis, Academica.

2) The experience wheel can be used to find out if the perception of the experience is the
same for the CEO of an institution and the front personnel. If the pattern is similar there is a precise
perception of the produced experience. If there is a spread it can give basis for procedures to secure
that the visitors are offered the same quality, i.e. the experience wheel can be used as a control
instrument of quality.
3) The experience wheel can be used to identify people’s mental perception of an attraction
or institution that they have never visited or visited for a very long time ago. The patterns from this
population can be similar or very different and this information can be very useful in connection to
marketing activities and the existing image of the institution or attraction.
4) The experience wheel can be used to achieve information on expectations and perceptions
of experiences among first-time visitors. The wheel is used before and after the visit. If the values
are higher after the visit there will normally be a high degree of satisfaction with the visit. The
central element in this kind of views is to give information about expected and perceived
experiences.
5) The experience wheel can be used on different segments of consumers in order to
estimate the experience value for different groups of consumers. This kind of information can be
essential to identify focus, quality development, marketing and for profitability of experiences.

Summary on the models

The presented models demonstrate that use of the instrumental experience models is possible
without all too many difficulties. It means that it is possible to create an experience, to control the

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quality of an experience, to measure the value of an experience, to use experience economy as a
leadership and management tool as well as a marketing and innovation tool. In other words, the
models are easy to apply and are important links between theory and practise.

Main results from a survey of the impact of applying experience

economy in hotel management of three forerunner hotels in
Copenhagen
Introduction
At EuroCHRIE in Helsinki in 2009 a survey of the learnings from use of experience economy at
three hotels in Copenhagen was presented 2. The problem investigated was “Shall hotels invest in
experience economy?: How do risk and the business cycle development influence the decision
making and the profitability?” These questions were studied in general and specifically in relation
to hotels in Copenhagen.
The investigation related to a period with increasing incomes and times of prosperity that was
replaced by a transition to a severe financial and economic crisis, i.e. 2005-2009.

Method
As a start the experience economic concept complex was outlined and explained. With departure in
this complex the instrumental concept of experience economy was chosen as an investment concept
focusing on decision making related to hotel investment projects that include experience economy.
Departure was taken in Pine & Gilmore’s (1999) models on experience economy and on creation of
an experience by help of the ingredients that constitutes an experience. Also Richard Florida’s
(2002) concept of the creative class was included.
The criterion for decision making was profitability understood as the net present value
(NPV) in a cost-benefit analytical approach.
The experience economy models that define the experience economy concepts were applied
to three hotels in Copenhagen that as forerunners have implemented experience economy and the
lesson learnt from these cases were presented.
The method was a case study mainly based on secondary data and field work related to the
hotels.
Based on the lesson learnt from the hotels investing in economic experience projects in time
of prosperity and from the model for investment during the financial and economic crisis a model
and a guideline was finally presented.

Lessons learned from hotels investing in experience economy in Copenhagen 3

Hotels in Copenhagen were for a long time rather stable in number, rooms and management styles.
In connection with the decision of construction of the bridge between Copenhagen, Denmark, and
Malmø, Sweden, it changed. The Øresund Bridge was opened July 1 2000 connecting the capital of
Denmark and the third largest city in Sweden. It meant an opportunity for creating a metropolis and
a new market with increased possibilities for differentiation. International and even global hotel

2
Lyck, Lise (2009). Experience Economy - Lessons Learnt by Implementation of Experience Economy in Hotels in
Copenhagen, Denmark. EuroCHRIE, Helsinki.
3
The following is quoted from the article:
Lyck, Lise (2009). Experience Economy - Lessons Learnt by Implementation of Experience Economy in Hotels in
Copenhagen, Denmark. EuroCHRIE, Helsinki

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chains came to Copenhagen: Marriott with 521 hotels worldwide of which 345 in the US and 176
outside the US opened the first hotel in Copenhagen in 2001. Hilton with 533 hotels worldwide of
which about the half is located in the US and the rest outside the US, opened the first hotel in
Copenhagen in 2001. Radisson was the only global hotel chain present in Copenhagen before the
opening of the bridge with nine hotels in Denmark of which some are located in Copenhagen (five
star Radisson SAS Hotel Royal, four star Radisson SAS Falkoner Hotel and four star Radisson SAS
Scandinavia Hotel) and worldwide 448 hotels, of which 135 is located in the US and 313 in the rest
of the world.
In Copenhagen in 2009 there are now 91 hotels with 13,147 rooms and 26 hotels in the near
of Copenhagen with 1,090 rooms, i.e. total in Copenhagen 117 hotels with 14,237 rooms. In Malmø
there are 24 hotels with 2,828 rooms in total and in the near of Malmø 55 hotels and with 1971
rooms in total. It means that there in the core of the Öresund region are 196 hotels and 19,036
rooms in total. These figures include a heavy expansion in number of hotels and especially in
number of hotel rooms in 2009.
The development in the hotels in Copenhagen meant that the hitherto “status quo
management” that has characterized the hotel management in Copenhagen began to be changed.
Among the most important changes was the introduction of experience economy in relation to hotel
investments.

Case 1:
The first and most mentioned hotel getting publicity based on investment in experience economy
was the earlier Park Hotel that changed name to the Hotel Fox in 2005. The hotel has 61 rooms. The
launch of the new hotel took place together with the world presentation of the new Volkswagen
Fox. The public parking place opposite to the hotel was rented by the municipality as part of the
event. The hotel was in the months before in the hands of 21 international artists from the fields of
graphic design, art and illustration. All hotel rooms were different in colours and design as some
contained flowers whereas other contained fairytales, friendly monsters, dreaming creatures and
secrets vaults. It was visible from outside as the entire hotel’s sun blinds were different in style and
unique. At the opening also a lot of different kinds of food were included made by cook apprentices
etc. from many famous hotel and restaurant schools. Today the restaurant is only serving first class
sushi food.
The publicity and marketing as well as the event presentation of the Volkswagen Fox gave
new life to all the Brøchner owned hotels (four in total). They have differentiated their style and
with strong roots in the family tradition. They have wider developed their hospitality and their
caretaking of each of their guests focusing of having a warm “what can I do especially for you”
style as their distinctive feature. The experience economy has led to support to culture especially
jazz music, support to homeless people and disaster-affected people. It has also led to the option of
the buying a carbon dioxide quota to diminish the environment damages. In other words, social
responsibility plays a still more important role.
It is characteristic that the original introduction of experience economy has implied a still
closer demand focus trying to realize consumer trend and wishes as fast as possible. The
differentiation and experience economy investments have become still more based on the
development of consumer values.
To conclude, the introduction of experience economy has changed the whole management
and investments style in a creative and personal way that makes the hotels interesting for visitors
and thereby creating a market behaviour and understanding that creates profitability and at the same
time acknowledgement of the hotel as a corporate social responsible organization. In other words
the introduction of experience economy has led to a dynamic, not static use of experience economy.

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Case 2:
First Hotel Skt. Petri is a five star hotel in the centre of downtown Copenhagen, opened in 2003.
Originally it was built in 1928 as a department store for low priced consumer products, but the
architecture was exceptional in a “Funkis style” designed by the famous architect Vilhelm
Lauritzen.
The building has been renewed both inside and out and the famous Danish artist Per Arnoldi
has played a central role in the renovation process. It is the only Danish hotel that is member of
Design Hotels. (Design Hotels™ is an international lifestyle brand synonymous with distinctive
architecture and interior design balanced with functionality and an exceptional service. It was
established in 1993. It includes about 180 hotels in 43 countries and 114 destinations around the
globe.) It has 268 rooms of which 28 are suites. Forty-two rooms have own terrace with a view over
the roofs and towers of Copenhagen. You enter the hotel by a moving staircase and you arrive in a
totally different environment with a mixture of musicians, artists, tourists and businessmen. There is
a famous bar called Bar Rouge that has specialized in cocktails. There is Café Blanc where you can
enjoy a cup of coffee, the newspapers and go for training in the fitness rooms that ends in a terrace
where guests can do their exercises in the summertime. There is also a brasserie where you can
enjoy a lot of different courses with an atrium that is open in the summertime. The colors are red,
white, black and blue. Furthermore, the hotel has all the normal equipment that characterizes a five
star hotel. In 2006 it was chosen as the best hotel in Denmark and it was as the only one in
Scandinavia chosen one of the 100 best new hotels by the travel magazine Condé Nast. (Condé Nast
was one of the first British publishers on the Internet and has carved itself a reputation for being
among the very best. The Interactive division launched ahead of the pack in 1995, with daily-
updated websites for Vogue and GQ. Condé Nast Interactive's stable of websites now attracts over
2,6 million unique users with 46 million pages viewed each month).
First Hotels is a chain of 46 hotels located in Denmark, Sweden and Norway and was
established in 1993. The majority of the hotels are located in Sweden, which also were the location
for the start up of the chain. Every hotel has a unique design, atmosphere and décor which cater for
the discerning customer. First Hotels has alliances with global chains in the industry and can
therefore offer their customers 60,000 hotel rooms in 26 countries throughout the world.
The hotel had in the beginning a restaurant serving Eastern and Western food inspired by
fusion cuisine. The hotel started with a strong focus on events and experience economy, including
jazz music and other artistic performances. During the last years the original restaurant has
developed to be much more brasserie like, i.e. losing some of its uniqueness. The change has been
due to the overall strategy of the First Hotels but also due to a finding of market being too small to
have an extremely high uniqueness in all areas.
To conclude the hotel is still strongly related to experience economy, especially in
concerning events and atmosphere. Economic considerations have implied less focus on events and
activities that demand high fixed costs. It means that he focus is more on human resource
involvement to create individual and personal experiences among the guests. As a consequence the
restaurant has changed from a unique concept to a more standardised brasserie concept. Learning
has been that the building and architecture have to be unique but that profitability requires
avoidance of annual capital intensive innovations and a need to concentrate on more labour-
intensive event activities.

Case 3:
The first Hotel Guldsmeden was established in 1999 in Aarhus, the second largest city in Denmark.
Today it has developed into a small chain that further encompasses three hotels in Denmark, a

8
luxury holiday resort in Bali and a high quality conference-hotel, Villa Libellule, on the French
Rivera, with seven rooms. Hotel Guldsmeden focuses on individual hospitality and on creating a
feeling of community between the guests and the hotel. The three hotels in Copenhagen include a
four star hotel, Axel Hotel Guldsmeden, a three star hotel, Carlton Hotel Guldsmeden, and four star
hotel, Bertrams Hotel Guldsmeden.
Axel Hotel Guldsmeden opened in 2007 has 129 rooms, conference facilities and a wellness
area with indoor pool etc. It is unique in the way it blends traditional Balinese style with modern art,
with Persian rugs on the wooden floor, genuine art on the walls and advanced modern technology. It
has focus on organic products, non-smoking etc. and this focus is both in relation to eating and to
the material used in the hotel.
Carlton Hotel Guldsmeden has 64 rooms, all unique and designed in the special Balinese
style combined with comfort and original art. The focus is on service and personal engagement and
especially on ecological and organic products.
Bertrams Hotel Guldsmeden has 47 rooms. The style is as mentioned above. It is a boutique
hotel that sells the products you can eat as well as some of the furniture and equipments.
Common for the three Guldsmeden hotels is that they focus on experience economy in form
of individual personal hospitality and high quality, Balinese style blended with modern art, and with
Persian rugs. All the hotels are unique in relation to ecological and organic products. This focus has
been the basis for the hotel profitability, image and consumer satisfaction.

Lessons Learned From the Hotel Cases

All the three cases have demonstrated that experience economy can be a useful instrument for
creation of profitability as well as for image building. The cases illustrate that experience economy
must be based on individual personal hospitality combined with a dynamic product specialisation of
high relevance to the consumer. It is needed that the hotel is able to read and understand the
consumer trends and wishes and to instantly implement them in hotel services and events. The cases
are characteristic in the sense that the use of experience economy is related to human resource
management and to a thorough selection of materials, events as well as employees. The frame for
the activities has to have some degree of uniqueness combined with high quality. The core economy
for creating the surplus and the market is only to a minor degree related to capital intensive
activities. To achieve economic surplus a specific and unique concept is needed as well as quality
management combined with the empowerment management that makes it possible for the staff to
react in relation to the mission statement and conceptual basis, i.e. human resources are of decisive
influence for successful implementation of experience economy.

Discussion of the Influence of Business Cycles, Financial and Economic Crisis on

Experience Economy Investments
The phenomenon business cycles is well-known, but there does not exist a general economic or
political explanation of why they appear. Business cycles and economic crises are measured in
relation to the development of gross domestic product (GDP) in fixed prices. Recession is defined
as a situation where quarterly-measured GDP in fixed prices is decreasing in two consecutive
quarters. If the GDP in fixed prices continues to fall and economic crisis is appearing. The
development in employment normally follows the development of the GDP in fixed prices.
Experience economy was introduced in the hotels in a period with increasing GDP. The
present economic crisis began as a financial crisis from the autumn 2008. The market for fixed
property had been booming for a long period and the share prices have risen to an unprecedented
level. The financial crisis let to a number of big bankruptcies and an enormous lack of liquidity in
the society. Cash became king as seen earlier during economic crises. As often quoted, the word

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“crisis” in Chinese means both collapse and new opportunities. It is well-known from earlier crises
that new corporations established during an economic down-turn, normally, will have a long life if
they are based on a new interesting concept and have a solid foundation of cash. This strong
position for newly established corporations is perhaps due to the fact that the lack of cash for most
corporations can give a new established corporation a sort of monopoly position where they can
grow the first years without strong competition and imitation from existing corporations. In other
words, a strong cash position functions as a protection against competition, and protect the first
years of existence of the new corporations. In times of prosperity it is normally easy to get cash as
the values of the fixed property and share prices are increasing which opens up the possibility of
achieving loans from the financial institutions. Due to this, investment behaviour and investment
projects will in general be more cash and capital intensive in times of prosperity and if newly
invested these projects will be vulnerable when recession turns into economic crisis.
Studying experience economic investment projects it is found that the projects threatened by
bankruptcy are the capital intensive, inflexible ones established lately, i.e. the outcome is as
expected related to dependency of the business cycle.
The three cases studied also point in that direction, as the most capital intensive parts of the
experience economy investments are not profitable anymore. It goes for the restaurants in the three
hotels. In the experience economic activities in form of human resources used for events and
hospitality quality development the profitability seems to be both high and more constant and at the
same time creating a very close market-relation with a marketing by word-of-mouth that almost is
sufficient to increase the market share. The presented hotel cases are all good examples of how the
owners have managed to activate this strong market position dynamically into new and still more
consumer attractive products and experiences.
The depth and character of the economic crisis will assumingly also influence the
investments. The depth relates to both decrease in GDP and to the duration of the crisis. The
character relates to the three scenarios for the economic crisis: 1) It follows the traditional business
cycle pattern, 2) It follows a W-pattern with increased risk and many ups and downs of the GDP, 3)
It follows a debt-based development with private debt being replaced by huge state debt in the short
run transferring the crisis from the private sector to the states. Ad 1) This kind of economic crisis
must be expected to lead to a lower level of experience economy due to lower incomes but not to a
change in the content of the experience economy in the projects. Ad 2) This type of crisis can be
expected to result especially in short-term investment projects and thereby to promote events
compared to more flexible types of experience economy. Ad 3) This type of crisis makes forecasts
very difficult as it is known that consumer spending is extremely dependant on the risk profile of
each individual consumer. Most likely is that the content of the experience economy will change a
lot as expectations of form and level will influence the projects.

Model and guideline outline for investments in experience economy in hotels

In the following a model is outlined as well as a guideline to assist on investment decision-making
on experience economic investment projects are presented.

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Figure 4: Model for Experience Economy Investments in Hotels Including Business Cycle
Considerations

Business Cycle/
Type of Economic
Crisis Frame for Corporation
Investments

Country Specific Data;

Economic and Political
Frame Corporation Position:
Cash, Capital,
Location,
Experience Economy
Human Resources,
Projects
Consumer Knowledge

Decision Making
Based on Cost-Benefit
Analysis

Guideline:
1) Investigate the business cycle position/type of economic crisis and its expected duration
2) Retrieve information on main indicators for the economy of the country/on how the
country is dealing with the economic crisis
3) Frame for corporation investments
4) Investigate the economic situation of your corporation and focus especially on cash,
capital, location, human resources, consumer knowledge (and market share)
5) Investigate and design the character of the experience economy investment project
6) Decision making based on cost-benefit analysis

Ad 1. If the business cycle position is at the beginning of prosperity times the situation is
favour of investments, especially investments in new concepts with a strong appeal for consumers
belonging to the creative class. When the prosperity time develops further, it is time to focus on
investments for a broader group of consumers i.e. investment projects with a higher volume,
keeping the quality. When the prosperity time develops into a boom it is time to be more careful
especially on capital and cash demanding investments. Has recession occurred especially cash
intensive investments demands a high degree of market and consumer knowledge. If an economic
crisis occurs investigation of the scenario of economic crisis is required (see the section: Discussion
of the Influence of Business Cycles, Financial and Economic Crisis on Experience Economy
Investments).
Ad 2. Basic information on country specific structure and on indicators are needed. The
structure information includes size of the public sector, GDP, size and elasticity of import and
export, size of state and foreign debt and basic labour market data. The indicators are: rate of
economic growth, rate of unemployment, rate of inflation, balance of payment data, share prices
and the price development for fixed property.
Ad 3. Frame for investments for the corporation includes the evaluation of market share
development and competitive position.

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 Ad 4. The main information in relation to corporation position is to get knowledge on cash,
capital, location (in relation to accessibility and attractiveness), human resources and consumer
knowledge. This kind of knowledge is normally obtained by applying Porter and SWOT analyses,
by a cash flow analysis and by evaluation of network and brand value.
Ad 5. Experience economy projects normally function as an integrated part of brand making
and as a marketing instrument. The role of experience economy in brand making is both to create
innovation, high quality and human resource development. In relation to marketing the role of
experience economy is to promote the corporation but also to get current information about
consumer behaviour and consumer ideas, i.e. experience economy projects can contribute as a
source to efficient communication.
Ad 6. The final decision making on experience economy has to include a profitability
considerations based on a cost-benefit analysis. It means that it has to be considered as an
alternative among other investment projects. Benefit included in the model has to include direct,
indirect and induced impacts.

Applying the model and guideline for experience economy investments in hotels
to the case hotels
In the following the developed model and guideline outline is applied to the three case hotels in
Copenhagen as a whole, but it could also have been applied to each of them.
Ad 1. An economic crisis is taking place. In Denmark most people consider it as part of a
business cycle but with a much deeper downturn of the economy than normally found in business
cycles. It means that most experts consider it as a temporary deviation from the normal business
cycle pattern. This evaluation is applied here but it has to be mentioned that other understandings of
the crisis could have been applied depending on the investors’ understanding of the crisis. It implies
that the chosen understanding of the crisis means that there will be an end of the crisis within two
years.
Ad 2. Denmark has a big public sector, about half the size of the economy. It functions as a
stabiliser during an economic crisis. GDP is high meaning that there is a solid income fundament in
the country which also helps to stabilise the economy. The size of foreign trades and investments is
high and the elasticities of import and export are small. It implies that Denmark to a high degree is
dependent on the GDP development in other countries but that the size of the elasticities tells that
price changes do not play a main role. In total the relations to other countries deepens the economic
crisis, but the size of the elasticities moderate the deepening. State and foreign debts in Denmark are
extremely low which is an advantage when an economic crisis occurs. The labour market is well
functioning. Concerning the indicators the rate of economic growth was positive in 2008 but it is
expected to become moderate negative in 2009. The rate of unemployment has during the last years
been very low (about 2%). Since the economic crisis unemployment has increased and the total
number of unemployed is about 125,000 persons (4.5%). The rate of inflation is low and there is a
surplus on the balance of payment. The share prices have gone down and the boom on fixed
property has been replaced by falling prices and fewer transactions. In total the country specific
economic and political frame in Denmark is positive.
Ad 3. Concerning the frame for investments for corporations it is important to distinguish
between home market and foreign markets. The home market is in general less exposed to the
economic crisis than it is the case for more export dependent corporations. It will be mirrored in
both market share developments and in the competitive positions of the corporations. Furthermore,
corporations depending on high income elasticity products and of cheap access to cash and capital
are hit by the economic crisis and are in a bad position for new investments.

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 Hotels in Copenhagen have experienced the economic crisis in form of a decrease in the
number nights spent in hotels after many years with a progress, see Table 1. In 2009 an increase in
the number of rooms with 1,700 new hotel rooms has taken place and the capacity is further
expected to increase up till 2011with at least 3,100 rooms including nine new hotels. It is quite clear
from the table that the hotel industry will be characterised by strong competition and that it will be a
challenge to get enough visitors to achieve a satisfying profitability in all corporations.

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 Table 1: Hotels, Nights Spend in Copenhagen and Use of Capacity 2000-2009
Copenhagen
City 2000 2001 2004 2005 2006 2007 2008 2009

Number of
hotels: 69 71 78 77 76 78 80
Nights
spent in
hotels:
All year 3,348,766 3,423,802 3,927,377 4,149,459 4,256,991 4,419,004 4,348,200 -
January 161,860 173,897 180,318 196,587 210,048 228,555 243,039 203,795
Febuary 181,470 199,693 215,059 220,627 229,017 248,800 270,637 233,310
March 213,548 245,743 250,334 261,942 262,357 285,668 286,392 250,123
1st quarter 556,878 619,333 645,711 679,156 701,422 763,023 800,068 687,228
Copenhagen
Environs
Number of
hotels: 18 18 18 18 18 19 18
Nights
spent in
hotels:
All year 453,328 447,686 420,167 459,808 487,733 519,127 475,319 -
January 23,737 25,649 22,111 26,169 26,670 27,319 29,599 26,187
Febuary 25,259 25,250 22,501 25,605 27,319 28,666 32,771 30,731
March 28,477 29,790 28,992 26,644 31,835 32,867 29,888 32,423
1st quarter 77,473 80,689 73,604 78,418 85,824 88,852 92,258 89,341
Greater
Copenhagen
Number of
hotels: 87 89 96 95 94 97 98
Nights
spent in
hotels:
All year
-
total 3,802,094 3,871,488 4,347,544 4,609,267 4,744,724 4,938,131 4,823,519
1st quarter
total 634,351 700,022 719,315 757,574 787,246 851,875 892,326 776,569

Use of
Capacity,
Rooms % 2000 2001 2004 2005 2006 2007 2008 2009
Copenhagen
City 74 70 66 69 70 70 69 -
Copenhagen
Environs 63 61 54 59 62 61 60 -

Use of
Capacity,
Beds % 2000 2001 2004 2005 2006 2007 2008 2.009
Copenhagen
City 56 53 52 54 55 54 53 -
Copenhagen
Environs 44 42 38 41 44 43 40 -

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Only hotels with a minimum of 40 beds appear in the statistics.
Ad 4. The case hotels all invested during times of prosperity and are not threatened by lack
of cash nor capital. The hotels are all located downtown Copenhagen, easy accessible and located
attractively. They have developed human resources in line with requirements of their experience
economy investments and they have developed continuous and current knowledge about consumer
behaviour and consumer trends, all in all implying a positive corporation position.
Ad 5. Experience economy products have for three hotels been profitable and have
contributed to new management of the hotels. The success is the background for new ideas to
increase the positive experiences. The new projects are expected to be related to human resources
and to innovations corresponding to the consumer trend, i.e. related to environment, related to
modern IT technology and to design, all in a personalised form.
Ad 6. All experience economy projects will be evaluated in relation to other alternatives as
the main goal is to have profitability at the medium time perspective. The decision making will be
based on cost-benefit analyses.

CONCLUSION
The article has presented the experience economy with focus on the instrumental models.
A study of three hotel cases with hotels from Copenhagen that have been forerunners in use
of experience economy have been presented, analysed and discussed. The lessons learnt from the
hotel cases demonstrated that experience economy can be a useful instrument for creating
profitability as well as for image and branding purposes. The cases investigated have all had a high
degree of uniqueness.
Looking at different kinds of experience economy investments it was demonstrated that the
capital intensive event in changing of The Old Park Hotel to Hotel Fox combined with presentation
of the Fox Volkswagen created an enormous focus on the hotel and had a huge marketing impact. It
was also demonstrated that this impact had to be transformed to other values in relation to
management and empowerment in relation to quality management combined with empowerment
management to be of continued value. Studying Hotel Skt. Petri it was found that experience
economy has become an integrated part of the hotel development and of the hotel concept. It also
showed that there has to be a concentration on core values as it was not profitable to continue with
the original restaurant concept. From the Guldsmeden Hotels it was a lesson that a concentrated
focus on use of experience economy in line with trends in consumer behaviour has been a strong
competitive gain in relation both to profitability and image.
The cases made it clear that there was a dependency to business cycle development. It was
the background for the development of a model and guideline for experience economy investments
in hotels. They include six steps for considerations concerning experience economy investment
projects.
Finally, the model and guideline was applied to the case hotels. It was found that the model
and guideline functioned well as an instrument for decision making on experience economy
investment projects.
Looking at the information in Table 1 it is evident that the competition among hotels in
Copenhagen will be intensive the coming years due to increased hotel capacity combined with a
lack of demand as a consequence of the economic crisis. Therefore the hotels are recommended to
focus on experience economy investments and to do it in a way that can create profitability. It is
also expected that the model and the guideline outline presented due to the general character can be
useful for hotels outside Copenhagen considering investments in experience economy projects.

15
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