Service dominant logic (Marketing) - AbsoluteAstronomy.com

Service-Dominant Logic of Marketing

Radical reformulation of marketing

Marketing

Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...

thought is not new and arguably is part of the dynamic tension just under the surface calm of any discipline. But not since Lyn Shostack’s call to marketers to “break free” from goods marketing in 1977 has a new reconfiguration of general marketing logic attracted so much interest so quickly. The catalyst for this interest was the publication of an award-winning article by Stephen Vargo

Stephen Vargo

Stephen L. Vargo, Ph.D is a Shidler Distinguished Professor and Professor of Marketing at the University of Hawai’i at Manoa. He has an MS degree in social psychology and a Ph.D. in Marketing. He has held visiting positions at the University of Maryland, Collage Park the University of California,...

and Robert Lusch

Robert Lusch

Robert F. Lusch is the Lisle & Roslyn Payne Professor of Marketing and Head of the Marketing Department in the Eller College of Management at the University of Arizona. He also holds the Muzzy Chair in Entrepreneurship and is Executive Director of the McGuire Center for Entrepreneurship at the...

in a 2004 edition of Journal of Marketing entitled “Evolving to a New Dominant Logic for Marketing”. This was followed in the same year by an article from the same authors in the Journal of Service Research, directly challenging the efficacy of the characteristic differentiators between services and goods (intangibility, heterogeneity, inseparability and perishability). In 2005, an International group of academics met to discuss these issues at The Otago Forum, with special issues of major marketing journals emerging, as a consequence.

Key Concepts
In order to fully understand Service Dominant Logic it is important to clarify a few key concepts.

Operand and Operant Resources Operant resources are those resources that act upon other resources to create benefit, such as a firm's competences and capabilities. Operand resources are those resources which must be acted on to be beneficial, such as natural resources, goods, and other generally static matter (Constantin and Lusch 1995; Vargo and Lusch 2004a).

Service vs Services S-D Logic makes an important distinction between service (singular) and services (plural). In the S-D Logic literature service is indicating a process while the plural services, is indicating intangible units of output. Service as a process involves using an actor’s resources for the benefit of serving another actor. Stated alternatively service can be thought of as a verb and services as a noun.

Appliances In the S-D Logic view goods are transmitters of operant resources (embedded knowledge). That is, the good is the provider of the service to the customer (another operant resource). For example, a can of soup provides the service of food storage and sustenance to the customer. The can of soup is not viewed as being a good, but instead as being the appliance to which the user of the can of soup cocreates value with the provider of the soup.

What is S-D Logic?

Marketing inherited a model of exchange from economics

Economics

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

, which had a dominant logic based on the exchange of “goods,” which usually are manufactured output. The dominant logic focused on tangible resources, embedded value, and transactions. Over the past several decades, new perspectives have emerged that have a revised logic focused on intangible resources, the co-creation of value, and relationships. The new perspectives are converging to form a new dominant logic for marketing, one in which service provision rather than goods is fundamental to economic exchange.

Foundational Premises

S-D Logic is built on ten foundational premises. 8 of these were put forth in the initial Vargo and Lusch 2004 article in the Journal of Marketing. Two additional premises have been added since and appear in their 2008 article in the Journal of the Academy of Marketing Science.

	Foundational Premise	Explanation & Comment
FP1	Service is the fundamental basis of exchange.	The application of operant resources (knowledge and skills), “service,” as defined in S-D logic, is the basis for all exchange. Service is exchanged for service.
FP2	Indirect exchange masks the fundamental basis of exchange.	Because service is provided through complex combinations of goods, money, and institutions, the service basis of exchange is not always apparent.
FP3	Goods are a distribution mechanism for service provision.	Goods (both durable and non-durable) derive their value through use – the service they provide.
FP4	Operant resources are the fundamental source of competitive advantage.	The comparative ability to cause desired change drives competition.
FP5	All economies are service economies.	Service (singular) is only now becoming more apparent with increased specialization and outsourcing.
FP6	The customer is always a cocreator of value.	Implies value creation is interactional.
FP7	The enterprise cannot deliver value, but only offer value propositions.	Enterprises can offer their applied resources for value creation and collaboratively (interactively) create value following acceptance of value propositions, but can not create and/or deliver value independently.
FP8	A service-centered view is inherently customer oriented and relational	Because service is defined in terms of customer-determined benefit and co-created it is inherently customer oriented and relational.
FP9	All social and economic actors are resource integrators.	Implies the context of value creation is networks of networks (resource integrators).
FP10	Value is always uniquely and phenomenologically determined by the beneficiary	Value is idiosyncratic, experiential, contextual, and meaning laden.

Service Science

Service science is an interdisciplinary field that “combines organization and human understanding with business and technological understanding to categorize and explain the many types of service systems that exist as well as how service systems interact and evolve to co-create value” (Maglio and Spohrer 2008, p. 18)

That being said S-D Logic suggests that the universal role of service in the economy and firm can provide a frame of reference to help guide a management philosophy that is more effective and better contributes to competing in the future than a frame of reference based on tangible goods (G-D Logic) (Lusch and Vargo 2008). Furthermore, S-D logic provides a framework for theorizing,
confirming, and refining the theoretical foundation of service science. To have evolutionary potential, however, both S-D logic and service science must be cocreated. (Lusch, Robert F. Stephen L. Vargo and Gunter Wessels (2008))

Branding

The meanings of brand and branding have been evolving over the past several decades. This evolution is converging on a new conceptual logic, one which parallels that of S-D Logic in that like S-D Logic it views brands in terms of collaborative, value co-creation activities of firms and all of their stakeholders and brand value in terms of the stakeholders’ collectively perceived value-in-use. Moreover, marketing managers would benefit from investing resources in building strong brand relationships with all of their stakeholders and establishing a service-dominant firm philosophy built around brand value cocreation (Merz, Michael A., Yi He, and Stephen L. Vargo 2009).

Supply Chain Management

Supply chain management

Supply chain management is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers...

(SCM) has been moving from a model narrowly focused on goods to a more general model associated with partnerships, value networks, service provision, and value creation. This evolution of SCM is captured in part by S-D Logic.

Traditionally SCM focused on goods and tangible resources, while S-D Logic's focus is on intangible resources. Although this may seem that SCM and S-D logic lie on opposite ends of the spectrum, this is in fact not the case.
S-D Logic sees goods as tools or appliances in the customer's service provision "supply chain." Which is to say that the role of the supply chain is to support the customer's value creating processes with service offerings, either directly or through goods (Lusch, Vargo & Tanniru 2010).

AS FP9 states "All social and economic actors are resource integrators." That is that the context of value creation is in a network of networks. S-D Logic suggests that SCM and marketing should converge around this concept of value networks. As Vargo, Lusch, and Tanniru said:

A value network
Value network
A value network is a business analysis perspective that describes social and technical resources within and between businesses. The nodes in a value network represent people . The nodes are connected by interactions that represent tangible and intangible deliverables. These deliverables take the...

is a spontaneously sensing and responding spatial and temporal structure of largely loosely coupled value proposing social and economic actors interacting through institutions and technology, to: (1) co-produce service offerings, (2) exchange service offerings, and (3) co-create value. The supply chain is a sub-part of the value network, embedded within these value networks. Further, a firm is often part of multiple supply chains in which competitors frequently use the same suppliers and the value network includes all of these as parts of the overall value network. Therefore, supply chains are nested within larger and more encompassing value networks.'

Conclusion

The S-D logic could be seen as just another restatement of ideas from earlier phases in the development of marketing thought, such as services marketing

Services marketing

Services marketing is a sub field of marketing, which can be split into the two main areas of goods marketing and services marketing...

, relationship marketing

Relationship marketing

Relationship marketing was first defined as a form of marketing developed from direct response marketing campaigns which emphasizes customer retention and satisfaction, rather than a dominant focus on sales transactions....

, market orientation

Market orientation

Market orientation perspectives include the decision-making perspective , market intelligence perspective , culturally based behavioural perspective , strategic perspective and customer orientation perspective .The two most prominent conceptulizations of market orientation are those...

, network perspectives, integrated marketing communications

Integrated Marketing Communications

Integrated Marketing Communications is defined as customer centric, data driven method of communicating with the customer. IMC is the coordination and integration of all marketing communication tools, avenues, functions and sources within a company into a seamless program that maximizes the impact...

(IMC) and the resource based view of the firm. However, Vargo and Lusch’s special contribution to marketing debate is in bringing these ideas together in a new way, in a new pattern - creating a holistic “service logic” for marketing practice(Lusch and Vargo Marketing Theory, 2006).

A good dominant marketing logic arguably limits the mind-set for seeing the opportunities for co-creation of value with customers and other stakeholders of the firm. In a similar way, a transactional exchange view ignores customer loyalty and puts constraints on developing the lifetime value of the customer to the firm. The S-D logic proposes broadening the logic of exchange, both social and economic, and that will excite academic and practitioner thinking about the role of marketing in the business world of tomorrow (Lusch and Vargo Marketing Theory, 2006).