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S-D Logi c Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L. Vargo, University of Hawaii at Manoa Robert F. Lusch, University of Arizona
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S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

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Page 1: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

Service-Dominant Logic:What It Is and What It Is Not

Presentation to the Otago Forum on Service-Dominant Logic

November 21, 2005

Stephen L. Vargo, University of Hawaii at Manoa

Robert F. Lusch, University of Arizona

Page 2: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

Precursors Historical treatment of services

Smith’s (1776) bifurcation Bastiat’s (1848) reconsideration

“Services are exchanged for services…it is the beginning, the middle, and the end of economic science”

Goods as distribution mechanisms for service

Goods as embodied knowledge Strategic Role of Resource Management

Page 3: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

Uneasiness with Dominant Model What is needed is not an interpretation of utility created

by marketing, but a marketing interpretation of the whole process of creating utility” (Alderson, 1957)

“The historical marketing management function, based on the microeconomic maximization paradigm, must be critically examined for its relevance to marketing theory and practice.” Webster (1992)

“The exchange paradigm serves the purpose of explaining value distribution (but) where consumers are involved in coproduction and have interdependent relationships, the concern for value creation is paramount…There is a need for an alternative paradigm of marketing.” Sheth and Parvatiyar (2000)

“The very nature of network organization, the kinds of

theories useful to its understanding, and the potential impact on the organization of consumption all suggest that a paradigm shift for marketing may not be far over the horizon.” Achrol and Kotler (1999)

Page 4: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

A Partial Pedigree Services and Relationship Marketing

e.g., Shostack (1977); Berry (1983); Gummesson (1994) ; Gronroos (1994); etc.

Theory of the firm Penrose (1959)

Core Competency Theory (Prahald and Hamel (1990); Day 1994)

Resource-Advantage Theory and Resource-Management Strategies Hunt (2000; 2002); Constantine and Lusch

(1994) Network Theory

Page 5: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

Service The application of specialized

competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itself (self-service)

Page 6: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

Shift in Focus from Operand to Operant Resources

Operand Resources Resources upon which an operation or

act is performed to produce an effect primarily physical resources, goods, etc

Operant Resources Resources that produce effects

e.g., primarily knowledge and skills—competences

Page 7: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

Evolution of Marketing Thought

To Market(Matter in Motion)

Market To(Management of

Customers & Markets )

Market With

(Collaborate with Customers & Partners

to Create & SustainValue)

Through 1950 1950-2005 2005+

Page 8: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

Foundational Premises FP1. The application of specialized skill(s) and

knowledge is the fundamental unit of exchange. Service (application of skills and knowledge) is

exchanged for service FP2. Indirect exchange masks the

fundamental unit of exchange. Micro-specialization, intermediaries, and money

obscure the service-for-service nature of exchange FP3. Goods are distribution mechanisms for

service provision. “Activities render service; things render service”

(Gummesson 1995) : goods are appliances

Page 9: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

Foundational Premises (2) FP4. Knowledge is the fundamental source

of competitive advantage Operant resources, especially “know-how,” are

the essential component of differentiation FP5. All economies are service economies.

Service only now becoming more apparent with increased specialization and outsourcing

FP6. The customer is always a co-creator of value. There is no value until offering is used—

experience and perception are essential to value determination

Page 10: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

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S-D Logic

Foundational Premises (3) FP7. The enterprise can only make value

propositions. Since value is always determined by the customer

(value-in-use)—it can not be embedded through manufacturing (value-in-exchange)

FP8. A service-centered view is inherently customer oriented and relational

Operant resources being used for the benefit of the customer places the customer in the center of value creation and implies relationship.

FP 9. Organizations exist to combine specialized competences into complex service that is demanded in the marketplace.

The firm is an integrator of macro and micro-specializations

Page 11: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

Evolving Toward a Service-Dominant Lexicon

Operand Resources Tangible Value Added Goods Products Transactional Units of Output Promotion Brand Equity Profit Maximization

Operant Resources Intangible Co-creation of value Service Experiences Relational Processes Conversation/Dialog Customer Equity Financial Feedback

G-D Focus S-D Focus

Page 12: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

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S-D Logic

Difficult Conceptual Transitions

Goods-Dominant ConceptsGoods

Products

Feature/attribute

Value-added

Profit maximization

Price

Equilibrium systems

Supply Chain

Promotion

To Market

Product orientation

Transitional Concepts

Services

Offerings

Benefit

Co-production

Financial Engineering

Value delivery

Dynamic systems

Value-Chain

Integrated Marketing Communications

Market to

Market Orientation

Service-Dominant ConceptsService

Experiences

Solution

Co-creation of value

Financial feedback/learning

Value proposition

Complex adaptive systems

Value-creation network/constellation

Dialog

Market with

Service-Dominant Logic(Consumer and relational)

Page 13: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

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S-D Logic

Why Service? Accuracy: It is precisely service that we

are talking about What is exchanged is the “application of

specialized knowledge and skills (competences) for the benefit of another party”—i.e., Service

Thought-leadership: Service marketing concepts and insights transforming marketing thought

Transaction → Relationship (Manufactured) Quality → Perceived (Service)

Quality Brand Equity → Customer Equity Consumer → Prosumer (co-producer of value)

Page 14: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

Why Service? Continuity: Does not require rejecting

the exchange paradigm Just change in focus from units of outputs to

processes Normatively Compelling: The

purpose of economic exchange is mutual service Implies managerial, macro, and ethical

standards

Page 15: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

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S-D Logic

Implications of a “Service-Exchanged-For-Service” Paradigm

Academic Unifying—organized around the common denominator

(mutual service provision) Unique Marketing Origin—internally generated,

rather than inherited Resource-Centered—builds on relative resource-

expanding nature of operand vs. resource-depleting nature of operant resources

Value-defining—shifts focus to value-in use Logically Divisible--Allows sub-discipline of direct

service provision Promotes research—provides clear links among firm,

customer, society, value, etc Micro implications—Makes service-based concepts

central/applicable to marketing IHIP as it applies to value creation/all of marketing

Macro implications—Social role of Marketing Value–creating Resource-expanding

Page 16: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

Implications of a “Service-Exchanged-For-Service” Paradigm Practice

Managerially compelling—focuses on mission (service) Demands customer orientation/value-in-use Implies relationship marketing Role of operant resources Implies better customer experiences/fairer treatment

Promotes social responsibility Marketing has social purpose

Education Easily understandable—requires fewer “adjustments”

Normative prescripts (e.g., customer orientation/relationship) implied by framework

Inviting—increased attractiveness off discipline Society

Promotes social responsibility—purpose is to: Serve individuals/society/organizations Facilitate value enhancement/resource expansion through

exchange

Page 17: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

An S-D LogicDefinition of Marketing Marketing is the process in society

and organizations that facilitates voluntary exchange through collaborative relationships that create reciprocal value through the application of complementary resources. Therefore marketing can be viewed as

the means by which societies are able to create value through the voluntary exchange of knowledge and skills.

Page 18: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

What S-D Logic is Not Reflection of the transition to a services era Justified by the Superior Customer

Responsiveness of “Service” Companies Restatement Of The Consumer Orientation Alternative To The “Exchange Paradigm” Equating Service with Provision of

“Functional Benefits” Suggesting that Financial Feedback equals

Profit Applicable only to marketing management

Page 19: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

What S-D Logic Might be Foundation of a paradigm shift in

marketing Basis for a General Theory of

Marketing Reorientation for economic theory Foundation for theory of the firm Perspective for understanding role

of markets in society—Theory of Markets

Page 20: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

Thank You!

For More Information on S-D Logic visit:

sdlogic.org

We encourage your comments and input. If you would like your working papers or teaching material and/or links to your research displayed on the website, please e-mail us

Steve Vargo: [email protected] Bob Lusch: [email protected]

Page 21: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

S-D Logic Can Direct Macro/Public Policy

From goods to service(s). Tax policy to encourage firms to retain tangible goods and sell service flows?

From tangible to knowledge resources. Tax policy to encourage investments in education and skill development vs. housing.

From operand to operant resources.Public policy to encourage collaboration vs. competition.

From value in exchange to value in use. Public data collection on value in use and home production.

Page 22: S-D Logic Service-Dominant Logic: What It Is and What It Is Not Presentation to the Otago Forum on Service-Dominant Logic November 21, 2005 Stephen L.

S-D Logic

The Inversion

Products (units of output)

Goods Services (Intangible goods)

Service (processes—applied

competences)

DirectIndirect

(Goods--Appliances)

Goods Logic Service Logic