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
Mar 27, 2015
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
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
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)
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
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)
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
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+
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
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
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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
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
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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)
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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)
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
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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
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
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.
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
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
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]
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.
S-D Logic
The Inversion
Products (units of output)
Goods Services (Intangible goods)
Service (processes—applied
competences)
DirectIndirect
(Goods--Appliances)
Goods Logic Service Logic