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Quality, service-dominant logic
and many-to-many marketing
Quality,
service-dominant
logic
Evert Gummesson
Stockholm University School of Business, Stockholm, Sweden
143
Abstract
Purpose – The purpose of this paper is to show that there are many sources to quality, not just the
supplier; that quality is a complex concept which must be balanced against productivity and profits;
that quality has to be considered within a network of relationships and contributions; and that the
service-dominant logic and many-to-many marketing are useful concepts in approaching quality.
Design/methodology/approach – The methodology is a composite of case study research, action
management research and network theory.
Findings – The case shows that to create value or service, the conventional goods/services divide
cannot be upheld as they always appear in symbiosis; that even a simple case of buying and selling
quickly enters into a network where the many-to-many eyeglasses are necessary to capture the
complexity of the situation; and that quality cannot be properly treated without simultaneously
addressing productivity and the financial outcome.
Research limitations/implications – Researchers should not shun the complexity of quality
situations but attack them with creative methodology. A large series of cases using network theory
and management action research will provide us with the multifarious variations that are possible
before we make generalizations about the emergence of quality.
Practical implications – If companies better understand the customer’s value chain and lean
consumption process, they can improve their value propositions with positive effects on quality,
productivity and profits.
Originality/value – The paper shows how companies can better integrate quality management with
new approaches to the customer’s role in the quality process, and it illustrates the importance of
co-creation of value.
Keywords Quality, Business-to-business marketing, Network topology, Asset valuation,
Complexity theory, Relationship marketing
Paper type Case study
Introduction
This chapter addresses the issue of quality emerging not just from one source, the
supplier, but from a network of sources, among them the customers. Quality and
customer satisfaction are brought together into the concept of value. According to the
service-dominant logic (Vargo and Lusch, 2004a; Lusch and Vargo, 2006; Grönroos,
2007; Gummesson, 2007a) suppliers and customers are co-creators of service or value.
Instead of producing two distinct types of output – goods (things) or services
(activities) – a company creates a value proposition, which is increasingly dependent
on input from customers. Customers create the value actualization, sometimes in
contact with suppliers but often on their own and in individual ways. There are many
more angles to the new logic and to value (see Korkman, 2006), but these will not be
An earlier version of this article was published in Gouthier, M.H.J., Coenen, C., Schulze, H.S. and
Wegmann, C. (Eds) (2007), Service Excellence als Impulsgeber. Festschrift for the 60th Birthday of
Bernd Stauss, Ingolstadt School of Management, Gabler, Wiesbaden.
The TQM Journal
Vol. 20 No. 2, 2008
pp. 143-153
q Emerald Group Publishing Limited
1754-2731
DOI 10.1108/17542730810857372
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20,2
144
treated in depth here. We should also note that critical voices have been raised against
the service-dominant logic (Achrol and Kotler, 2006; Shembri, 2006; Stauss, 2005).
The three concepts of quality, customer satisfaction and value may have a core that
differentiates them, but their boundaries are blurred and partly overlapping. Reality is
full of fuzzy phenomena and when efforts to make objective, complete and rigorous
definitions fail, this should not lead to frustration or the collection of more data and the
design of more elaborate equations. Instead, it should lead to a change of mindset. If
real world phenomena are fuzzy, science had better listen and learn how to treat them
as such. Social sciences, including management and economics, have a problem with
that. The idea that a phenomenon, and consequently its representation in an abstract
construct, is clearly delimited and definable in a “box” format, is a subjective
assumption that leads to inefficiency and frustration.
In this article, reality is accepted for what it is, despite the inconvenience this may
cause mainstream academic researchers and those practitioners who consider
themselves no-nonsense, hard-nosed businessmen. I don’t have the answers, but we
have to try the roads less traveled by; that will make all the difference (to paraphrase
the great poet Robert Frost). We need reflective academics as well as reflective
practitioners.
Scientific approaches: case study research, network theory and
management action research
My thesis that quality emerges from a network of sources rather than just the supplier
will be presented through a single case. Case study research is used to gain insights
into phenomena characterized by complexity in a wide sense. This means an
abundance of variables and links between them, unclear causality, ambiguity, ongoing
change and unpredictability. A case study, especially when performed in an inductive
mode, can offer a rich and thick description based on extensive in-depth data
generation that is free from the received wisdom of established theory. Structured
theories and equations offer few variables and links, and crucial factors which are
contextual to a specific case may not be included at all.
We do not need to go to others to find cases. As employees and consumers we live in
an environment of organizations, decision-making, purchasing, consumption, and so
on. It is a real world management lab where we can study events that we experience
daily or in special instances. Although case study research is usually labeled a
qualitative method, the empirical data that constitute the case do not exclude
quantitative elements. By being involved in the phenomena we study we perform
management action research (Gummesson, 2000; Coghlan and Brannick, 2005). It gives
us first hand access with insights into the complexities and the dynamism of real world
situations.
Cases are often used as examples and illustrations to explain an abstract concept or
theory thus making it easier to grasp. Whereas case study research provides empirical
data which are used for description, analysis and conclusions, cases as examples are
not there to “prove” anything; they are merely pedagogical. This paper offers a
combination: raw data described and analyzed but presented as a narrative and graphs
to be easy to comprehend.
Network theory in its purest form says that reality can be shown and understood
through nodes and links and the interaction between these. It has the same ability as
case study research to handle complexity and dynamism but network theory is more. It
is both a theory about reality and a technique to describe reality and to process data
not just verbally but also graphically and mathematically. In natural sciences
complexity theory is a collective designation for a series of approaches and techniques,
among them network theory (see, for example, Barabási, 2002; Buchanan, 2003).
The case to follow is a combination of case study research, action research and
network theory (see further Gummesson, 2007b). It forms the starting point for a
discussion of quality and value-creation in the network society. The case is a
self-experienced event with open access to data. Just as networks are scale-free, the
combined verbal description, analysis and interpretation has no limits; they can extend
to any size, only curbed by the researcher’s perception and resources.
The freezer case
On a Friday night around 8:30, I went down to the basement to pick up food from our
big freezer. We do not go there daily as we have a smaller freezer in the kitchen. When I
put my hand in the box I felt that it was not cold enough. The thermometer showed
minus 10 degrees Celsius whereas it should be minus 20. A crisis was in the making.
What do you do? One option is to just leave it and let the insurance cover as much as
possible. Still you need to get the freezer out of the house before its content starts to
smell. As the freezer was 25 years old – its expected lifetime is rather 10 to 15 years –
the idea of having it repaired did not seem attractive. A more compelling option was to
try and save the food, especially as much of it was home-made from natural ingredients
and could not be replaced in the supermarket. But the salvage had to occur within the
next few hours. And it was Friday night.
We could squeeze some of it into our kitchen freezer, but not much. We decided to
solicit assistance from our neighbors, starting with Dagmar, the old lady living closest
to our house. She could take some but her freezer was not so big. We walked over to
two more neighbors, a family of four who I knew had an extra freezer in their garage,
and an elderly couple two houses away. Still there was food left. Some of the other
houses in the immediate neighborhood were dark and in some we did not feel that our
relationship to the people was strong enough to ask for this kind of help. We phoned
our daughter in the city and had to drive for 15 minutes to get rid of the rest.
This was an annoying situation. It was unexpected, there was no script, we had to
act quickly and it spoiled our Friday night. I was grateful in a sense. Suppose I had not
gone downstairs to pick something up. The freezer did not send a signal to warn us.
The breakdown was only indicated by a small red lamp close to the floor and almost
invisible. You cannot handle the situation by yourself and your social skills and the
benevolence of others have to be activated.
There are now four families involved: me, my wife and our daughter, and three
neighboring families with seven people, altogether ten people. Though this is an
antecedent to a commercial situation of purchasing and marketing, there are only
citizens and consumers involved; it is customer-to-customer (C2C) interaction.
Business-to-customer (B2C) interaction came the following morning, Saturday, when
my wife went on the internet to find the type of freezer we needed, a retailer and
preferably somewhere to go and see it physically. After some telephone calls she found
that retailers only had very few of the most common models on display. It costs too much
for a retailer to have them; they tie up space and capital, which makes the retailer
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vulnerable in the highly price-competitive household appliances market. The
manufacturer, Electrolux, despite having their world headquarters in our city
Stockholm and being market leaders, did not have a showroom. On the internet,
however, their product line stood out as the preferred choice. After searching for models
through internet pictures and specifications, comparing prices and what was included –
transport, installation, removal and scrapping of the old freezer – we chose a retailer.
“We deliver on Thursdays,” they said. “Electrolux delivers to us on Wednesdays.”
We now had two networks, the C2C social network of family and neighbors on the
customer side, and a commercial retailer and manufacturer network on the supplier
side. We had to contact our C2C network asking if they could keep the food until
Thursday. As luck would have it they could.
We had not expected the delivery to take so long. It would mean a week in practice if
you include a day or so to get the spread out frozen food back. There might have been
quicker options but many quality aspects have to be fulfilled – right size, performance,
design and delivery conditions – and the price had to be right. You can only investigate
so many suppliers. It takes a lot of time, you are forced to do it, and it is not really an
enjoyable experience. Checking the physical quality is not possible although the service
literature is full of statements like “the customer can easily assess the quality of physical
goods because they are tangible but not services because they are intangible” (see, for
example, Zeithaml (1981), referred to in every textbook on services marketing) claiming
that this shows a difference between goods and services. Unfortunately it does not. You
can only check if the specification is met by the physical product as to certain apparent
variables such as size. We only knew the quality of the previous box by the fact that it
lasted 25 years and kept the food at the right and constant temperature until it suddenly
gave up. For a critique of conventional claims of differences between goods and services,
see Lovelock and Gummesson (2004) and Vargo and Lusch (2004b).
On Wednesday the retailer phoned and said that Electrolux could not deliver this
week so it would have to wait until Thursday next week. The delivery time is now
doubled to two weeks. New contact with the neighbors and our daughter.
The transport firm arrived on Thursday and became the third member of our B2C
network. They carried the old freezer from the basement and brought in the new one. It
was heavy work going downstairs and through narrow doorways. When they
unwrapped the new freezer we found three big holes in its front. They had to wrap it
again. “We will be back next Thursday,” they said. New contact with our C2C network.
They were patient and understanding but we brought each a jar of homemade jam as a
token of appreciation.
Next Thursday the transport firm came again and finally plugged it in. Three weeks
had passed. We began to recover our food, starting on the Friday. But Gunnar and
Ingrid had left for their country house to be back on Tuesday, and Dagmar was gone
until Sunday night. Before all the food was back in place, close to four weeks had
passed.
During this process we had established a C2C and a B2C network. I would like us to
change to B2C/C2B as just B2C implies that the supplier is the leading party doing
something to the customer and not the customer doing something to the supplier. In the
language of service-dominant logic it means co-creation of value. From our consumer
perspective, the supplier side started out as many-headed and was reduced to
three-headed during the search process: Electrolux, the retailer and the transport firm.
Compare this to the simplistic model presented in relationship marketing and CRM:
one supplier, one customer, also expressed as one-to-one marketing. In accordance with
network theory we live in complex patterns which I am currently studying, using the
concept of many-to-many marketing (Gummesson, 2006). To this we can add a
business-to-business (B2B) network consisting of the retailer and its interaction with
Electrolux and the transport firm. It is all put together in Figure 1.
The complexity does not stop here. The case has more ramifications, and each node
is embedded in yet other networks. Therefore a truer image of many-to-many
marketing is shown in Figure 2. Even then only a superficial and static description is
rendered. Still it is far more realistic then what is shown in the relationship marketing
and CRM literature, not to talk about the mainstream marketing management
literature.
Before we discuss the case further let me introduce yet another network. The freezer
network includes people and organizations; this one includes concepts.
Quality,
service-dominant
logic
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Figure 1.
The freezer network
Figure 2.
The freezer network
extended
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Figure 3.
Another type of network:
the triplets at play
The context of the triplets: quality, productivity and profitability
The interdependency between quality, productivity (output divided by input) and
financial aspects (pricing, profits, keeping the budget) is not well understood. There are
no generally valid laws. For example, improved quality can increase cost, reduce cost,
or have no effect on cost, and increased productivity may lower quality, increase it or
not change it at all.
Quality does not live an isolated life. It is part of a network of interactions between
other phenomena. I have earlier referred to the three concepts of quality, productivity and
profitability as the triplets (Gummesson, 1998). They are closely dependent on each other
and triplets do not want to get separated – but unfortunately they do in mainstream
research. The Triplets allow broadening of service quality research but of course there is
more to it than this. But even in a network of only three variables, the complexity grows
manifold; with currently used models and methods the network becomes unmanageable.
So why broaden it? The answer is: We cannot disregard reality just because it is difficult.
When I write this the media report the discovery of a new planet with conditions similar
to those on our earth. This adds to the complexity of the work of astronomers but could
you imagine them say: Well, this new star makes research very complicated so we will
disregard it! How, then can we do so in social sciences and in quality research?
The productivity concept from manufacturing neither considers service, nor
activities performed by customers. No wonder that engineers, statisticians and
economists have difficulties in measuring service productivity and it they manage to
measure it, complain that it lags behind manufacturing productivity. However, they
are locking themselves up in mental prisons and only their prejudices stop them from
getting out. Another major problem with quality management is the difficulty to gain
credibility among business executives and to show its link to the bottom line. One
hurdle could be that we are chasing the wrong thing or do it the wrong way.
The interconnection between productivity, quality, and profitability – the triplets at
play – is graphically shown in Figure 3. At the top of the figure is quality, defined as 1.
producing defect-free value propositions (“goods and services” in conventional terms)
right from the beginning; and 2. producing the value propositions that customers need
and want. If quality improves in these senses, it can have a positive impact on revenue
(left section of the figure), cost (middle section), and capital employed (right section).
When function and reliability improve, they boost the image in the market, customer
retention, and share of customer (i.e. the percentage of a customer’s total purchase of a
certain product from a specific supplier). These changes stimulate sales volume growth,
differentiate a supplier from the competition and make the supplier less dependent on
price competition. When sales and share of customer go up, the supplier can profit from
scale economics (up to a certain level), and production costs per unit go down. This
affects both productivity and profitability. Further, service costs for machinery go down,
and so do the costs of inspection, testing, rework, scrap, complaints, and warranties. The
capital employed is reduced as less inventory needs to be kept; accounts receivable go
down because payment comes earlier and less payment is delayed because of
complaints; and reduction of processing time frees resources. As the cash flow becomes
quicker, the money can be used elsewhere and capital costs are reduced. Improved
productivity becomes an antecedent to profitability. In non-profit organizations
profitability can be exchanged for the ability to operate within a set budget.
The figure is conceptual and its interpretation goes as far as to conclude that
something may go up or down and that the interdependency is complex. In the figure,
the complexity of real life only stands out on the surface but our imagination can sense
its inherent intricacies. There is, however, always the desire and need to measure,
preferably precisely, the financial consequences of marketing strategies. This has been
tried for at least 50 years without any remarkable progress. Currently fresh efforts are
being made (Ambler, 2000; Rust et al., 2000). But before we start measuring and
indulge in all its technicalities we need to identify what is important to measure and
ask ourselves: Can it at all be measured?
Discussion
The legacy from economics states that there are sellers and buyers who enter into
exchange on an impersonal, mass basis. Mainstream marketing management considers
the seller the active party persuading the passive customer. Once people grew their own
food and swapped goods and services. The local manufacturers – the village artisans –
had a direct and individual relationship with customers. Today it is different, and the
effect of the current globalization wave will make the network of business progressively
more complex. A manufacturer who adheres to Porter’s (1985) value chain, which is a
supplier value chain stopping when the customer enters, will put too much psychic
distance between itself and the customer; value propositions and value actualization are
already far apart. We have to approach the whole context, the network, its members and
interactions. We have to ask questions like “Where does quality arise?”, “Where should it
be measured?”, “How should it be measured: quantitatively or through qualitative
assessment?”, and “Where and how could it be improved?”.
Quality management is primarily presented as an issue for the supplier, especially
in B2C/C2B. In B2B, suppliers and customers often develop, produce, and finance
products in joint ventures and alliances. Knowledge about consumers is elicited
through satisfaction studies where statistical samples, focus groups and in-depth
interviews are used. Sometimes very sophisticated methods are used with the help of
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psychology and technology. But just as the supplier value chain is studied
continuously and in detail, and action is taken to make improvements, the customer
value chain has to be studied and made efficient within a customer logic. I would,
however, recommend that we switch from linear thinking to non-linear and network
thinking and use the concepts of supplier value network and customer value network.
According to Womack and Jones (2005), lean production – a variant of quality
management (see Dahlgaard and Dahlgaard-Park, 2006) – has to join forces with lean
consumption into a lean solution, favorable to all stakeholders. This systemic network
view is equally valid for academic research if it wants to make a contribution by
traveling unexplored roads, and not just please the mainstream. The saying, attributed
to comedian W.C. Fields, that “even a dead fish can float downstream but it takes a live
one to swim upstream” may sound just funny – but is embarrassingly true.
The freezer case identifies several points where quality contributions can be
identified. What is meaningful depends on the purpose and the stake in doing it.
Contributions can come from:
.
suppliers;
.
customers;
.
the interaction between suppliers and customers;
.
other members of the complex network in which suppliers and customers are
embedded.
The case puts emphasis on three types of interaction:
(1) B2C/C2B;
(2) B2B; and
(3) C2C.
The first two are well-known, while the third has relatively recently appeared in the
spotlight although the phenomenon is not new. Information technology (IT) has
expanded the opportunities for consumers to communicate with companies and with
other consumers. The internet is an enabler of C2C interaction, but C2C interaction
occurs in a physical encounter in the marketplace as well as in the virtual, IT-mediated
encounter in marketspace. Nicholls (2005) classified C2C interaction and found a great
variety of events that can be related to time, place, conversation, need for information,
and need for help or turning down help; and Edvardsson et al. (2006) describe and
analyze the customer’s role in service development. Futurist Alvin Toffler (1980) minted
the concepts “prosumer” and “prosumption” as composites of producer/consumer and
production/consumption. The concepts say that the customer is an integral part of the
production system and that the borderline between supplier and customer has been at
least partly erased. Do-it-yourself is a big market and IKEA has based 60 years of
unbroken success on customers doing transportation and assembly jobs.
At the same time as the customer’s broader role is being recognized, the American
Marketing Association (2004) has launched a revised definition of marketing. It states
that marketing delivers value to customers and manages customer relationships. It
does not say “creates value with customers”, nor “interacts in networks of
contributors”. So officially marketing is still locked in the supplier/customer and
active/passive trap (see further a critical discussion in Grönroos, 2006).
Within the service-dominant logic the customer is a prosumer and co-creator of
value. In traditional services marketing it has manifested itself through the concept of
the service encounter. Goods manufacturing can also be interactive and is increasingly
so through outsourcing, the building of networks organizations, and the Internet.
Within the service-dominant logic, the service encounter can host all sorts of value
propositions.
What is a satisfied and a dissatisfied customer really? And how differently do
customers perceive what has happened to them? We were satisfied that the old freezer
served for 25 years but it is easy to take that for granted and not really appreciate it. It
is hard to be satisfied with the delivery time of the new freezer and the surrounding
service, but it was quickly forgotten when the new freezer was in place. One issue
remains unsolved though: How do we know when a freezer stops? A red light in the
basement is not enough. Should there be a light in the kitchen instead? Or a siren
sounding like a burglar alarm? As the “intelligent kitchen” has been described, the
freezer could in the future be connected to our fire and burglar security system and
send a signal to the security company who would come to our immediate rescue even if
we are not at home. Or will that be too costly; is it better to have the frozen food
destroyed and replaced and add the insurance company to the network?
Stauss and Seidel (2004, p. 18) argue that complaint management is the heart of
customer relationship management, CRM. They list as Prejudice No. 1 that if no or few
complaints come in, customers are satisfied. This is not a reliable indicator, they say,
because there are so many obstacles in registering complaints, and only a fraction of
those customers who remain dissatisfied express their complaints. The outcome of
unknown dissatisfaction is reduced retention.
Potential complaints in the freezer case include:
.
Electrolux could not deliver the same or the next day which stands out as slow
service. It may be efficient within the supplier value network but not within the
customer value network.
.
They could not deliver as promised the next week. We were never told why.
.
They first delivered a tattered freezer.
.
It took four weeks before we could start to actualize the value of the new freezer.
.
The Electrolux freezer may be an excellent product, but we will not really know
what the value proposition includes until the freezer starts to malfunction or
breaks down. And we will not be properly alerted when it happens.
Did we complain about the quality deficiencies? Not really, we spent the time
managing the network; nobody else did. As buyers we became the hub in a B2C/C2B,
C2C, and to some extent a B2B network. Did the retailer and the manufacturer care
about relationships and retention? No, not to our knowledge. Do they have CRM
systems that fulfill the true purpose of CRM? I doubt it. It is in vogue to talk about
organizational learning and knowledge management and that CRM systems support
this. But is this only so in theory and sales presentations but not in practice? We as
consumers learnt from the freezer case but Electrolux, the retailer and the transport
company learnt nothing.
The number of marketing and consumption situations are as innumerable as the
stars in the Milky Way. We cannot really count them and allocate them to simple,
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general categories and simultaneously cater for individual needs. The situations are
composed of similarities and differences, of modules that can enter into different
configurations and are customized or mass-customized to take care of situations that
closely resemble each other. To address this complexity not only the application of
network theory and the many-to-many approach is called for. We need more
substantive case study research. To really understand reality, better access is required
such as that achieved through management action research.
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About the author
Evert Gummesson is Professor of Marketing at the Stockholm University School of Business. His
interests embrace services, quality management, relationship marketing, CRM, and qualitative
methodology, and currently a network approach to a new logic of marketing, reflected in his
latest book Many-to-many Marketing. He has written numerous books and articles and his
critical article on services (with Christopher Lovelock) “Whither services marketing?”, in the
Journal of Service Research (Vol. 7, No. 1, 2004), won the American Marketing Association’s
Annual Award for Best Article on Services. He is listed by the Charted Institute of Marketing in
the UK as one of the 50 most important contributors to the development of marketing. Evert can
be contacted at: [email protected]
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