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

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
Precursors
S-D
Logic
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Historical treatment of services
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Smith’s (1776) bifurcation
Bastiat’s (1848) reconsideration
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“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
Uneasiness with Dominant Model
S-D
Logic
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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)
A Partial Pedigree
S-D
Logic
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Services and Relationship Marketing
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Theory of the firm
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(Prahald and Hamel (1990); Day 1994)
Resource-Advantage Theory and ResourceManagement Strategies
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Penrose (1959)
Core Competency Theory
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e.g., Shostack (1977); Berry (1983); Gummesson
(1994) ; Gronroos (1994); etc.
Hunt (2000; 2002); Constantine and Lusch (1994)
Network Theory
Service
S-D
Logic
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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)
Shift in Focus from
Operand to Operant Resources
S-D
Logic
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Operand Resources
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Resources upon which an operation or act
is performed to produce an effect
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primarily physical resources, goods, etc
Operant Resources
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Resources that produce effects
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e.g., primarily knowledge and skills—
competences
Evolution of Marketing Thought
S-D
Logic
To Market
(Matter in Motion)
Market To
(Management of
Customers
& Markets )
Through 1950
1950-2005
Market With
(Collaborate with
Customers & Partners
to Create & Sustain
Value)
2005+
Foundational Premises
S-D
Logic
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FP1. The application of specialized skill(s) and
knowledge is the fundamental unit of
exchange.
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FP2. Indirect exchange masks the
fundamental unit of exchange.
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Service (application of skills and knowledge) is
exchanged for service
Micro-specialization, intermediaries, and money
obscure the service-for-service nature of exchange
FP3. Goods are distribution mechanisms for
service provision.
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“Activities render service; things render service”
(Gummesson 1995) : goods are appliances
Foundational Premises (2)
S-D
Logic
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FP4. Knowledge is the fundamental source of
competitive advantage
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FP5. All economies are service economies.
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Operant resources, especially “know-how,” are the
essential component of differentiation
Service only now becoming more apparent with
increased specialization and outsourcing
FP6. The customer is always a co-creator of
value.
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There is no value until offering is used—
experience and perception are essential to value
determination
Foundational Premises (3)
S-D
Logic
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FP7. The enterprise can only make value
propositions.
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FP8. A service-centered view is inherently
customer oriented and relational
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Since value is always determined by the customer (value-inuse)—it can not be embedded through manufacturing
(value-in-exchange)
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.
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The firm is an integrator of macro and micro-specializations
10
Evolving Toward a
Service-Dominant Lexicon
S-D
Logic
G-D Focus
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Operand Resources
Tangible
Value Added
Goods
Products
Transactional
Units of Output
Promotion
Brand Equity
Profit Maximization
S-D Focus
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Operant Resources
Intangible
Co-creation of value
Service
Experiences
Relational
Processes
Conversation/Dialog
Customer Equity
Financial Feedback
Difficult Conceptual Transitions
S-D
Logic
Goods-Dominant
Concepts
Transitional
Concepts
Service-Dominant
Concepts
Goods
Services
Service
Products
Offerings
Experiences
Feature/attribute
Benefit
Solution
Value-added
Co-production
Co-creation of value
Profit maximization
Financial Engineering
Financial feedback/learning
Price
Value delivery
Value proposition
Equilibrium systems
Dynamic systems
Complex adaptive systems
Supply Chain
Value-Chain
Value-creation network/constellation
Promotion
Integrated Marketing
Communications
Dialog
To Market
Market to
Market with
Product orientation
Market Orientation
Service-Dominant Logic
(Consumer and relational)
12
Why Service?
S-D
Logic 
Accuracy: It is precisely service that we are
talking about
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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
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Transaction → Relationship
(Manufactured) Quality → Perceived (Service) Quality
Brand Equity → Customer Equity
Consumer → Prosumer (co-producer of value)
13
Why Service?
S-D
Logic
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Continuity: Does not require rejecting the
exchange paradigm
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Just change in focus from units of outputs to
processes
Normatively Compelling: The purpose of
economic exchange is mutual service
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Implies managerial, macro, and ethical standards
Implications of a “ServiceExchanged-For-Service” Paradigm
S-D

Logic
Academic
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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
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Micro implications—Makes service-based concepts central/applicable
to marketing
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IHIP as it applies to value creation/all of marketing
Macro implications—Social role of Marketing
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Value–creating
Resource-expanding
15
Implications of a “ServiceExchanged-For-Service” Paradigm
S-D
Logic
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Practice
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Managerially compelling—focuses on mission (service)
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Promotes social responsibility
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Marketing has social purpose
Education
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Easily understandable—requires fewer “adjustments”
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Demands customer orientation/value-in-use
Implies relationship marketing
Role of operant resources
Implies better customer experiences/fairer treatment
Normative prescripts (e.g., customer orientation/relationship) implied
by framework
Inviting—increased attractiveness off discipline
Society
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Promotes social responsibility—purpose is to:
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Serve individuals/society/organizations
Facilitate value enhancement/resource expansion through exchange
An S-D Logic
Definition of Marketing
S-D
Logic

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.
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Therefore marketing can be viewed as the
means by which societies are able to
create value through the voluntary
exchange of knowledge and skills.
What S-D Logic is Not
S-D
Logic
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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
What S-D Logic Might be
S-D
Logic
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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 Can Direct
Macro/Public Policy
S-D
Logic
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
From value in exchange to
resources.
value in use.
Public policy to
Public data collection on
encourage collaboration vs. value in use and home
competition.
production.
The Inversion
S-D
Logic
Goods Logic
Service
Products
(processes—applied
competences)
(units of output)
Goods
Service Logic
Services
Indirect
(Intangible goods)
(Goods--Appliances)
Direct