Service-dominant logic

Radical reformulation of marketing happens and arguably is part of the dynamic tension just under the surface calm of any discipline. But not since Lynn 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[1] article by Stephen Vargo and Robert Lusch in the January 2004 issue 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 led by David Ballantyne met to discuss these issues at The Otago Forum (2005, 2008, 2011), with special issues of major marketing journals emerging, as a consequence. Other international interest emerged that broadened to include service management and service science. This broadened interest is reflected in the Naples Forum on Service (2009, 2011,and 2013) that has a special focus on service systems and networks, service science and service-dominant logic. Lusch and Vargo, established the Forum on Markets and Marketing (FMM), which was held in 2008 at the University of New South Wales, in 2010 at Cambridge University, in 2012 at the University of Auckland, and in 2014 at the CTF, Service Research Center Karlstad University, Sweden. FMM, now a biennial event was established as a service-dominant (S-D) logic-based forum to: (1) explore foundational and theoretical issues related to marketing, including the understanding of markets and marketing systems and (2) further the development of S-D logic.

What is S-D Logic?

Marketing inherited a model of exchange from economics, 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.[2] Vargo and Morgan (2005) provide a historical review of economic and philosophical thought that led to the dominant logic surround goods or manufactured output.

Foundational premises

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

Foundational premise Explanation and 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.

Since then, Vargo and Lusch have realized that some of the original FPs could be derived from others and, thus, have identified four FPs from this expanded set of ten as particularly foundational, essentially the axioms of S-D logic. These four FPs are: FP1, FP6, FP9 and FP10.

Axioms of S-D logic[3]

FP1, which says that service, defined as the use of one’s competences (knowledge and skills) for the benefit of another, is the basis of exchange, is the heart of S-D logic. The FP implies that in economic exchange, as well as social exchange in general, fundamentally, service is exchanged for service; when goods are involved, they are best understood as service-delivery mechanisms. It is important to emphasize that this “service” (singular), a process, should not be confused with “services,” (usually plural), usually intended to denote a unit of (intangible) output, which Vargo and Lusch associate with the traditional goods dominant (G-D) logic.

FP6 establishes that value is always cocreated. The original scope for this axiom was the micro level, typically involving a firm and a customer and was intended to shift the primary locus of value creation to the latter – that is, from the primacy of value-in-exchange, toward the primacy of value-in-use. More recently, Vargo and Lusch have used to term value-in-context to capture the notion that value must be understood in the context of the beneficiary’s world. However, it has become increasingly clear that, viewed from a meso and macro level,[4] the collaborative nature of value creation becomes even more apparent. That is, value co-creation through service-for-service exchange is at the very heart of society.[5] One other comment on value cocreation is important here. Vargo and Lusch distinguish between co-production and the co-creation of value. Co-production refers to the customer’s participation in the creation of the value-proposition (the firms offering), such as through co-design, customer-assembly, self-service, etc. Co-production is thus relatively optional and its advisability depends on a host of firm and customer conditions. This is different from co-creation of value, which is intended to capture the essential nature of value creation: it always involves the beneficiary’s participation (through use, integration with other resources, etc,) in some manner.

FP9, identifies the other core activity (besides service provision) of economic (and social) actors: resource integration. It sets the stage for thinking about the mechanics and the networked nature of value co-creation, as well as the process through which the resources for service provision are created, the integration of resources, resources from various market-facing, public, and private sources. Importantly, this resource-integration does not just apply to the actor typically referred to as a “producer” (e.g., the firm) in G-D logic, but also, and even more importantly, to the actor, usually referred to as the “consumer” or the “customer”.

FP9 thus also sets the stage for the explication of the contextual and unique nature of value realization and value determination and, thus, for FP10, the last axiom, which states that value is always uniquely and phenomenologically determined by the beneficiary. Here “phenomenological” is intended to capture the experiential nature of value. That is, value must be understood in terms of the holistic combination of resources that lead to it, in the context of other (potential) resources. It is thus always unique to a single actor and, it follows, can only be determined by that actor, or at least with the actor as the central referent.

The Service Ecosystem

A service-centered approach to social and economic exchange broadens the process of value creation beyond a firm’s operation activities to include the active participation of customers and other stakeholders, through co-creation (FP6). This collaborative view points “away from the fallacy of the conceptualization of the linear, sequential creation, flow and destruction of value and toward the existence of a much more complex and dynamic system of actors that relationally co-create value and, at the same time, jointly provide the context through which “value” gains its collective and individual assessment (FP10)[6]”. That is, the unit of analysis moves from the firm, customer, or even the firm customer dyad, to the service ecosystem(s) of which they are a part. More specifically, Vargo and Lusch define service ecosystems as “relatively self-contained, self-adjusting system[s] of resource-integrating actors connected by shared institutional logics and mutual value creation through service exchange.”

S-D Logic Books

- The Service-Dominant Logic of Marketing: Dialog, Debate, And Directions Paperback by Robert F. Lusch (Author, Editor) , Stephen L. Vargo (Editor), M.E.Sharpe (February 28, 2006)

- Service-Dominant Logic: Premises, Perspectives, Possibilities by Robert F. Lusch and Stephen L. Vargo, Cambridge University Press (January 31, 2014)

Extending S-D Logic

The first article on S-D logic (Vargo and Lusch 2004) has already been cited almost 5000 times (Google Scholar, Fall 2013) and motivated hundreds of S-D-logic-focused articles, as well as over a dozen journal special issues/sections and a similar number of focused conferences. Many scholars have therefore contributed to the evolution and development of S-D logic including scholars from accounting, economics, marketing, management, information systems, operations research, tourism, industrial design and other areas.

Conclusion

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, relationship marketing, market orientation, network perspectives, integrated marketing communications (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 goods 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. 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).

Example

The Congruence is the service offered (and accepted) in a co-creative exchange. The Congruenter is the person who takes the lead in terms of bringing all involved to a state of comfort or pleasantness. The Congruent Period, or "period of comfortableness or pleasantness" may be short, long or permanent.

Notes

  1. ↑ For this work, Lusch and Vargo have been awarded the Harold H. Maynard Award by the American Marketing Association for “significant contribution to marketing theory and thought” and the Sheth Foundation Award for “long term contributions to the field of marketing.”
  2. ↑ Vargo, Stephen L.; Lusch, Robert F. : Evolving to a new service dominant logic for marketing. Journal of Marketing. Vol. 68 (January 2004), p. 1.
  3. ↑ Vargo, Stephen L. "Service-dominant logic reframes (service) innovation." Highlights in service research, VTT, 2013
  4. ↑ Chandler, J.D. & Vargo, S.L. Contextualization: Network Intersections,Value-in-Context, and the Co-Creation of Markets. Marketing Theory, 2011.
  5. ↑ Lusch, R.F. & Vargo, S. L. Service dominant logic: reactions, reflections and refinements.” Marketing Theory, Vol. 6, No. 3, 2006, pp. 281–288.
  6. ↑ Giddens, A. The Constitution of Society. Berkeley, Los Angeles: University of California Press, 1984.

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