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S-D Logic Service-Dominant Logic: Progress and Prospects AMA Summer Educators Conference August 5, 2007 Stephen L. Vargo, University of Hawaii at Manoa.

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Presentation on theme: "S-D Logic Service-Dominant Logic: Progress and Prospects AMA Summer Educators Conference August 5, 2007 Stephen L. Vargo, University of Hawaii at Manoa."— Presentation transcript:

1 S-D Logic Service-Dominant Logic: Progress and Prospects AMA Summer Educators Conference August 5, 2007 Stephen L. Vargo, University of Hawaii at Manoa Robert F. Lusch, University of Arizona Melissa Akaka, University of Hawaii at Manoa Yi He, University of Hawaii at Manoa Do not reproduce or use without permission of Stephen L. Vargo

2 S-D Logic Getting the Logic Right The greatest danger in times of turbulence is not the turbulence: it is to act with yesterdays logic. Peter F. Drucker What is needed is…a marketing interpretation of the whole process of creating utility. Wroe Alderson The main power base of paradigms may be in the fact that they are taken for granted and not explicitly questioned. Johan Arndt Value Proposition: There are alternative logics for understanding markets and marketing S-D logic is more robust and better suited to the long-term viability of marketing (as a professional practice, science, and societal contributor).

3 S-D Logic Goods-dominant (G-D) Logic Purpose of economic activity is to make and distribute units of output, preferably tangible (i.e., goods) Goods are embedded with utility (value) during manufacturing Goal is to maximize profit through the efficient production and distribution of goods goods should be standardized, produced away from the market, and inventoried till demanded Firms exist to make and sell goods

4 S-D Logic Services: The G-D Logic Perspective Services are: Value-enhancing add-ons for goods, or A particular (somewhat inferior) type good, characterized by: Intangibility Heterogeneity (non-standardization) Inseparability (of production and consumption) Perishability

5 S-D Logic The Roots of GD logic Smiths Bifurcation Positive foundation of exchange: specialized knowledge, labor (service), Value-in-use Normative model of (national) wealth creation: Value-in-exchange and production Creation of surplus, exportable tangible goods Says Utility: Usefulness (value-in-use) Morphed into a property of products (value-in-exchange) Development of Economic Science Built on Newtonian Mechanics Matter, with properties Deterministic relationships The science of exchange of things (products), embedded with properties (utiles)

6 S-D Logic Uneasiness with Dominant Model Characterizations of G-D logic marketing myopia (Levitt 1960), manufacturing logic (e.g., Normann 2001), old enterprise logic (Zuboff and Maxmin 2002) 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 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)

7 S-D Logic Sub-disciplinary Divergences and Convergences Business-to-Business Marketing From differences Derived demand, professional buyers, flocculating demand, etc To emerging new principles Interactivity, relationship, network theory, etc Service(s) Marketing From differences: Inseparability, heterogeneity, etc. To emerging new principles: Relationship, perceived quality, customer equity, etc. Other Sub-disciplines Other Intra-marketing initiatives e.g., interpretive research, Consumer culture theory, etc. From deterministic models to emergent properties From products to experiences From embedded value to individual meanings and life theme

8 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 (Prahalad and Hamel (1990); Day 1994) Resource-Advantage Theory and Resource-Management Strategies Hunt (2000; 2002); Constantin and Lusch (1994) Network Theory (Hakansson and Snehota 1995) Interpretive research and Consumer Culture theory Experience Marketing B2B Marketing/Value Creation

9 S-D Logic Service-Dominant Logic Basics Service, rather than goods, is the focus of economic and social exchange i.e., Service is exchanged for service Essential Concepts and Components Service: the application of competences for the benefit of another entity Service (singular) is a processdistinct from services particular types of goods Shifts primary focus to operant resources fromoperand resources Sees value as always co-created Sees goods as appliances for service delivery Implies all economies are service economies All businesses are service businesses

10 S-D Logic Revised Foundational Premises FP1The application of specialized skill(s) and knowledge is the fundamental unit of exchange. Service is the fundamental basis of exchange. FP2Indirect exchange masks the fundamental unit of exchange. Indirect exchange masks the fundamental basis of exchange. FP3Goods are a distribution mechanism for service provision. Goods are distribution mechanisms for service provision. FP4Knowledge is the fundamental source of competitive advantage Operant resources are the fundamental source of competitive advantage FP5All economies are services economies. All economies are service economies.

11 S-D Logic Revised Foundational Premises FP6The customer is always a co- producer The customer is always a co- creator of value FP7The enterprise can only make value propositions The enterprise can not deliver value, but only offer value propositions FP8A service-centered view is customer oriented and relational. A service-centered view is inherently customer oriented and relational. FP9Organizations exist to integrate and transform microspecialized competencies into complex services that are demanded in the marketplace All economic and social actors are resource integrators FP10Value is always uniquely and phenomenological determined by the beneficiary

12 S-D Logic Misconceptions of S-D logic It reflects the transition to a services era In S-D logic, all economies are service economies It simply replaces goods with services in primary importance It is a theory S-D logic is a logic, a mindset, a lens, but not a theory Could provide the foundation for a grand theory of exchange General Theory of the market and marketing Foundation for service science Reformulation of economic theory

13 S-D Logic S-D Logic Knowledge Integration The new dominant logic has important implications for marketing theory, practice, and pedagogy, as well as for general management and public policy. … The ideas expressed in the article and the commentaries will undoubtedly provoke a variety of reactions from readers of the Journal of Marketing. - Ruth Bolton, Editor, Journal of Marketing (2004)

14 S-D Logic Breadth of Knowledge Integration Category Time Cited/Mentioned *as of December 2006 Social Science Citation Index 65 Business Source Premier 105 Google.com/scholar 264 Google.com 550 Conferences* (call for papers and presentations) 22 Marketing Courses* (subjects and reading lists) 13 Website Posts* (e.g., blogs) 172

15 S-D Logic Integration in Marketing Literature Journal of Marketing (7) Journal of Service Research (7) International Journal of Service Industry Management (7) European Journal of Marketing (5) Industrial Marketing Management (5) Journal of Business Research (4) Journal of Retailing (3) Marketing Science (3) International Marketing Review (2) Journal of Business-to-Business Marketing (2) Journal of Public Policy & Marketing (2) Numbers based on Social Science Citation Index. Citations

16 S-D Logic Main Sub-themes of Integration Three main sub-themes underlying the knowledge integration focus on core concepts of S-D logic: The categorization is adapted from marketing schools of thought presented by Shaw and Jones (2005). The numbers represent selected citations relating to or elaborating upon S-D logic (Vargo and Lusch 2004).

17 S-D Logic Elaborations on Core Concepts (1) S-D Logic Meaning of Service Service as a new and dominant logic (e.g, Achrol and Kotler 2006; Ballantyne and Varey 2006; Bolton and Alba 2006; Brodie, Pels and Saren 2006; Jaworski and Kohli 2006) Rethinking service marketing (e.g., Edvardsson et al. 2006; Brown and Bitner 2006; Lovelock and Gummesson 2004; Gronroos 2006) Technology-driven service-orientation (e.g., Rust 2004; Rust and Espinoza 2006; Shugan 2004) The symbolic nature of service (e.g., Venkatesh, Penaloza and Firat 2006; Brodie, Pels and Saren 2006)

18 S-D Logic Elaborations on Core Concepts (2) Resource-Based Perspective Elaborations on the concept of resources (e.g., Arnould 2006; Arnould, Price and Malshe 2006; Hunt and Madhavaram 2006) Resources as a competitive advantage (e.g., Hunt and Madhavaram 2006; Lusch et al. 2007) Integration of resources within networks or systems of exchange (e.g., Flint and Mentzer 2006; Gummesson 2006; Kalaignanam and Varadarajan 2006; Mouzas 2006; Lambert and Garcia-Dastugue 2006)

19 S-D Logic Elaborations on Core Concepts (3) Process of Value Co-Creation The experiential nature of value (e.g., Prahalad 2004; Shembri 2006; Woodruff and Flint 2006) Customer participation, dialogue and learning (e.g., Woodruff and Flint 2006; Denegir-knott, Zwick and Schroeder 2006; Ballantyne and Varey 2006) Relationships and interaction in co-creation (e.g., Day 2006; Gronroos 2006; Gummesson 2006; Oliver 2006; Moller 2006; Rust and Thompson 2006; Wilkie and Moore 2006)

20 S-D Logic Groundwork for a Grand Theory Need for grand theory of marketing Gummesson 2006; Hunt and Madhavaram 2006 Markets are everywhere and nowhere... Venkatesh, Penalosa, and Firat 2006 S-D Logic as Foundational for a General Theory of Markets (positive) and Marketing (normative) Lusch and Vargo 2006; Vargo 2007; Vargo and Lusch 2006; Vargo and Lusch 2008

21 S-D Logic What is needed Foundations for Positive theory Reorientation to marketing and marketing S-D Logic Shift from products as unit of analysis to collaborative value creation and determination B2B, service, and relationship Refocus on operant resources as source of value Resource-based theories of the firm; resource advantage theory Elimination of producer/consumer distinction B2B marketing/network theory Inframarginal analysis Models of emergent structure and processes Complexity theory Interpretive research Theory of resource integration and exchange Theory of markets to inform normative marketing theory

22 S-D Logic Service Exchange through Resource Integration and Value Co-creation Resource Integrator/ Beneficiary (Firm) Resource Integrator/ Beneficiary (Customer) Value Co-creation Value Configuration Density

23 S-D Logic Conceptual Issues The following need further conceptual development (deep meaning): Social and economic actors Resources and resistances Value and value proposition Co-production and co-creation Conversation and dialog Value networks and constellations

24 S-D Logic Foundational Issues Can we understand marketing without a fuller understanding of the nature, scope and role of organizations, markets and marketing? What service systems should be our primary focus? Is S-D logic an organizational logic or a marketing logic? What is consumer welfare under S-D logic? How is firm performance best measured under S-D logic? What are the conceptual aspects of resource integration? How should national accounting systems be designed to be S-D informative? Should S-D logic be the foundation of service science?

25 S-D Logic Research Frontiers What is value and how to measure it? What is service-centricity and how to measure it? How do social and economic actors integrate resources? What existing firms, industries and cultures best characterize S-D logic? What are the obstacles to implementation of S-D logic? Does S-D logic improve ethical decision-making and sensitivity?

26 S-D Logic For More Information on S-D Logic visit: sdlogic.net We encourage your comments and input. Will also post: Working papers Teaching material Related Links Steve Vargo: Bob Lusch: Thank You!

27 S-D Logic 27 Related Work Vargo, S. L. and R.F. Lusch (2004) Evolving to a New Dominant Logic of Marketing, Journal of Marketing Harold H. Maynard Award for significant contribution to marketing theory and thought. Vargo, S.L. and R. F. Lusch (2004) The Four Service Myths: Remnants of a Manufacturing Model Journal of Service Research Vargo, S.L. and F.W. Morgan (2005) An Historical Reexamination of the Nature of Exchange: The Service Perspective, Journal of Macromarketing, Lusch, R.F. and S.L. Vargo, editors (2006), The Service-Dominant Logic of Marketing: Dialog, Debate, and Directions, Armonk, NY: M.E. Sharpe

28 S-D Logic Related Work (Continued) Lusch, R.F., S.L. Vargo(2006), The Service-Dominant Logic of Marketing: Reactions, Reflections, and Refinements, Marketing Theory Lusch, R.F., S.L. Vargo, and A. Malter (2006), Marketing as Service-Exchange: Taking a Leadership Role in Global Marketing Management, Organizational Dynamics, Lusch, R.F., S.L. Vargo, and M. OBrien (2007),Competing Through Service: Insights from Service- Dominant Logic, Journal of Retailing Vargo, S. L. (2007), On a Theory of Markets and Marketing: From Positively Normative to Normatively Positive, Australasian Marketing Journal (in press)

29 S-D Logic Related Work (Continued) Vargo, S.L. and R.F. Lusch (2007), From Products to Service: Divergences and Convergences of Logics, Journal of Industrial Marketing Management, (in press) Vargo, S.L. and R.F. Lusch (2008) Why Service?, Journal of the Academy of Marketing Science, (in press) Vargo, S.L. and R.F. Lusch (2008) Service- Dominant Logic: Continuing the Evolution, Journal of the Academy of Marketing Science, (in press) Lusch, R.F., S.L. Vargo, and G. Wessels (2008), "Toward a Conceptual Foundation for Service Science: Contributions from Service-Dominant Logic," IBM Systems Journal, 47, 1 (in press)

30 S-D Logic The Breadth of Knowledge Integration S-D logic meaning of service Resource-Based Perspective Process of value co-creation Marketing Management Achrol and Kotler 2006 Ballantyne 2006; Dagger and Sweeney 2006; Day 2006; Duncan and Moriarty 2006; Ekeledo and Sivakumar 2004; Jaworski and Kohli 2006; Lusch, Vargo and Malter 2006; Lusch, Vargo and O'Brien 2007; Nijssen et al Rust 2004 Rust and Thompson 2006; Rust and Espinoza 2006; Sawhney Doherty and Meehan 2006; Hunt and Arnett 2006; Hunt and Madhavaram 2006; Lusch, Vargo and Malter 2006; Lusch, Vargo and O'Brien 2007; Matthing, Sanden and Edvardsson 2005; Voelpel, Leibold and Tekie Jaworski and Kohli 2006; Kumar and Petersen 2005; Lambert et al. 2005; Lusch and Vargo 2006; Lusch, Vargo and Malter 2006; Lusch, Vargo and O'Brien 2007; Moller 2006; Nambisan and Baron 2007; Payne and Frow 2005; Payne and Frow 2006; Penttinen and Palmer 2007; Rust and Espinoza 2006; Rust and Thompson 2006; Santala and Parvinen 2007; Wilkie and Moore 2006; Zeithaml et al Marketing Institutions Jayawardhena et al. 2007, Bolton and Alba 2006 Borin 2005; Briggs, Krishnan, and Wilkinson 2006; Flint and Mentzer 2006; Kalaignanam and Varadarajan 2006; Lambert and Garcia-Dastugue 2006; Mouzas 2006; Fint et al. 2005; Pitta, Franzak and Little 2004; Flint and Mentzer 2006; Kalaignanam and Varadarajan 2006;

31 S-D Logic The Breadth of Knowledge Integration S-D logic meaning of service Resource-Based Perspective Process of value co-creation Service Marketing Araujo and Spring 2006; Ballantyne 2006; Bolton 2006; Bolton and Alba 2006; Brown and Bitner 2006; Edvardsson et al. 2006; Gronroos 2006; Laine et al. 2005; Lovelock and Gummesson 2004; Ottenbacher et al. 2006; Rai and Sambamurthy 2006; Sampson and Frochle 2006; Vargo and Lusch 2004b; Wheeler et al Araujo and Spring 2006; Vargo and Lusch 2004b. Vargo and Lusch 2004b. Consumer Behavior Brodie et al. 2006; Christodoulides et al. 2006; De Chernatony et al Arajou and Spring 2006; Arnould, Price and Malshe 2006; Arnould 2006; Arnould, Price and Malshe 2006; Baron et al. 2006;Denegir-Knott et al. 2006; Edvardsson, Enquist and Johnston, 2005; Etgar 2006;Flint 2006; Holbrook 2006; Jevons, Gabbott and de Chernatony 2005; Kay 2006; Oliver 2006; Woodruff and Flint 2006; Zwick and Schroeder 2006.

32 S-D Logic The Breadth of Knowledge Integration S-D logic meaning of service Resource-Based Perspective Process of value co-creation Macro- Marketing Laczniak and Murphy 2006; Lusch 2006; Venkatesh, Penaloza and Firat Curtis, Scott and Garbrah-Aidoo 2007; Lusch Luo and Bhattacharya 2006; Lusch 2006; Maignan, Ferrell and Ferrell Relationship Marketing Ballantyne and Varey 2006; Harker and Egan 2006; O'Driscoll Palmatier et al Acrhol and Kotler 2006; Agustin and Singh 2005; Ballantyne and Varey 2006; Berthon and John 2006; Bonnemaizon, Cova and Gronroos 2006; Gummesson 2006; Lacey, Jaebeom and Morgan 2007; Louyot 2007;Nambisan and Baron 2007; Roos et al Marketing Theory and Thought Brownlie 2006; Faulkner 2007; Lusch and Vargo 2006a; Lusch and Vargo 2006b; Macaulay and Noel 2006; Rust 2006; Rust and Tuck 2006; Sheth 2007; Vargo and Lusch 2006; Vargo and Morgan 2005; Vargo, Lusch and Morgan 2006; Webster Arnould 2006; Arnould, Price and Malshe 2006; Gummesson 2006; Hunt and Arnett 2006; Hunt and Madhavaram 2006; Lusch and Vargo 2006a; Lusch and Vargo 2006b; Vargo and Lusch 2006; Vargo and Morgan 2005; Vargo, Lusch and Morgan Baron and Harris 2006; Gronroos 2006; Gummesson 2006; Lusch and Vargo 2006a; Lusch and Vargo 2006b; Maenpaa 2006; Shah et al. 2006; Vargo and Lusch Vargo, Lusch and Morgan 2006; Vargo and Morgan 2005.

33 S-D Logic The New Fractal Geometry of Service-System Exchange? Value Co-creation Value Co-Creation Resource Integration Resistance Reduction Exchange Customers Needs Resources Resistances RI Stakeholders Needs Resources Resistances RI External Resources Needs Resources Resistances RI

34 S-D Logic 34 Difficult Conceptual Transitions Goods-Dominant Concepts Goods 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 Concepts Service 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)

35 S-D Logic From Value Creation to Resource Integration Resource Integrator/ Beneficiary (Firm) Resource Integrator/B eneficiary (Consumer) Value Creation Service Systems

36 S-D Logic Reflections of the Product Model Marketing is: The creation of utilities (Weld) Time, place, and possession production function Concerned with value distribution Orientations Production and Product distribution vs. value-added Consumer Orientation Evidence of problem vs. correction Marketing management and Consumer Behavior Aldersons admonition: What is needed is not an interpretation of the utility created by marketing, but a marketing interpretation of the whole process creating utility. Disconnect between marketing theory and marketing practice Sub-disciplinary division

37 S-D Logic Sub-disciplinary Divergences and Convergences Business-to-Business Marketing From differences Derived demand, professional buyers, flocculating demand, etc To emerging new principles Interactivity, relationship, network theory, etc Service(s) Marketing From differences: Inseparability, heterogeneity, etc. To emerging new principles: Relationship, perceived quality, customer equity, etc. Other Sub-disciplines Other Intra-marketing initiatives e.g., interpretive research, Consumer culture theory, etc. From deterministic models to emergent properties From products to experiences From embedded value to individual meanings and life theme

38 S-D Logic 38 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 partyi.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) 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 Purpose of the firm is to serve…

39 S-D Logic What is needed Positive Theory Market are everywhere and nowhere... (Venkatesh, Penalosa, and Firat 2006) Foundations for Positive theory Reorientation of markets, purpose of the firm, and marketing S-D Logic, resource-based theory of the firm Shift from products as unit of analysis to collaborative value creation and determination B2B, service, and relationship Refocus on operant resources as source of value Resource-based theories of the firm; resource advantage theory Elimination of producer/consumer distinction B2B marketing/network theory Inframarginal analysis Models of emergent structure and processes Complexity theory Interpretive research Theory of resource integration and exchange Theory of markets to inform normative marketing theory

40 S-D Logic From Value Creation to Resource Integration Resource Integrator/ Beneficiary (Firm) Resource Integrator/B eneficiary (Consumer) Value Creation Service Systems

41 S-D Logic Problems with Goods Logic Goods are not what we fundamentally own to exchange Application of knowledge and skills (our services) Goods are not all that good Tangibility is not fundamentally why we buy goods It is for the service they render Benefits are generally intangible – brand, image, meaning, experience Standardization ignores individual preferences Value (customer determined) is very is perishable Inventory of tangible goods is resource depleting Focuses on what we make, not what we do for people What customers need Consumer orientation does not help Focuses on efficiency of output processes rather than effectiveness of resource application (inputs) Does not inform (misinforms) firm transition to service

42 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 (Prahalad and Hamel (1990); Day 1994) Resource-Advantage Theory and Resource- Management Strategies Hunt (2000; 2002); Constantine and Lusch (1994) Network Theory (Hakansson and Snehota 1995) Interpretive research and Consumer Culture theory

43 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 & Sustain Value) Through

44 S-D Logic Value Production and Consumption Producer Consumer Value Creation Value Destruction Supplier Supply/Value Chain Product/Value Delivery

45 S-D Logic Potential Implications Making services more goods-like (tangible, separable, etc.) may not be correct normative marketing goal Make goods-more service-like. Reconsider the primary nature of the firm From manufacturing (make and sell) to marketing resource utilization for service provision Outsource and other non-core competences Virtual, on demand modular marketing organizations

46 S-D Logic Potential Implications (2) Selling service flows rather than ownership, even when goods are involved Shifting to Value-Based Pricing Based on value-in-use Network to network marketing Resource integration for resource integrators


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