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

2. Getting the Logic Right
The greatest danger in times of turbulence is not the turbulence: it is to act with yesterday’s 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. 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
Uneasiness with the dominate logic—goods-centered
Perhaps model was wrong, or at least good/service relationship inverted
Goods-dominant logic is:
Note manufacturing (rather than marketing) orientation
Marketing added “time,” “place,” and “possession” to utilities

4. 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. The Roots of GD logic Smith’s Bifurcation Say’s Utility:
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
Say’s 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. 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)
In addition to our original uneasiness with the dominant logic, found others had similar difficulties
Also Day and Montgomery (1999), Shostack, and Others

7. 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. 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
Diverse research streame that seem to be saying something is missing
Services and Relationship Marketing
Research and Models
Perceived Quality (manufactured quality)
Relationship (Transaction)
Customer Equity (Brand equity)
In addition to above…
…Others
e,g., Network theory
Also, Consumer orientation—Levitt, etc

9. 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 process—distinct from “services”— particular types of goods
Shifts primary focus to “operant resources” from “operand 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. Revised Foundational Premises
FP1
The application of specialized skill(s) and knowledge is the fundamental unit of exchange.
Service is the fundamental basis of exchange.
FP2
Indirect exchange masks the fundamental unit of exchange.
Indirect exchange masks the fundamental basis of exchange.
FP3
Goods are a distribution mechanism for service provision.
Goods are distribution mechanisms for service provision.
FP4
Knowledge is the fundamental source of competitive advantage
Operant resources are the fundamental source of competitive advantage
FP5
All economies are services economies.
All economies are service economies.

11. Revised Foundational Premises
FP6
The customer is always a co-producer
The customer is always a co-creator of value
FP7
The enterprise can only make value propositions
The enterprise can not deliver value, but only offer value propositions
FP8
A service-centered view is customer oriented and relational.
A service-centered view is inherently customer oriented and relational.
FP9
Organizations exist to integrate and transform microspecialized competencies into complex services that are demanded in the marketplace
All economic and social actors are resource integrators
FP10
Value is always uniquely and phenomenological determined by the beneficiary

12. 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 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) 13

14. Breadth of Knowledge Integration
Category Time Cited/Mentioned
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
*as of December 2006 14

15. 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)
Citations
Numbers based on Social Science Citation Index. 15

16. 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). 16

17. 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. 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. 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. 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. 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. Service Exchange through Resource Integration and Value Co-creation
Density
Value Configuration
Resource Integrator/Beneficiary
(“Firm”)
Resource Integrator/Beneficiary
(“Customer”)
Value Co-creation

23. 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. 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. 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. For More Information on S-D Logic visit:
Thank You!
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:

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. 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. O’Brien (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. 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. 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. 2006
Rust 2004
Rust and Thompson 2006;
Rust and Espinoza 2006;
Sawhney 2006.
Doherty and Meehan 2006;
Hunt and Arnett 2006;
Hunt and Madhavaram 2006;
Matthing, Sanden and
Edvardsson 2005;
Voelpel, Leibold and Tekie
2006.
Kumar and Petersen 2005;
Lambert et al. 2005;
Lusch and Vargo 2006;
Moller 2006;
Nambisan and Baron 2007;
Payne and Frow 2005;
Payne and Frow 2006;
Penttinen and Palmer 2007;
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; 30

31. 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. 31

32. 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 2006.
Curtis, Scott and Garbrah-Aidoo
2007;
Lusch 2006.
Luo and Bhattacharya 2006;
Lusch 2006;
Maignan, Ferrell and Ferrell 2005.
Relationship Marketing
Ballantyne and Varey 2006;
Harker and Egan 2006;
O'Driscoll 2006.
Palmatier et al
Acrhol and Kotler 2006;
Agustin and Singh 2005;
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 2005.
Arnould 2006;
Arnould, Price and Malshe 2006;
Gummesson 2006;
Hunt and Arnett 2006;
Hunt and Madhavaram 2006;
Vargo, Lusch and Morgan 2006.
Baron and Harris 2006;
Gronroos 2006;
Maenpaa 2006;
Shah et al. 2006;
Vargo and Lusch 2006.
Vargo and Morgan 2005. 32

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

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. From Value Creation to Resource Integration
Resource Integrator/Beneficiary
(“Firm”)
Resource Integrator/Beneficiary
(“Consumer”)
Value Creation
Service Systems
Value Creation

36. 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
Alderson’s 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. 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. 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)
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. What is needed Positive Theory Foundations for 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. From Value Creation to Resource Integration
Resource Integrator/Beneficiary
(“Firm”)
Resource Integrator/Beneficiary
(“Consumer”)
Value Creation
Service Systems
Value Creation

41. 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. 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
Diverse research streame that seem to be saying something is missing
Services and Relationship Marketing
Research and Models
Perceived Quality (manufactured quality)
Relationship (Transaction)
Customer Equity (Brand equity)
In addition to above…
…Others
e,g., Network theory
Also, Consumer orientation—Levitt, etc

43. Evolution of Marketing Thought
Market With
(Collaborate with
Customers & Partners
to Create & Sustain
Value)
To Market
(Matter in Motion)
Market To
(Management of
Customers
& Markets )
Through

44. Value Production and Consumption
Product/Value Delivery
Value Creation
Value Destruction
Supplier
Producer
Supply/Value Chain
Consumer

45. 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
Making Goods “service-like” may be normative goal
Pure marketing firms—e.g., Achrol (1991), “Marketing exchange” and “Market coalition” firmsSell flows—e.g.,
Carrier—warnmth services, rather than heating equipment
Dow chemical—deisolving services, rather than solvents
Has lots of “GreenMarketing” and Public Policy impli8cations

46. 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
Classify based on type of service provided—not tangible output (or lack of)
Service-dominant lexicon
Goods terms subordinated to service equivalents
Refocusing research—much has already happened
Foundation for this paper