1. S-D Logic On Theories of Markets and Marketing: From Positively Normative to Normatively Positive Presentation to BIGMAC 3: EMAC/ANZMAC Research Symposium October 7, 2006 Stephen L. Vargo, Shidler College of Business, University of Hawaii at Manoa

2. S-D Logic Marketings Missions (something Like) Applied/Managerial: Enhance organizational wealth and wellbeing through the facilitation of exchange i.e., apply normative marketing theory Academic/Educational: Disseminate scientific knowledge that informs applied marketing i.e., teach normative marketing theory Academic/Scholarly: Develop theory and knowledge that can inform marketing practice i.e., develop positive marketing theory

3. S-D Logic The Problem: Shaky Foundations Normative marketing theory is (should be) built on positive market/marketing theory Positive marketing theory built on positive economic theory Positive economic theory built on a normative theory wealth creation

4. S-D Logic Background 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)

5. 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

6. 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

7. S-D Logic Evolving…Service-Dominant Logic A logic that views service, rather than goods, as 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 from operand resources Sees goods as appliances for service deliver Implies all economies are service economies All businesses are service businesses An orientation (mindset) rather than a theory

8. S-D Logic What is needed Positive Theory Market are everywhere and nowhere... (Venkatesh, Penalosa, and Firat 2006) 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

9. S-D Logic Resourse Integration Foundation: Modified FP9: All economic actors are resource integrators (and resource exchangers) Beneficiary RI (Consumer) Beneficial RI-1 (Producer) RI (Firm) RI (Firm) RI (Firm) Value Creation RI

10. S-D Logic The New Geometry of Marketing? 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

11. S-D Logic Concluding Observations Pluralism and Duality? Approaches Acceptance (Pluralism) Goods and services (what marketing has been doing) Confrontation Goods vs services (what some are hearing) Transcendence Service as generalizable Goods as a service-provision vehicle (what we are sayingservice dominant)

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

13. 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 1950 1950-2005 2005+

14. S-D Logic 14 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)

15. S-D Logic Whats Next End of producer/consumer distinction All economic actors as resource integrators, service providers and service beneficiaries Theory of the market network integration Superordination of logic of discovery to logic of justification Adoption of dynamic, non-linear, and longitundinal research methods