1. Service-Dominant Logic: Clarifications and Elaborations
Presentation to:
Frontiers in Service Conference
July 1, 2006
Stephen L. Vargo, University of Hawaii at Manoa

2. Related Work
Vargo, S. L. and R.F. Lusch (2004) “Evolving to a New Dominant Logic of Marketing,” Journal of Marketing, 68 (1),
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, (in Press—June)
Lusch, R.F. and S.L. Vargo, editors (2006), The Service-Dominant Logic of Marketing: Dialog, Debate, and Directions, Armonk, NY: M.E. Sharpe

3. Related Work (Continued)
Lusch, R.F., S.L. Vargo(2006), “The Service-Dominant Logic of Marketing: Reactions, Reflections, and Refinements, Marketing Theory, 6 (3),
Lusch, R.F., S.L. Vargo, and M. O’Brien (2006), “Competing Through Service: Insights from Service-Dominant Logic,” Journal of Retailing, (forthcoming)
Lusch, R.F., S.L. Vargo, and A. Malter (2006), Marketing as Service-Exchange: Taking a Leadership Role in Global Marketing Management, Organizational Dynamics, (forthcoming)
Lush, R. F. and S. L. Vargo, editors (2007) “Evolving to a New Dominant Logic for Marketing: Continuing the Debate and Dialog, Special Issue of the Journal of the Academy of Marketing Science, (forthcoming)

4. S-D Logic: What it is
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 process—distinct from “services,” which implies “intangible goods”
Shifts focus to “operant resources” from operand resources”
Value is always co-created
Sees all economies are service economies
All businesses are service businesses

5. 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

6. Foundational Premises
FP1. The application of specialized skill(s) and knowledge is the fundamental unit of exchange.
Service (application of skills and knowledge) is exchanged for service
FP2. Indirect exchange masks the fundamental process of exchange.
Micro-specialization, intermediaries, and money obscure the service-for-service nature of exchange
FP3. Goods are distribution mechanisms for service provision.
“Activities render service; things render service” (Gummesson 1995) : goods are appliances
Many driven by what we have leaned from understanding services
FP1—back to Smith's original thesis—Bastiat’s model
Service is the common denominator
Sometimes service produces goods

7. Foundational Premises (2)
FP4. Knowledge is the fundamental source of competitive advantage
Operant resources, especially “know-how,” are the essential component of differentiation
FP5. All economies are service economies.
Service only now becoming more apparent with increased specialization and outsourcing
FP6. The customer is always a co-creator of value.
There is no value until offering is used—experience and perception are essential to value determination
FP4
FP5—Classification
Often nothing new created
FP6—Value resides with the consumer
Appliances must be, leaned, used, maintained, etc.
Use is usually customized

8. Foundational Premises (3)
FP7. The enterprise can only make value propositions.
Since value is always determined by the customer (value-in-use)—it can not be embedded through manufacturing (value-in-exchange)
FP8. A service-centered view is inherently customer oriented and relational
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.
The firm is an integrator of macro and micro-specializations
FP7
FP8—Many of our normative and positive models are adjustment to a good-centered model
Consumer orientation
Relationship
Means-end chains
Etc
BUT these are implied by S-D logic

9. 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)

10. What S-D Logic is Not A Theory
S-D logic is a logic, an approach, a lens, but not a theory
Could be used as the foundation for a theory
Reflection of the transition to a services era
In S-D logic, all economies are service economies
Justified by the Superior Customer Responsiveness of “Services” Companies
“Services’ companies just as likely to operate from G-D logic
Restatement Of The Consumer Orientation
Consumer orientation is evidence of G-D logic, not a fix to it
Consumer orientation is implied by S-D logic

11. What S-D Logic is Not (2) Alternative To The “Exchange Paradigm”
Problem with exchange paradigm is assumption of exchange of output, not the notion of exchange
S-D logic says service (a process) is exchanged with service
Equating Service with Provision of “Functional Benefits”
Co-creation of value implies service best understood in expressive and experiential terms
Applicable only to marketing management
More generally, could serve as foundation for theory of markets and marketing

12. 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)

13. Why Service?
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…

14. What S-D Logic Might be Foundation of a paradigm shift in marketing
Perspective for understanding role of markets in society—Theory of Markets
Basis for general theory markets and marketing
Basis for “service science”
Foundation for theory of the firm
Reorientation for economic theory

15. For More Information on S-D Logic visit:
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: Bob Lusch:

16. S-D Logic Can Direct Macro/Public Policy
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 resources.
Public policy to encourage collaboration vs. competition.
From value in exchange to value in use.
Public data collection on value in use and home production.

17. The Inversion Goods Logic Service Logic Products (units of output)
Service (processes—applied competences)
Goods
Services (Intangible goods)
Indirect (Goods--Appliances)
Direct

18. Implications of a “Service-Exchanged-For-Service” Paradigm
Academic
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
Micro implications—Makes service-based concepts central/applicable to marketing
IHIP as it applies to value creation/all of marketing
Macro implications—Social role of Marketing
Value–creating
Resource-expanding

19. An S-D Logic Definition of Marketing
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.
Therefore marketing can be viewed as the means by which societies are able to create value through the voluntary exchange of knowledge and skills.

20. Implications of a “Service-Exchanged-For-Service” Paradigm
Practice
Managerially compelling—focuses on mission (service)
Demands customer orientation/value-in-use
Implies relationship marketing
Role of operant resources
Implies better customer experiences/fairer treatment
Promotes social responsibility
Marketing has social purpose
Education
Easily understandable—requires fewer “adjustments”
Normative prescripts (e.g., customer orientation/relationship) implied by framework
Inviting—increased attractiveness off discipline
Society
Promotes social responsibility—purpose is to:
Serve individuals/society/organizations
Facilitate value enhancement/resource expansion through exchange

21. Evolving Toward a Service-Dominant Lexicon
G-D Focus S-D Focus
Operand Resources
Tangible
Value Added
Goods
Products
Transactional
Units of Output
Promotion
Brand Equity
Profit Maximization
Operant Resources
Intangible
Co-creation of value
Service
Experiences
Relational
Processes
Conversation/Dialog
Customer Equity
Financial Feedback

22. For More Information on S-D Logic visit:
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 us
Steve Vargo: Bob Lusch: