Service-Dominant Logic: Clarifications and Elaborations

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 1950 1950-2005 2005+

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

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

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

9. Difficult Conceptual Transitions

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. 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.net Bob Lusch: rlusch@sdlogic.net

16. S-D Logic Can Direct Macro/Public Policy

17. The Inversion Goods Logic Service Logic Service (processes—applied competences) Products (units of output) 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 LogicDefinition 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. 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 Evolving Toward a Service-Dominant Lexicon G-D Focus S-D Focus

22. 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 e-mail us Steve Vargo: svargo@sdlogic.net Bob Lusch: rlusch@sdlogic.net