MARKETING

PARADIGM
SHIFT: SERVICE
DOMINANT LOGIC

Dr S enija auevi
February 2 1 2 017
Oce h ours: B Y
APPOINTMENT
Introduction
Modern global culture
1.Individualist orientation
2.Strong emphasis on material achievements
doing/having not being/thinking
3.Strongly economic, commoditized time
4.Tendency to discard past in favour of future
orientation
5.Fairly high degree of utilitarianism.
Goods-dominated Logic Model: Value
Production and Consumption
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 prot by decreasing cost
and increasing number of units of output sold
For eciency, goods should be standardized, produced
away from the market, and inventoried till demanded

3
 Prosumer
https://www.youtube.com/watch?v=TV4Ir-2UrN8
Goods-dominated Logic Model: Value Production
and Consumption

Firms exist to (eciently) make and sell value-laden

goods
Goods dominant logic: the purpose of the rm is to
produce and sell valuable production units which
consumer purchases and consumes and then buys
more.
Neoclassic economic research tradition
Economic philosophy developed by Adam Smith
(1776)
G-D Logic Model: Value Production and
Consumption

Value
d
estru
ction
Valu
e cre
ation

Consumer
supplier Supply/value chain producer

Problems with goods dominant logic
Goods are not why we buy goods
Service (benets) they make, Intangibles (brand, self image, social connectedness,
Meaning, Inputs into experiences

Goods are not what we fundamentally own to exchange with others

Applied knowledge and skills (our services)


Customer is secondary and seen as value receiver and
destroyer

Consumer orientation is an add-on--does not help

Services characteristics do not distinguish services vs. goods

But they do characterise value and value creation

Dissention and Shifts
Calls for a paradigm shift in marketing (other disciplines)
Shift away from goods focus in marketing
Relationship marketing, experiences, value-constellations, co-
production, interactivity, solutions, resource advantage, etc
Breakout of service marketing, management, operations
Service approaches to manufacturing
Dell, Nike, etc.
Business initiatives to shift from goods companies to
services companies
Apparent shift from manufacturing to service economy

S-D Logic Overview 8


Late Modern Consumer Culture
There is no such thing as either pure production (without at
least some consumption) or pure consumption (without at least
some production); the two processes always interpenetrate.
(Ritzer, 2015)
Consumer as producer
Recent developments in technology allowed
consumers to co-produce.
Recent developments in marketing shifted attention
from mass marketing to an active participation of
consumer in the creation of dierent types of
values.
https://www.youtube.com/watch?v=mnrcq3ZCs5I
 What is service-dominant logic?
The foundational proposition of S-D logic is that organizations,
markets, and society are fundamentally concerned with exchange of
servicethe applications of competences (knowledge and skills) for
the benet of a party. That is, service is exchanged for service; all
rms are service rms; all markets are centered on the exchange of
service, and all economies and societies are service based. (Vargo
and Lutsch, 2004)

The focus is not on products, but on the consumers' value -creating
processes, where value emerges for consumers, and is perceived by
them...the focus of marketing is value creation rather than value
distribution. Christian Gronroos 2000
 Evolving To a New Frame of Reference

Market With
Market To
(collaborate with
To Market (management of
customers & partners
(matter in motion) customers &
to produce &
markets)
sustain value)

Through 1950 1950-2005 Future

12
A paradigm shift? Goods vs Services dominant
logic in sales function (Vargo and Lusch, 2004)
Value creation moves from production in isolation from the
customer to a collaborative process of co-creation within the
exchange
Knowledge and skills are sources of value creation, goods produced
are only a part of the exchange
Convergence in marketing logic from making to assisting
customers in their own value creation
From produced and sold to co-created
Customers are not isolated, they belong to their networks
Operand vs. operant resources
Customers as targets vs. customers as resources
Eciency through eectiveness
Historical Perspectives on S-D Logic
The great economic law is this: services are
exchanged for services...it is trivial, very
commonplace; it is nonetheless, the beginning, the
middle, and the end of economic science.
Fredric Bastiat 1848
What is needed is not an interpretation of the utility
created by marketing, but a marketing interpretation
of the whole process of creating utility.
Wroe Alderson 1957
The importance of physical products lies not so much
in owning them as obtaining the services they render.
Philip Kotler 1977
NORDIC SCHOOL

Customers do not buy goods or services. They buy oerings
which render services, which create value...activities render
services, things render services.
Evert Gummesson 1995
The focus is not on products, but on the consumers' value-
creating processes, where value emerges for consumers,
and is perceived by them...the focus of marketing is value
creation rather than value distribution.
Christian Gronroos 2000

Service-Dominant logic
Perhaps most disturbing and disquieting was the articial distinction
made in the lexicon of marketing between goods marketing and
services marketing, based on the notion that services are
intangible, heterogeneous, inseparable and perishable (i.e. the IHIP
characteristics) and, generally, what goods are not.
As Vargo and Lusch (2004: 67) show, the view that value for
customers is embedded in the product seems to be due to
competing logics within economic theory and misunderstandings
arising when the dominating value concept from economics was
transferred to management and marketing.
Service is a perspective on value creation rather than a category of
market oerings. Edvardsson, Gustafsson and Roos (2005: 118)
Value is not in product, but in the service what the product does to
the customers (Vargo and Lusch, 2004)
Service-Dominant logic: Foundational Premises
FP1. The application of specialized skill(s) and
knowledge is the fundamental focus of exchange.
Service (application of skills and knowledge) is exchanged for
service
FP2. Indirect exchange masks the fundamental
process of exchange.
Goods, organizations, 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
17
Service-Dominant logic: Foundational Premises
(2)
FP4. Knowledge is the fundamental source of
competitive advantage
know-how, - essential component of dierentiation

FP5. The customer is always a co-creator of value.

There is no value until oering is usedexperience and
perception are essential to value determination

S-D Logic Overview 18

Service-Dominant logic: Foundational Premises
(3)

FP6. 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)
FP7. A service-centered view is inherently
customer oriented and relational
Resources being used for the benet of, and in interaction with,
the customer, places the customer at the center of value creation
and implies relationship.
FP8. Organizations exist to combine specialized
competences into complex service that is
demanded in the marketplace.
The rm is an integrator of macro and micro-specializations

19
Clarications: Service vs. Services
Services = intangible products
Service =The process of using ones competences for the
benet of some party, the application of knowledge and skills
n Service transcends and rise above goods and
services
There are No Services in Service-Dominant Logic
S-D logic is built on a transcending denition of service, one
that better reects its nature and purpose. It views service as
the application of resources by one actor for the benet of
another.
Goods then become service provisioning appliances, goods
are tools or instruments in order to provide service.
G-D Logic S-D Logic

services

products

goods

There are No Services in Service-Dominant Logic

Goods logic Service logic

Making something (goods or Assisting customers in their
services) own value-creation processes
Value as produced Value as co-created

Customers as isolated entities Customers in context of their own
networks
Firm resources primarily Firm resources primarily as operant
as operand

Customers as targets Primacy Customers as resources Eciency
of eciency through eectiveness
Vargo, S.L. and Lusch, R.F. (2008), From goods to service(s): Divergences and convergences of logics. Industrial Journal
of Marketing, 37 p. 258
 Goods vs. Service-Dominant: Where do
the logics point us?

Goods-Dominant Service-Dominant
Make stu Serve and satisfy
Sell to Mass market Respond to markets of one--
customization
Produce product Find solutions, co-create value
Promote product Conversation & dialog
Charge for product (price) Oer value proposition
Distribute product (value) Integrate value network &
processes
Create transaction Build relationships
Money as goal Prot as feedback (learning)

S-D Logic Overview 23

 Dicult Conceptual Transitions
Goods-Dominant Transitional Service-Dominant
Concepts Concepts Concepts
Goods Services Service
Products Offerings Experiences
Feature/attribute Benefit Solution
Value-added Co-production Co-creation of value
Profit maximization Financial Engineering Financial feedback/learning
Price Value delivery Value proposition
Equilibrium systems Dynamic systems Complex adaptive systems
Supply Chain Value-Chain Value-creation network/constellation
Promotion Integrated Marketing Dialog
Communications
To Market Market to Market with
Product orientation Market Orientation Service-Dominant Logic
(Consumer and relational) 24
 The Emerging Reorientation of Business
Goods Logic Service Dominant
Global
Goods Less More Service
Sustainability
Tangibles Intangibles

Operand Resources Operant Resources

Asymmetric Symmetric
More Customer Less Conversation
Propaganda Alienation
Value Added Value Propositions

Transactional Relational

Maximize Profits Financial Feedback

Respect for
Less Marketing More
In Firm
25
Implications for Public Policy and Society
Rethink industrial and employment
classications
Develop better metrics for tracking none-goods
exchange
Encourage retention of tangible goods and sale
of service ows?
Encourage operant resource creation through
education and research
Enforce protection of intellectual property
rights

S-D Logic Overview 26

Co-production is relatively optional Value is always co-created
Goods- to service-dominant logic
Value creation moves from production to co-creation
(collaboration with customer)
Making something to assisting customer in their own value creation
process
Produced value to co-created value
Customers as isolated entities to networks
Customers as targets to resources
Efficiency as primary to efficiency through effectiveness
What are the consequences for these in the
marketing and sales?
Increase technology, Consumer Relationship Marketing, activity
based accounting, yields management, enhanced eciency, error
reduction, however, information overload, focus on long-term,
complex codes of interpersonal relationships which need to be
properly managed
 Conceptions of value in marketing and consumer research
ECONOMIC VALUE (price)
Exchange value
Marxs famous labor theory of value argues that the basic source of any type of value is
actually the labor time that is required to produce an item under the normal conditions of
production.
Surplus value
is the dierence between the exchange value and the sum of value used for production
including raw materials, means of production, and labor power.
Utility value
Realised only through consumption or use
SOCIAL VALUE
Value of goodness, kindness
SEMIOTIC VALUE (SYMBOLIC VALUE, VALUE OF MEANING)
Meanings are derived through consumption and constantly reconstructed among the
actors
PERCEIVED VALUE
Economic + Semiotic (+Social) Value
The Value of Chocolate
Economic value (price)
How much does the bar of Chocolate cost?
Social Values (norms and rules)
Buying a chocolate as a present to the loved
ones
But Chocolate also linked to obesity
Symbolic Value (meanings)
Dark chocolate represents a sophisticated taste.
Chocolate means happiness.
Chocolate means comfort.
Value Co-creation
Marketing strategy which emphasises mutual value
of the rm customer relation
Markets seen as a forum
Value arises from a personalised experience for a
customer and ongoing revenue
Learning
Enhanced marketing performance through loyalty,
relationships, word of mouth
Personalisation of experience
Customers as co-creators, not as outsiders
Co-creation
the co-construction

https://www.youtube.com/watch?v=RUQm7cTudqw
4 types of co-creation
Co-creation

https://en.eyeka.com/contests/8691-royco-oce-break
https://en.eyeka.com/contests/8586-maggi
3D printers production consumption-
prosumption
Among many other things, the 3-D printer promises to transform
the home more than ever into both a consumption site and a
factory.
In the process of producing these things, prosumer as producer
will need to consume many other things, including their own labor
time, electricity, as well as raw materials.
Prosumer as Producer (PaP) vs Prosumer as
Consumer (PaC)
The prosumption that takes place on social media (Facebook,
Twitter, Foursquare) is more or less in the middle of the
prosumption continuum
P-a-p is more the norm in factories and oces
P-a-c is more likely to predominate in malls and fast-food
restaurants.
At one time, those who studied the media tended to see
audiences as passive consumers of the content being produced
and promulgated by the media. However, that view has long been
rejected and replaced by a view of the audience as, in the terms of
this analysis, actively producing (dening, interpreting, etc.)
content as they consume it (Ritzer, 2015, p.417).
 https://www.youtube.com/watch?v=FiK7s_0tGsg
Reading material is added on the moodle site