Understanding Service-Dominant Logic - Essay Example

Understanding Service Dominant Logic Service Dominant Logic (S-D Logic) is an emerging concept and has been a topic of discussion over the past few years. The aim of this essay was to derive an understanding regarding S-D Logic with the use of appropriate examples. Accordingly, S-D Logic is a lately evolved marketing thought that seeks firms to change their views and beliefs governed by the conventional marketing models. In contrast to Goods Dominant Logic (G-D Logic), S-D logic seeks firms to consider tangible resources (goods) as services. It also governs that consumers are not merely an object but they are an integral component of service-system entities. In this regard, S-D logic views consumers as a value creator. Besides, it argues that S-D perspective of resources offers a significant understanding for firms opting to enter into new markets or intending to launch new products in terms of acquiring competitive traction. S-D Logic rests on the ten foundational premises which are considered as the heart or core entity of S-D Logic. Introduction Service Dominant Logic (S-D logic) has been a matter of radical conceptual argument over the last few years. In the words of Vargo and Lusch (2004), S-D logic is not a model, yet it operates at a typical level of study and demonstrates a shifting worldview. The evolution of S-D logic is particularly associated with the drawbacks imposed by the Goods Dominant Logic (G-D logic). According to many scholars, G-D logic has impeded marketers from acquiring more and new insights and understanding regarding the marketing operations. Responding to this, Vargo and Lusch (2004) proclaimed S-D logic as a lens, through which events related with marketing can be perceived. It has been argued that S-D logic is not a theory though it is a creative approach that eliminates the current assumptions which impede the ability to view a situation in manifold ways. In another words, S-D logic offers prospects to explore new options by viewing the same thing from different lens (Vargo & Lusch, 2004; Lusch et al., 2008). Besides, it is also claimed that S-D logic promotes sharing of new ideas and knowledge within the firm and facilitates in overcoming from conventional mental paradigm (Layton, 2008; Ford & Bowen, 2008). The purpose of this essay is to draw an in-depth understanding regarding the Service Dominant Logic (S-D logic) with the help of supporting examples. S-D Logic from a Broader Perspective S-D logic in general terms is considered as a change in the marketing philosophy away from goods dominant logic (G-D logic) which predominately included tangible resources and value surrounded to them, regarding service paradigm with a significant focus on intangible resources, reciprocal creation of firm-customer value and affiliations. S-D logic is viewed to challenge the firmly held beliefs about the marketing environment (Barnes et al., 2009). Concerning the supply chain management (SCM) and other marketing functions, S-D Logic emphasizes shift in the conventional paradigm and places narrow focus on goods to more general model embedded with service provision, value creation and value networks. Notably, S-D logic perceives SCM as a set of service provisions which seeks goods to be viewed as a service distribution or provisioning appliance and expounds the concept of a value network along with creating a paradigm of the firm as a crucial service providing agent in an intricate and adaptive value network. Explicitly, S-D logic requires firms to treat the products offered by them as a service offering (Lusch et al., 2008). For example, Ford Motors which is an automobile company that deals in manufacturing and selling of cars, when involved in actual selling process, the company is required to view this process as offering mobility services rather than viewing it as a sale of products. In addition, S-D logic in the contemporary business environment where new and advanced technologies are constantly evolving and customers are inclined to make the extensive use of the available technologies clearly emphasizes resources of customers. As opposed to the traditional marketing concepts and models, S-D Logic does not view consumers as an object that is often targeted, segmented or researched by the firms in order to acquire an understanding regarding their buying behaviour in order to direct their products towards them for boasting their sales and revenue. Instead, S-D Logic views consumers as a possessor of operant resources including initiative, skills, knowledge, competencies and imaginations which the consumers integrate to create value and experience. S-D Logic views marketing as an incessant social and economic process that significantly lays attention on operant resources (Baron, 2010). Co-creation value which signifies mutual firm-customer value creation occupies a central place in the S-D Logic for marketing. In other words, S-D logic treats consumers as partners rather than individuals who are engaged in the consumption of products offered by firms only (Baron, 2010). For example, with the rapid growth experienced by the tourism industry, a considerable number of consumers use the internet to search tourist destinations or holiday locations as well as arrange and book their trips. Many consumers consider the search process along with arranging of trips around information derived from the internet as a part of their travel experience. Accordingly, such process facilitates customers to avail low cost for their purchase of services and at the same time their involvement fosters the creation of new products and services and this promotes a way for open innovation. S-D logic has also been a subject of discussion pertaining to market-entry. It is argued that S-D logic perspective of resources enables firms to examine the issues imperative to market entry timing. S-D Logic with respect to market entry predominately focuses on the aspect of relationship. In relation to market entry timing, S-D logic views the ability of firms to establish relationships with customers, distributors, suppliers or any other major partners as a crucial factor that may affect the firms to capitalize the existing opportunities and advantages. It is claimed that operant or operand resources act as a dominant factor in the business environment. Moreover, their involvement in the exchange is extremely crucial. Accordingly, an insight related to operant or operand resources facilitates firms to acquire considerable and additional understanding pertaining to market entry position. Correspondingly, such insights and understandings facilitate firms to make more informed decisions regarding market entry grounded on the market potentials and attractiveness. Moreover, it is also claimed that understanding the characteristics of the resources that dominate a given industry also enables firms to acquire a better insight regarding the competitive dynamics (Barnes et al., 2009). In addition, firms (late adopters) adopting S-D Logic perspective are probably in a position to avail new types of first mover advantages. Late adopters through the adoption of S-D logic can integrate innovation in their marketing functions such as delivery of services which would facilitate late movers with competitive advantage due to the unique offering that is not provided by the initial service pioneers (Barnes et al., 2009). For example, the conventional models of product development seek firms prior to market entry for product idea screening and prototype testing in order to predict the profitability that can be attained from the product launched in the potential market. Nonetheless, this model incorporates a significant level of product failure rate. This is owing to the reason that this perspective does not take into account the additional factors that act as a strong determinant of success and failure of the product launch. The utility of this predictive model is narrow. On the other hand, the predictive model that rests on S-D Logic focuses on interaction of operant resources and co-creation of value and is thus more effective as well as influential than conventional model which is predominately associated with the prediction of some aspects only. Correspondingly, the firms adopting S-D perspective have relatively high rate of product success in the new market. Foundational Premises (FP) S-D Logic primarily relies on ten foundational premises. Originally, there were only eight foundational premises which have been expanded to ten foundational premises currently (Baron, 2009). The ten foundational premises governing the S-D logic are concisely described below. FP1: Service Is the Fundamental Basis of Exchange Vargo & Lusch (2004) proclaimed that people generally possess two primary operant resources that include physical and mental skills. Accordingly, each type of skills is asymmetrically distributed amidst the population. At the same time, skills possessed by an individual are not essentially optimal for his/her welfare or survival. Thus, the need for specialisation has been advocated for the society and the members affiliated to it. Accordingly, FP1 assumes that service is the use of ones skills and competencies for the benefit of another and is the basis of S-D logic. Moreover, it infers that economic exchange along with social exchange generally involve ‘exchange of service for service’ and when goods are implicated in the exchange process, it can be best understood through service delivery perspective (Vargo & Lusch, 2013; Baron, 2009; Vargo & Lusch, 2004). FP2: Indirect Exchange Masks the Fundamental Basis of Exchange Down the line, fundamental basis of exchange has shifted from the specialised skills of ‘one-to-one trading’ to indirect exchange of competence in vertical marketing system. Responsively, exchange process has become monetized. For example, the barter system which involved exchange of thing for thing has been substituted by jobs and purchasing. Accordingly, money and goods along with organisations and networks have contributed towards the increasing efficiency of exchange but they conceal the basis of service-for-service exchange. Correspondingly, FP2 articulates that direct service-for service enables in increased knowledge sharing and shared adaption through direct contact (Baron, 2009; Vargo & Lusch, 2004). FP3: Goods Are Distribution Mechanisms for Service Provision According to FP3, goods are considered to be a type of resource which when designed consists of knowledge that may be a collection of the skills and competencies of many service providers. It is advocated that tangible products or the goods offer numerous benefits to consumers in catering their higher order needs. For example, purchasing luxury cars does not only meet the customers’ need of moving from one place to another but it also facilitates customers to experience driving and riding. Thus, FP3 ideally advocates that goods are distribution mechanisms for service provision (Baron, 2009; Vargo & Lusch, 2004). FP4: Operant Resources Are the Fundamental Source of Competitive Advantage It can be argued that resources that can be easily imitated cannot be perceived as a source of competitive advantage. Correspondingly, it has been stated that knowledge imbibed in an individual is the most important operant resource that cannot be copied or imitated. Responsively, service-entity system at least involves one person thus establishing relationship and value proposition amid service-system entities offers competitive advantage (Baron, 2009; Vargo & Lusch, 2004). FP5: All Economies Are Service Economies According to FP5, the basis of all economic activities is service. As articulated in FP1, Vargo & Lusch (2004) proclaimed that the basis of the economic exchange process is firmly associated with the application of mental and physical skills while the tangible products are appliances for service provision (Vargo & Lusch, 2004). The assumption advocated by FP5 can be better understood through the subsequent example i.e. an activity such as construction of building by workers of a contracting firm is seen as the production of goods although from the viewpoint of contracting company it can be classified as service. FP6: The Customer Is Always a Co-Creator of Value FP6 primarily focuses on the aspect of consumers. It argues that consumers are always a value creator. Accordingly, firms along with consumers can led to the development of new products. For example, the continuous growth of budget airlines rests on a business model that is greatly relied on the co-creation of value in the form of booking flights via the internet (Baron, 2009; Vargo & Lusch, 2004). FP7: The Enterprise Cannot Deliver Value, But Only Offer Value Propositions Value proposition is considered as an imperative aspect of value co-creation interactions. FP7 articulates that consumers and the service providers should mutually reveal their consent to value proposition. For example, many universities are often engaged in screening of applicants meticulously in order to identify whether the potential candidates will be successful in their universities. Thus, from this example, it can be observed that universities cannot deliver value but they can only provide value proposition of prospective candidates (Baron, 2009; Vargo & Lusch, 2004). FP8: A Service-Centered View Is Inherently Customer Orientated and Relational Foundational premise 8 suggests that service-system entity is required to acquire a considerable understanding regarding the consumers in order to develop relationship and offer greater value proposition (Baron, 2009; Vargo & Lusch, 2004). FP9: All Social and Economic Actors Are Resource Integrators According to this foundational premise, interactivity, configuration customisation and co-creation are the major characteristics of a service-centered view. FP9 places considerable attention on classification of resources (Baron, 2009; Vargo & Lusch, 2004). For example, resource can be classified into three heads including public, private and contract based resources. Thus, in order to attain value proposition firms will be required to reintegrate the resources. FP10: Value Is Always Uniquely and Phenomenologically Determined By the Beneficiary The tenth and last foundational premise implies that “value is idiosyncratic, experiential, contextual and meaning-laden” (Baron, 2010, p. 254). Accordingly, service-system entities are provided with an opportunity to learn something from customers. For example, feedback in the form of customers’ comments through social networking sites can facilitate service-system entities to bring improvements in various aspects related to their offerings of service (Baron, 2009; Vargo & Lusch, 2004). Conclusion S-D logic is a lately evolved marketing model that is associated with changing the traditionally held marketing beliefs and assumptions. Although it is not considered as a marketing model but it operates at a typical level of study and demonstrates a transforming worldview. It views tangible resources (goods) as a service distribution or provisioning appliance. Besides, S-D logic also views consumers as a value co-creator rather than traditionally held model which perceived consumers as an object only. It is also claimed that firms adopting S-D perspective of resources are able to acquire considerable understanding regarding market entry timing which in turn assists them to make informed decision pertaining to market entry. In addition, S-D logic is identified to rest on ten foundational premises that serve as the heart of S-D perspective. References Baron, S. (2010). Service-dominant logic: marketing research implications and opportunities. Journal of Customer Behavior, 9 (3), 253-264. Barnes, D. C., Collier, J. E., & Lueg, J. E. (2009). Service-dominant logic: marketing research implications and opportunities. Journal of Marketing Theory and Practice, 17 (2), 163-173. Ford, R. C., & Bowen, D. E., (2008). A Service-Dominant Logic for Management Education: Its Time. Academy of Management Learning & Education, 7 (2), 224-243. Lusch, R. F., Vargo, S. L., & Tanniru, M. (2010). Service, value networks and learning. J. of the Acad. Mark. Sci., 38, 19-61. Layton, R. A. (2008). The Search for a Dominant Logic: A Macromarketing Perspective. Journal of Macromarketing, 28 (3), 215-227. Vargo, S. L., & Lusch, R. F. (2004). Evolving to a new dominant logic for marketing. Journal of Marketing, 68, 1-17. Vargo, S. L., & Lusch, R. F. (2013). Service-Dominant Logic: Prologue and Prospects. DBW, 91-93. Read More