Service-dominant (S-D) logic
Service-dominant (S-D) logic is a marketing theory that posits all economic activity is fundamentally based on the exchange of services rather than goods. This framework emerged in the early twenty-first century as a significant shift from the traditional goods-dominant (G-D) logic, which emphasized tangible goods and transactions. S-D logic focuses on the co-creation of value, highlighting that customers actively participate in the value creation process rather than being passive recipients. It is built upon eleven foundational premises and five core axioms, which underscore the importance of intangible resources and collaborative networks in economic exchanges.
Under S-D logic, services are redefined as applied knowledge and skills that benefit others, revealing that consumers seek the services rendered by goods rather than the goods themselves. This approach encourages companies to view themselves not merely as producers but as integral participants in a broader network of actors that contribute to value creation. The theory has profound implications for marketing practices, shifting the focus from marketing to consumers to engaging with them as co-creators. S-D logic has also influenced the development of service science, management, and engineering (SSME), fostering a more interconnected understanding of economic activities. Overall, S-D logic represents a transformative perspective on how value is perceived and generated in the marketplace.
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Service-dominant (S-D) logic
In marketing theory and philosophy, service-dominant (S-D) logic is a theoretical framework that asserts all economic activity is based on the exchange of services, not goods. The theory was developed in the twenty-first century and marked an important paradigm shift in the field of marketing from the previously prevailing mind-set of goods-dominant (G-D) logic.
S-D logic provides an alternative perspective for the creation of value in markets and the purpose of economic exchanges. Based on emerging trends, the theory suggests marketing is veering away from a goods-dominant perspective, which focused on tangible goods and simple transactions, to a service-dominant one, which centers on intangible resources and values co-creation relationships.
S-D logic is defined by eleven foundational premises and five overreaching axioms. This includes the key principle that customers play a role in co-creating value.
The theory fundamentally changed how companies view themselves and their products. S-D logic was critical in the development of the interdisciplinary field of service science, management, and engineering (SSME).
Background
Goods are tangible products that are manufactured and sold to consumers. Throughout the twentieth century, the traditional mind-set of marketing theory was goods-dominant logic. The theory, which is rooted in manufacturing practices, states that firms exist to make and sell goods. Therefore, the distinct transactions of tangible goods drive the economy. G-D logic assumes economic activity is based on the exchange of goods for money or goods for goods.
According to G-D logic, the producer or firm is the sole actor in deciding the value of goods and delivering them to the consumer. Value is created, or embedded, within the value chain, the set of activities associated with producing a good that adds value to it. The value chain includes design, development, production, and marketing. Through marketing, companies aim to sell the product to consumers.
Traditionally, services are defined as intangible products that consumers buy to meet certain needs. They generally refer to tasks, processes, and performance that are not goods. Services were initially viewed as enhancing the marketing of goods rather than being marketed themselves.
In the 1980s, the challenges of marketing services apart from goods spurred a new area of study in marketing—services marketing. The new subdiscipline acknowledged that services had four characteristics, known as IHIP—intangibility, heterogeneity, inseparability, and perishability—that distinguished them from goods and made them more difficult to market.
Intangibility is the inability to touch and feel services before they are bought. Heterogeneity refers to the variable quality of performing a service. In the inseparability of production and consumption, the customer cannot separate the experience associated with receiving the service from the outcome. Perishability means that services cannot be stored and returned.
By the end of the twentieth century, marketing scholars argued the division between goods and services had become outdated. As scholars realized that services could not be bound by the simplicity of IHIP, they also observed that 1) trends in marketing emphasized intangible resources in driving economic activity, and 2) multiple actors, not just producers, were responsible in creating value. A new paradigm was needed to describe the shift.
Overview
The concept of service-dominant logic was introduced by marketing scholars Stephen L. Vargo and Robert F. Lusch in their 2004 landmark article, "Evolving to a New Dominant Logic for Marketing."
Vargo and Lusch believed the exchange of services was the fundamental basis of all economic activity. S-D logic asserts that services are exchanged for services, all companies—even manufacturing firms—are service companies, and all markets and economies are service oriented.
Under S-D logic, Vargo and Lusch theorized that consumers do not buy goods for the goods themselves, but because of the services that the goods render, also known as value in use. They redefined services as the applied knowledge and skills that people perform for the benefit of others. Therefore, the activities that people want performed for them determine the true source of value and the reason for economic exchange.
Vargo and Lusch established a philosophical framework to explain S-D logic through a series of foundational premises. Between 2004 and 2015, the pair of scholars expanded the premises to eleven, including five key axioms:
- Axiom 1 (Foundational Premise 1): Service is the fundamental basis of exchange. This means physical and mental skills, or operant resources, can be exchanged among economic and social actors. Operant resources can be applied to other resources to create a benefit for another party. The first axiom is the principle upon which S-D logic is based.
- Axiom 2 (Foundational Premise 6): Value is co-created by multiple actors, including the customer. This represents a critical difference from G-D logic, which states that the producer/firm is the only actor in determining value. S-D logic suggests that consumers not only benefit from the service but also play a role in creating value. The second axiom emphasizes value in use over embedded value.
- Axiom 3 (Foundational Premise 9): All economic and social actors are resource integrators. This means that resources come from a variety of sources, including public, private, and market entities.
- Axiom 4 (Foundational Premise 10): Value is always uniquely and consciously determined by the customer. Basically, customers decide value based on their experiences of receiving the service. The fourth axiom differs from G-D logic, which states value is based upon the transaction itself.
- Axiom 5 (Foundational Premise 11): Value co-creation is directed by actor-generated institutions and institutional arrangements. The fifth axiom is tied to the service ecosystem perspective of S-D logic. A service ecosystem is a network of actors who are connected by a shared institution through the exchange of services. The institution is not an organization, but the rules, beliefs, or norms that foster collaboration and create groups within itself. This axiom accentuates the networking interactions of actors over the firm-customer relationship in G-D logic.
S-D logic has had a far-reaching impact on marketing study and practice. The theory has altered how firms perceive themselves and how they market their products. Instead of marketing to the consumer, S-D logic encourages companies to market with the consumer. Firms must market themselves with a whole network of actors who are responsible for creating value for their products and the services they provide.
S-D logic provided the philosophical foundation for the interdisciplinary field of service science, management, and engineering (SSME). Informational technology company IBM led the effort in developing the new field.
S-D logic caused an evolution in marketing thinking. Put into practice, the theory can aid firms in the transition from a producer of output to a co-creator of outcomes.
Bibliography
Lüftenegger, Egon R. Service-Dominant Business Design. Eindhoven U of Technology, 2014.
Lusch, Robert F., and Stephen L. Vargo. Service-Dominant Logic: Premises, Perspectives, Possibilities. Cambridge UP, 2014.
Posselt, Tim. Organizational Competence for Servitization. Springer Gabler, 2017.
Vargo, Stephen L., and Robert F. Lusch. "From Goods-Dominant Logic to Service-Dominant Logic." Service-dominant Logic, www.sdlogic.net/uploads/3/4/0/3/34033484/montreal‗workshop‗session‗1.pdf. Accessed 30 Dec. 2017.
Vargo, Stephen L., and Robert F. Lusch. "Service-Dominant Logic 2025." International Journal of Research in Marketing, vol. 34, no. 1, Mar. 2017, pp. 46–67.
Weißenfels, Christina. A New Paradigm in Marketing—The Service Dominant Logic: Academia's Reactions to the Theory of Vargo and Lusch. Anchor Academic Publishing, 2014.
Weingarden, Matt. "Robert F. Lusch, Prolific Scholar of Marketing, Fondly Remembered." American Marketing Association, www.ama.org/academics/Pages/Robert-Lusch-Prolific-Scholar-Marketing-Obituary.aspx. Accessed 30 Dec. 2017.
"What Is S-D Logic?" Service-dominant Logic, www.sdlogic.net/index.html. Accessed 30 Dec. 2017.
"What Is Service-Dominant Logic?" IGI Global, www.igi-global.com/dictionary/service-dominant-logic-sdl/39235. Accessed 30 Dec. 2017.