Introduction to Service Dominant (S-D) Logic
Recently there has been a shift away from the traditional product-orientated marketing perspective to a more service-orientated one which focuses on “intangible resources, the co-creation of value and relationships” (Vargo and Lusch, 2004). Merz, He & Vargo (2009) commented that goods were a “vehicle for service”, and whilst the provision of goods was still an important part of a transaction, there will always be some element of intangible service attached to each product, which develops relationships and delivers value to the consumer (Ballantyne & Varey, 2008). Vargo and Lusch’s literature (2008) gives ten foundational premises implying a complete change in perspective from a tangible goods-centred view. They help explain S-D logic and how it differs from the traditional goods-dominant (G-D) logic (appendix 1). One of the major differences includes the use of resources (Vargo and Lusch 2004a). G-D logic focuses on operand resources which need to be acted upon to produce an effect (e.g. a product). The foundations of S-D logic rely on operant resources (e.g. human knowledge) which act upon operand resources. S-D logic is distinct from G-D logic in focusing on the long term gains of sustaining relationships with customers and learning from them in order to make their business more efficient and profitable. This involves an intangible element of business, where the focus is not solely on the product supplied, but the intangible interaction with the customer. An argued strength of adopting an S-D logic approach is that it adopts a holistic perspective, suiting the modern global business world (Ballantyne and Varey, 2008) where the 4Ps marketing mix is said to be too limiting (Zineldin & Philipson, 2007). S-D logic to supplement the 4 Ps by giving them ‘strategic direction’, (Lusch and Vargo, 2006) providing a context to each decision to increase efficiency (Lusch and Vargo, 2006). Responding to this, Kotler argues that the use of service orientated marketing over the marketing mix would only be beneficial in certain industries (Zineldin & Philipson, 2007) so it is unlikely that the same S-D logic strategy would satisfy all customer needs. Human interaction has become important in the modern business world through the form of collaboration. This is closely linked with the value creation elements of S-D logic as consumers constantly interact with businesses to create value. Value can only be derived from a product if the consumer has the knowledge and skills to create, value therefore interaction with the consumer and product must take place. Human interaction can also be a way of exchanging knowledge and expertise to give value and hold competitive advantage (Lusch et al,. 2007). This report focuses on relationship marketing and value co-creation. 1.
Developing a long term relationship with the customer allows a business to improve its service offerings to stay competitive in a dynamic business world (West et al., 2010). This relationship can dictate the 80/20 rule whereby 80% of a business’s revenue comes from 20% of the customers and vice versa (West et al., 2010) implying that retaining customers is more profitable than acquiring them; a process which can be costly. Ballantyne and Varey (2008) suggest that S-D logic creates an environment in which the supplier can become more involved with the consumer throughout the purchase process. The supplier learns from the consumer, through developing a relationship with them, to specialise their product or service offerings to become more profitable. A theory, supported by Meyer and Schewager’s 2007 customer experience management system, allows companies to create a more positive customer experience creating a stronger business-customer relationship, increasing loyalty and profitability. However for relationships to develop, promises must be kept on behalf of the business which increases consumer trust...
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