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? Service Dominant Logic Introduction: Service dominant logic view of marketing has changed from the traditional, foundational, goods dominant logic of exchange, in which goods were the focus of exchange and services that marketing inherited from economics a little more than 100 years ago to service as the basis of economic and social exchange. Service dominant logic has bought a paradigm shift in marketing from goods centred “value is embedded in output” dominant logic where focus was on the efficiencies in the production of tangible output. hich was fundamental to the industrial revolution to service centred view that is informed by resource-advantage theory, competence, knowledge and relationship marketing where “value is defined by and co-created in concert with the consumer” (vargo and lush P14, 6). one current example is internet purchasing where customers with or without their knowledge provide the web vendor with valuable information on purchasing habits. The comparison between goods dominant logic and service dominant logic by vargo and lusch (2007) Goods Dominant logic
Customer and Environments as Exogenous Firms Create Value Operand Resources are Paramount Management of Marketing Mix Relationships are Repeated Encounters Maximize Profits Service Dominant logic Customer and Environments as Endogenous Value is Co-Created Operant Resources are Paramount Co-Creation of Marketing Mix Relationships are Embedded Profits are Learning Loop Constantin and lusch (1994) define operand resources as resources on which an operation or act is performed to produce and effect e. . Production, and they compare operand resources with operant resource which are employed on operand resources e. g. Technology. S-D logic treats everyone in the organisation as the value creators , According to Lush and Vargo 2006″One of the distinguishing features of S-D logic, in contrast to G-D logic, is the former’s treatment of all customers, employees, and organizations as operant resources, which are endogenous to both the exchange and value-creation processes.
Since ‘service-for-service’ implies all parties are both value-creators and value beneficiaries, the implication are that the offerer/customer and supply/ demand distinction vanishes. ” Global Sustainability: Service dominant logic is more inclined to global sustainability where as goods dominant logic is less inclined to it because the service dominant logic uses operant resources which produce effect by enabling humans both to multiply the value of natural resource and to create additional operant resource e. g. Microprocessor where the abundant resource like silica and embedded with knowledge . where as in goods dominant logic the operand resources are deplorable and can sustain only until the resources are available. Customer Alienation: In goods dominant logic the customers are alienated as value distribution (Webster 1992) as operand resource as the customers were segmented, targeted, promoted to, distributed to, captured and then enticed to continue to purchase by seller using heavy promotion programs where transparency was exceptional and customers and environment were treated as exogenous.
Whereas in service dominant logic advocates viewing the customer as operant resource a collaborative partner who co creates value with the firm (Vargo and Lush 2004) and promotes a market with philosophy and customers and environment were considered as endogenous hence customers are not alienated in service dominant logic. Respect for Marketing in the firm: In the goods dominant logic Marketing is being forced out of the equation. Sales is not guided by marketing strategy, but by the need to hit metrics for volume and margin also Marketing ideas are not linked to driving profits.
The Service dominant logic helps to gain marketing respect in the firm were strategy are made based on the service rather than goods. Marketing plays a vital role in competition analysis and interaction with the customer and giving feedback as relationship are embedded in to the system. This helps to develop new products and services were a firm can have competitive advantage. For vargo and lush (2004) marketing should be positioned at the core of the firms strategic planning. Identifying four different normative theories of strategies that are distinctively marketing: Brand equity
Market orientation Market segmentation Relationship marketing Hence marketing is very essential in a firm’s success in this new logic. The above difference between the service dominant logic and goods dominant logic shows the emerging reform in the field of marketing. Service dominant logic shifts the focus of firm from old traditional way of thinking to new service dominant way of thinking where the comparison is shown below The Old Thinking S-D Thinking Profit Maximization Performance Improvement Uncontrollable External Environments External Environments Are Resources Market To Customers
Market With Customers Value-in-Exchange Value-in-Use Exchange is Fundamental Co-creation is Fundamental S_D logic collaboration with the firm and the customers allows for a strategic orientation that informs the more tactical “four P’s. Product are viewed in terms of service flows, in which the service is provided directly or indirectly through an object Promotion is reoriented toward conversation and dialog with the customer Price is replaced with a value proposition created by both sides of the exchange Place is supplanted with value networks and processes” (Lush and vargo 2006).
Information technology and service dominant logic: Information technology has made all the scholars to think that everything is service. As V&L point out, it is ultimately knowledge and information that drive service. It is no coincidence, then, that the information revolution that has accelerated in the past 100 years has brought with it a revolutionary new capability to leverage knowledge and information into service. In particular, it has expanded the intangible aspect of virtually all economic exchanges. The service revolution and the information revolution are two sides of the same coin.
Information technology gives the company the ability to learn and to store more information about the customer, which in turn gives the company more ability to customize its services and to develop customer relationships. The result is that the utility provided to the customer increasingly is based more on information and less on physical benefits. Consider the example of General Motors, a traditional bastion of the goods economy, which for many years derived its profits almost exclusively from selling cars and other vehicles.
However, as the information economy developed, the provision of service and the manipulation of information became increasingly important, to the extent that eventually the General Motors Acceptance Corporation (the car-loan subsidiary of GM) became even more profitable than the core car-sales part of the company. For similar reasons, IBM shifted from being primarily a computer manufacturer to being primarily a service and consulting company.
According to Roland (2006) “If it is acknowledged that information technology is the driver of the shift toward service, it is also possible to forecast the future of marketing confidently. Information technology has always moved forward, in a trend that has now lasted for thousands of years. Thus, it can be confidently predicted that information technology will continue to advance. This, in turn, implies that marketing’s paradigm Shift toward service will only intensify. The past 100 years provide unambiguous onfirmation of this conclusion: As information technology has accelerated, the world’s leading economies have changed from approximately 30% service to approximately 70% service. ” Hence Service dominant logic view of marketing provides a valuable contribution to the dialogue about necessary and evolving change of marketing and the impact on the marketing activities undertaken by the firms in both strategic and relationship marketing contexts can be explained with Resource-Advantage theory that describes the process of competition.
Strategic Marketing: Marketing strategy refers to a business’s decisions and actions relating to where to compete at a greater level of the firms marketing activities, rather than reflecting the dominant and historically prevalent tactical Four P’s should focus on continuous processes that are reflected in four fundamental building blocks of a firm’s strategic marketing directions 1. Service offerings 2. Value propositions 3. Conversation and dialogue 4. Value process and networks
All of these should be co created with customers and partners They are not intended to replace the Four P’s but to provide them strategic direction. Product decision will be better informed with a service strategic direction; Price decisions will be more effective long term when guided by the firm’s strategic oriented value proposition; Promotion will continue, however it will be more effective when conversation and dialogue provide an informed background and perspective on how to promote and channel decisions will be more effective when they are considered within the context of the entire value network.
Under the goods dominant logic the four P’s are set with constraint of external environment in order to make an offer to the customer and optimize profit but in service dominant logic the customer is a collaborator and co-producer and the external environment are resources ,hence marketing activities should have these core logic. For vargo and lush (2004) claim that the S-D logic of marketing implies that marketing strategy should be centred under resource-advantage theory and marketing should be positioned at the core of the firms strategic planning. Figure 2: Resource advantage theory by Hunt (2004b)
Identifying four different normative theories of strategies that are distinctively marketing: Brand equity Market orientation Market segmentation Relationship marketing Hence marketing becomes a centre stage in firms strategic planning in service dominant logic. Marketing strategy in general: There are several opportunities for research with reference to marketing strategy in general. For example, following Menon et al. (1998, p. 21), marketing strategy making (MSM) capability involves “an interconnected set of activities, processes, and routines involved in the design and execution of marketing plans. one could conceptualize MSM capability as either a composite or an interconnected operant resource and, then, investigate potential antecedents and consequences. Other opportunities for research could potentially involve answering questions such as: How do firms go up the hierarchy of (marketing) resources? How can information technology enable firms go up the hierarchy of (marketing) resources? What characteristics of the firms enable them to develop masterful operant resources? Brand equity strategy:
The fundamental thesis of brand equity strategy is that, to achieve competitive advantage and, thereby, superior financial performance, firms should acquire, develop, nurture, and leverage an effectiveness enhancing portfolio of brands. Therefore, brands trademarks can be resources, but only if they contribute to the firm’s ability to efficiently and/or effectively produce a market offering of value to some market segment(s). With reference to brand equity strategy, a potential brand management capability can be conceptualized as having components such as brand orientation (Reid et al. 2005), brand identity capability (Madhavaram et al. 005), and marketing communications capability. Next, antecedents and consequences of such a capability can be investigated. Also, following Peltier et al. (2003) conceptual model of the relationship between database management and interactive integrated marketing communication, Marketing communications (marcom) database management capability involves (1) Data collection through traditional and online surveys, website tracking, e-mail responses, warranty cards, internal records, appended data, and other data, (2) Customer database development that incorporates demographics, psychographics, and behavioural data. 3) Customer relationship management development that involves forming relational segments and profiling and prioritizing various target segments. Consequently, specific integrated marketing communication programs can be developed keeping all the target segments in mind. As marketing communication being an important marketing activity program can significantly influence the firm’s brand equity, this operant resource will be particularly useful for brand equity strategy. Market orientation strategy: Kohli and Jawaorski(1990, p. ) defined a market orientation as “the organization wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organization wide responsiveness to it”, The fundamental imperative of market orientation strategy is that, to achieve competitive advantage and superior financial performance, firms should systematically (1) Gather information on present and potential customers and competitors (2) Use such information in a coordinated way to guide strategy recognition, understanding, creation, selection, implementation, and modification.
In the last two decades, research on market orientation has made a lot of progress. While early research conceptualized and measured market orientation as a composite resource (Kohli and Jaworski 1990; Narver and Slater 1990), current research is suggesting that market orientation is, perhaps, an interconnected resource (Kirca et al. 2005; Menguc and Auh 2006). For Lusch and Vargo (2006b, p. 284), one of the foundational propositions of service-centred dominant logic is that “the customer is always a co-creator. ” Therefore, if a firm is truly market oriented, then, it should develop a co creation capability.
This potentially can help firms in their innovation efforts. Consistent with this view, recently firms such as GE HealthCare have even encouraged users to alter Their products so that they can be made better (Kroll 2006). Hence, conceptualization, measurement, antecedents, and consequences of co-creation capability can be a fertile research opportunity. In conceptualizing a firm’s co-creation capability, Day’s (1994) customer-linking capability that refers to creating and managing close customer relationships that are important for firms, can be an important component.
Such a customer linking capability involves (1) close communication and joint problem solving and (2) coordinating activities (Day 1994). Hence marketing activities should be interconnected resource and should create co creation capability with the customers. Market segmentation strategy: The fundamental strategic thesis of market segmentation is that, to achieve competitive advantage and superior financial performance, firms should (1) Identify segments of industry demand, (2) Target specific segments of demand, and (3) Develop specific marketing “mixes” for each targeted market segment.
Drawing from Goslar’s (1986) conceptualization of the components of an ideal marketing decision support system, we argue that a marketing decision support system capability involves abilities to (1) Integrate and/or transform divergent data to create non-repetitive problem scenarios, (2) Analyze ill-structured problems involving aggregation, transformation, and pattern recognition capabilities using sophisticated parametric and non-parametric analytical tools, (3) Develop heuristic and analytic models with stochastic features that closely represent marketing problems, and (4) Facilitate the flow of information in forms most effective for the marketer. This operant resource will be useful for market segmentation strategy. Hence the marketing activity of segmentation should follow the segmentation strategy using the above operant resources.
Relationship marketing strategy: In relationship marketing firms are increasingly competing through developing relatively long-term relationship with stakeholders such as customers, suppliers, employees and competitors sheth (1994, p. 2) defines relationship marketing as “the understanding, explanation, and management of the ongoing collaborative business relationship between suppliers and customers”. The Service dominant logic creates bidirectionality and mutual satisfaction where consumers must sense the obligation to full fill the needs of his or her provider in return for the provider’s need-fulfilling renderings (Oliver 2006 p. 121) which requires reverse engineering.
The fundamental imperative of relationship marketing strategy is that, to achieve competitive advantage and, thereby, superior financial performance, firms should identify, develop, and nurture a relationship portfolio. Following Dowling (2002), customer relationship management (CRM) capability involves 1. A relationship management component (e. g. , support teams and loyalty programs) 2. A data-driven component (e. g. , identifying profitable segments through statistical techniques). 3. With the help of IT, these two components can be used to develop marketing strategies that have a long term relationship orientation. These three operant resources will be useful in discussions and analyses that involve the adoption of a relationship marketing strategy.
In the previous section, we identified Day’s (1999)market relating capability as an IOR that involves creating and maintaining relationships with their most valuable customers through a (1) Relationship orientation that pervades the mindset, values, and norms of the organization, (2) A deep knowledge of the customers that is put to work throughout the organization, and (3) The key processes that are internally integrated and externally aligned with the corresponding processes of the firm’s customers. Research into the measurement, antecedents, and consequences of market relating capability can be useful for relationship marketing strategy. Not all of the possible relationships with potential stakeholders are advantageous or should be nurtured. As Gummesson (1994, p. 17) emphasizes, “Some marketing is best handled as transaction marketing. ” Therefore, it is important that managers develop an ability to manage effectively their “relationship portfolios. ” Hunt (1997, p. 39) suggests that firms should develop a relationship portfolio that is comprised of relationships that add to firm efficiency and/or effectiveness, that is, “every potential and existing relationship should be scrutinized to ensure that it contributes to the firm’s ability to efficiently and/or effectively produce a market offering that has value to some market segment(s). ” Therefore, the conceptualization, measurement, antecedents, and consequences of relationship portfolio management capability can prove fruitful for relationship marketing strategy. Hence there is new way of thinking the relationship with the customers which impact the marketing activities undertaken by the firm. The parties become partners: For example, the physician provides expertise in certain therapies, but patients are experts of their own experience of a disorder.
To arrive at a superior solution, doctors need interaction with patients, and patients must not only consume the therapies but also produce them by taking medication, exercising, and altering their lifestyles. Patients may even know more about a disease than the doctor does, the reason being that doctors know little about health, disease, and cure relative to what there is to know. The patients’ possibilities of being updated on a disorder through the Internet have highlighted this even more. This way of reasoning supports the relationship marketing view, in which providers and customers retain win???win relationships. The parties become partners. Conclusion:
For the foreseeable future, the service/ information parts of every business will continue to increase in importance because of inevitable advances in information technology, and the marketing paradigm of the service dominant logic as Vargo & Lush describe will become even more dominant as time passes. This has an evolutionary change in the marketing activities undertaken by firms in both strategic and relational marketing context. Bibliography: Robert F. Lush, Stephen l. Vargo. (2006) The Service-Dominant logic of marketing: Dialog, Debate and Directions. Newyork: M. E Sharpe, Inc Vargo, StephenL. And Robert F. Lush (2004a), “Evolving to a new dominant logic for marketing,” journal of marketing, 68(January), 1-17. Vargo, Matthew O’Brien. And Robert F.
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