Service-dominant (S-D) logic

Service-dominant (S-D) logic represents a departure from the traditional goods-dominant (G-D) logic, in which goods were the focus of exchange and services represented a special case of goods. It shifts the emphasis from the exchange of operand resources – usually tangible, inert resources – to an emphasis on operant resources – dynamic resources that act upon other resources.

Robert F. Lausch and Stephen L. Vargo have authored many papers on Service-dominant logic. In a series of posts I extract the foundational and derivative propositions of S-D logic from Vargo & Lusch, "Service-dominant logic: What it is, what it is not, what it might be" in The Service-dominant logic of marketing: Dialog, debate and directions, RF Lusch & SL Vargo eds. (2006) and Lusch, Vargo & O'Brient, "Competing through service: Insights from service-dominant logic" Journal of retailing, 83, (I, 2007) 5-18.

S-D logic views applied, specialized skills and knowledge as the focus of economic exchange and one of the foundations upon which society is built. If goods are involved in the exchange, they are seen as mechanism for service provision.

S-D logic defines service as “the application of specialized competencies (operant resources – knowledge and skills), through deeds, processes, and performances for the benefit of another entity or the entity itself – that is exchanged for service.”

It is important to note the we use the singular term, service, which we feel better reflects the notion of doing something beneficial, rather than the plural term, services, which implies immaterial goods, a sub-class of output.

The following eight foundational premises summarize S-D logic:

  1. The application of specialized skill(s) and knowledge is the fundamental unit of exchange.
    • Service is exchanged for service
  2. Indirect exchange masks the fundamental unit of exchange:
    • Microspecialization, organizations, goals, and money obscure the service-for-service nature of exchange
  3. Goods are distribution mechanisms for service provision:
    • “Activities render service; things render service”
    • Goods are appliances
  4. Knowledge is the fundamental source of competitive advantage:
    • Operant resources, especially know-how, are the essential component of differentiation
  5. All economies are services economies:
    • Service is only now becoming more apparent with increased specialization and outsourcing; it has always been what is exchanged
  6. The customer is always a co-creator of value:
    • There is no value until an offering is used – experience and perception are essential to value determination
  7. The enterprise can only make value propositions:
    • Since value is always determined by the customer (value-in-use), it cannot be embedded through manufacturing (value-in-exchange)
  8. A service-centred view is customer oriented and relational:
    • Operant resources being used for the benefit of the customer places the customer inherently in the center of value creation and implies relationship

S-D logic makes the consumer endogenous to the value-creation process. Value becomes a joint function of the actions of the provider(s) and the consumer(s), but is always determined by the consumer.

S-D logic advocates viewing the customer as an operant resource – a resource that is capable of acting on other resources, a collaborative partner who co-creates value with the firm – and promotes a “market with” philosophy.

In S-D logic, collaboration between the firm (and relevant partners) and the customer allows for a strategic orientation that informs the more tactical Four Ps:

Products 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; and place is supplanted with value networks and processes.

S-D logic views the external environments as resources the firm draws upon for support by overcoming resistances and proactively co-creating these environments. This can be illustrated by viewing the ecosystem as an operant resource that is an active party in service provision.

Service-Dominant Marketing

Figure 1. Service-dominant marketing.

Next: Competing with S-D logic