The Service-Dominant Logic of Marketing Presented By: Presented To: Robert F. Lusch MMA Annual Conference Professor of Marketing Chicago, Illinois University of Arizona March 16, 2006

Advancing Theory: The Role of the Funeral Scientific theories, however, are fundamentally different. They are constructed to be blown apart if proved wrong, and if so destined, the sooner the better. “Make your mistakes quickly” is a rule in the practice of science. I grant that scientists often fall in love with their own constructions. I know; I have. They may spend a lifetime vainly trying to shore them up. A few squander their prestige and academic capital in the effort. In that case – as economist Paul Samuelson once quipped – “funeral by funeral, theory advances.” (Edward O. Wilson. Consilience: the Unity of Knowledge. 1998; p. 52).

Contrasting G-D Logic and S-D Logic Goods-dominant logic is similar to Theory X management where the worker is treated as someone that has to be controlled and managed. Goods- dominant logic viewed the consumer as someone to control and manage. S-D logic views the customer as a collaborative partner and co-creator of value. In a way it is similar to Theory Y management.

The Traditional Logic: Operand Resource Employee Need to Persuade Need to Extract Work Need to Tightly Manage & Control Need to Extract Maximum Productivity Consumer Need to Persuade Need to Extract Money Need to Capture & Control Need to Extract Maximum Profit

All Exchange is Service Centered “the great economic law is this: Services are exchanged for services…. It is trivial, very commonplace; it is, nonetheless, the beginning, the middle, and the end of economic science….” - Frederic Bastiat 1860 “services are the application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itself.” - (Vargo and Lusch 2004)

Growth of Markets & Marketing Institutions Institutions Institutions As markets grow we develop and impact institutions in society. Relationships are at the core of these institutions. (next exhibit) Goods, money, organizations as intermediaries (two exhibits forward). Service for Service Goods, Money, Organizations are Intermediaries

Evolving To a New Frame of Reference To Market (matter in motion) Market To (management of customers & markets) Market With (collaborate with customers & partners to produce & sustain value) Through 1950 1950-2010 Future

Conceptual Transitions in Marketing G-D Logic Transitional S-D Logic Goods Services Service Products Offerings Experiences Feature/attribute Benefit Solution Value-added Co-production Co-creation of value Profit maximization Financial Engineering Financial feedback Price Value delivery Value proposition Equilibrium system Dynamic system Complex adaptive system Supply Chain Value-Chain Value-creation network Promotion IMC Dialog To Market Market to Market with Product orientation Market Orientation S-D Orientation

Resources (internal & external) Draw Upon Resources (internal & external) Collaborate With Customers & Partners Co-Create Value Proposition Co-Create Service Offering Collaborate: Customers & Partners Co-Create Value Processes & Network Co-Create Conversation & Dialogue Overcome Resistances S-D Logic as a Theory of Marketing

The Nature of Marketing? Change Division of Labor Exchange Increasing Degree of Change in Society

Where Do We Go From Here? Nature & Scope of Marketing Commercial Society World of Work World of Consumption Condition Division of Labor Specialized Competences Means Exchange Labor Market Consumer & Business Market End Change Value

Where Do We Go From Here? Frontiers in Research Co-Production & Collaboration Dialog & Conversation Value Propositions & Networks Feedback & Adaptation Business Processes & Service Flows Knowledge & Competitive Advantage Meaning of Consumption & Work Markets, Marketing & Class Conflict Marketing & Macroeconomic Policy

Marketing Curriculum Reform Fundamental of Marketing (service dominant) Competency Building and Competitive Advantage Managing Cross Functional Business Processes Designing Value Propositions & Pricing Strategy Integrated Marketing Communication Managing Value Networks & Constellations Consumer Buying, Usage & Co-Creation Designing and Delivering Service Flows The Role of Marketing in Society

Postscript “The fundamental purpose of the corporation is not wealth creation. It is job creation and collaborating with all stakeholders (including the customer) to co-create value.” Robert F. Lusch “The extent of the market may be a function of the division of labor; however if society does not benefit from the division of labor and the fruits it bears then markets and marketing will be replaced by other institutions.”

For More Information on S-D Logic visit: Thank You! For More Information on S-D Logic visit: sdlogic.org We encourage your comments and input. If you would like your working papers or teaching material and/or links to your research displayed on the website, please e-mail us Steve Vargo: svargo@sdlogic.net Bob Lusch: rlusch@sdlogic.net

Timeline of SD-Logic Four major revisions Two editors Six reviewers Initial Draft 1995 Refinement 1996-1999 Summer 1999 Submission Summer 2000 Submission Summer 2001 Submission Summer 2002 Submission Winter 2003 Submission Spring 2003 Paper Accepted Published January 2004 Four major revisions Two editors Six reviewers One strong reviewer advocated from beginning Sixth reviewer became advocate for publishing with commentaries Editor Ruth Bolton coached and guided along the way

Is It All About Services: A Paradigm Inversion (1999) “While your manuscript has interesting ideas, the current positioning of the paper leaves one feeling that there is not much new in the paper.” - JM Editor David Stewart (November 1999) “The author(s) are to be applauded for taking on such an extremely ambitious essay. To propose a true Khunian paradigm shift in marketing and to succeed is to try to do something that no theoretical paper has achieved that I am aware of—although historians of science will ultimately be the judges of such matters.” - JM Reviewer (November 1999) "Every once in a while a paper comes along that is truly exciting--that has the ability to change the way people think. This is one of those papers. If this paper is published in JM, then it has the opportunity to be a classic in our field. I wish that I had written it.” - JM Reviewer (November 1999)

Is It All About Services: A Paradigm Inversion (2000) “The primary concern of the reviewers remains focused on the incremental contribution of the paper.” “…it is probably too strong to conclude that all goods represent services in disguise.” “…identify the boundary conditions of your premises.” -Editor David Stewart

Is It All About Service (2001) Revision of this manuscript has taken longer than intended. However, we should mention that one of the reasons it has taken ten months to complete this revision is that we kept trying to revise based on the individual comments of the reviewers and finally decided to start anew. Importantly the suggestion of reviewer #5 to organize the manuscript around a set of propositions (and your mentioning of this suggestion in your letter of September 19, 2000) while simultaneously encouraging us to significantly reduce the length of the manuscript led us in this direction. For your information the manuscript has been reduced by approximately 30%. Consequently, this manuscript is almost a total rewrite and is now organized around eight key propositions from which we derive thirteen managerial and societal implications. Steven L. Vargo & Robert F. Lusch Resubmission Letter to Editor Stewart

Transition & Convergence: From an Output to a Process Centered View of Marketing (2002) “All three reviewers praise you for undertaking the challenging task of writing a paper that synthesizes a diverse marketing literature (over a substantial period of time)—and attempts to crystallize the debate about the meaning and direction of marketing.” “As you may recall, I invited a new reviewer (Reviewer 6)…He/she found the paper “interesting and provocative” and rightly observes that it is unlikely (and perhaps undesirable) for the reviewers to converge in their opinions.” “I ask you to create a shorter and more focused paper (that retains your key arguments). Then, if your paper is accepted for publication, it can provide the basis for invited commentaries by distinguished scholars.” - Editor, Ruth Bolton

Evolving to a New Dominant Logic for Marketing (2004) Marketing inherited a model of exchange from economics, which had a dominant logic based on the exchange of “goods,” which usually are manufactured output. The dominant logic focused on tangible resources, embedded value, and transactions. Over the past several decades, new perspectives have emerged that have a revised logic focused on intangible resources, the co-creation of value, and relationships. The authors believe that the new perspectives are converging to form a new dominant logic for marketing, one in which service provision rather than goods is fundamental to economic exchange. Abstract, Journal of Marketing (January 2004), p.1

Invited Commentaries: Day, Deighton, Narayadas, Gummesson, Hunt, Prahalad, Rust, Shugan Vargo & Lusch (2004) observe that an evolution is underway toward a new dominant logic for marketing. The new dominant logic has important implications for marketing theory, practice, and pedagogy, as well as for general management and public policy. … The ideas expressed in the article and the commentaries will undoubtedly provoke a variety of reactions from readers of the Journal of Marketing. - Ruth Bolton, Editor, Journal of Marketing (2004)

The Service-Dominant Logic: Dialog, Debate and Directions M.E. Sharpe (2006) Distinguished Group of Scholars Identify areas of Consensus, Dissent, and Future Directions. Essays contributed by Achrol, Arnould, Brodie, Day, Gronroos, Gummesson, Holbrook, Hunt, Jaworski, Kohli, Kotler, Levy, Penzola, Price, Oliver, Rust, Sawhney, Wilkie, Woodruff, and others Lusch & Vargo contribute integrative essays dealing with economic and marketing history, public policy, marketing management, and toward a general theory of marketing.