S-D Logic Service-Dominant Logic: The New Frontier of Marketing Business Briefing for the Otago Forum on Service-Dominant Logic November 25, 2005 Robert F. Lusch, University of Arizona Stephen L. Vargo, University of Hawaii at Manoa

S-D Logic 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)

S-D Logic Goods vs. Service Dominant Make & Sell Mass market Produce product Promote product Price product Distribute product One-sided Transaction oriented Maximize profit Sense & Respond Markets of one Co-create value Conversation & dialog Value Proposition Value Network & Processes Multi-Sided Relational oriented Profit as feedback (learning)

S-D Logic Old Logic Led to Overmarketing OVER- MARKETING Reliance on Mass Markets Loss of Customer Contact Make & Sell Philosophy Aggressive Price Cutting Marketing as Propaganda

S-D Logic Technology Contributed to Failure Division of Labor in Society Loss of Contact With Customer Micro Specialists & Professionals Growth of Marketing Technology

S-D Logic The Failure of Marketing The Old Dominant Logic Societal Alienation Growth of Marketing Technology Networked Customer Informed Customer Alienation Overmarketing Marketing Resistance 1950s – s + 21 st Century

S-D Logic Failure of Marketing: Evidence Customer Alienation Rising Marketing Expenditures Less Productive Marketing Losing Influence in the Organization

S-D Logic The Rise of Consumer Alienation What Needs More Government Regulation 1. Water pollution 2. Toxic wastes 3. Air pollution 4. Advertising 5. Nuclear safety Source: Yankelovich, Inc. 2004

S-D Logic Rise of Consumer Alienation 54% of consumers wish for a quieter and simpler life even if it means less stuff. 61% of consumers feel the amount of marketing and advertising is out of control. 36% believe shopping experiences less enjoyable because of all the pressures to buy. Source: Yankelovich, Inc. 2004

S-D Logic The Image of Marketing Positive Words Creative Fun, funny Attractive Negative Words Lies Deceitful, deceptive Annoying Manipulative Gimmicks Exaggeration Invasive Intrusive Brainwashing Source: Raj Sisodia; Bentley College

S-D Logic Marketing Loses Influence in Organization 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. Marketing managers are not finance-literate. Other managers are often not marketing-literate. Marketing and strategic planning require investment and then promise only uncertain future results. Marketing ideas are not linked to driving profits. Making the financial numbers isnt the only thing, its everything. Source: Fred Webster (Dartmouth & U of Arizona)

S-D Logic 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 Future

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

Goods Logic Goods Tangibles Operand Resources Asymmetric Propaganda Value Added Transactional Maximize Profits Service Dominant Service Intangibles Operant Resources Symmetric Conversation Value Propositions Relational Financial Feedback Global Sustainability Customer Alienation Respect for Marketing In Firm Less More Less More Less More The Emerging Reform of Marketing

S-D Logic Thank You! For More Information on S-D Logic visit: sdlogic.net 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 us Steve Vargo: Lusch:

S-D Logic The Old Dominant Logic The purpose of economic activity is to make and distribute things that can be sold. To be sold, these things must be embedded with utility and value during the production and distribution processes and must offer to the consumer superior value in relation to competitors offerings. The firm should set all decision variable at a level that enables it to maximize the profits from the sale of output. For both maximum production control and efficiency, the good should be standardized and produced away from the market. The good can then be inventoried until demanded and then delivered to the consumer at a profit.

S-D Logic Contrasting GD Logic and SD 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. SD Logic views the customer as a collaborative partner and co-producer of value. In a way SD Logic is similar to Theory Y management.