Relationship: Toward Service-Dominant Logic Transcendence and Unification Presentation to Relationship Marketing Summit December 13, 2007 Robert F. Lusch, University of Arizona Stephen L. Vargo, University of Hawai’i at Manoa

What We Want to Accomplish Evidence of Goods-Dominant Logic Review & Update on S-D Logic S-D logic as a unifying framework for relationship/marketing

Reflections of the Goods-Dominant Model Goods-Dominant logic: Make and sell units of output Latent evidence Marketing is: The “creation of utilities” (Weld) Time, place, and possession “production function” Concerned with value distribution Orientations Production and Product Manufacturing and distribution as value-added Consumer Orientation Evidence of problem vs. correction Marketing Management and Consumer Behavior Evidence of decoupling of thought Alderson’s admonition: “What is needed is not an interpretation of the utility created by marketing, but a marketing interpretation of the whole process creating utility.” Sub-disciplinary Divergences Relationship Marketing

Sub-disciplinary Divergences and Convergences Business-to-Business Marketing From differences Derived demand, professional buyers, fluctuating demand, etc To emerging new principles Interactivity, relationship, network theory, etc Service(s) Marketing From differences: Inseparability, heterogeneity, etc. To emerging new principles: Relationship, perceived quality, customer equity, etc. Other Sub-disciplines Other Intra-marketing initiatives e.g., interpretive research, Consumer culture theory, etc. From deterministic models to emergent properties From products to experiences From embedded value to individual meanings and life themes/projects

A Partial Pedigree for S-D Logic Services Marketing e.g., Shostack (1977); Relationship Marketing Berry (1983); Gummesson (1994) ; Gronroos (1994); etc. Theory of the firm Penrose (1959) Core Competency Theory (Prahalad and Hamel (1990); Day 1994) Resource-Advantage Theory and Resource-Management Strategies Hunt (2000; 2002); Constantin and Lusch (1994) Network Theory (Hakansson and Snehota 1995) Interpretive research and Consumer Culture theory (Belk, Wallendorf, Sherry 1989; Wallendorf & Arnould 1991) Co-creation, Customer, competence/experience (Prahalad and Ramaswamy 2000) Diverse research streame that seem to be saying something is missing Services and Relationship Marketing Research and Models Perceived Quality (manufactured quality) Relationship (Transaction) Customer Equity (Brand equity) In addition to above… …Others e,g., Network theory Also, Consumer orientation—Levitt, etc

Evolving…Service-Dominant Logic Service, rather than goods, as the basis of economic and social exchange i.e., Service is exchanged for service Essential Concepts and Components Service: the application of competences for the benefit of another entity Service (singular) is a process—distinct from “services”— particular types of goods Shifts primary focus to “operant resources” from “operand resources” Value always co-created Sees goods as appliances for service delivery Implies all economies are service economies All businesses are service businesses Operates at paradigmatic, pre-theoretical level

S-D Radically Challenges Core Assumptions G-D Customer and Environments as Exogenous Firms Create Value Operand Resources are Paramount Management of Marketing Mix Relationships are Repeated Encounters Maximize Profits S-D 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

The Evolution of Marketing To Market (matter in motion) Marketing To (management of customers & markets) Marketing With (collaborate with customers & partners to produce & sustain value) Through 1950 1950-2010 Future

Revised Foundational Premises FP1 The application of specialized skill(s) and knowledge is the fundamental unit of exchange. Service is the fundamental basis of exchange. FP2 Indirect exchange masks the fundamental unit of exchange. Indirect exchange masks the fundamental basis of exchange. FP3 Goods are a distribution mechanism for service provision. Goods are distribution mechanisms for service provision. FP4 Knowledge is the fundamental source of competitive advantage Operant resources are the fundamental source of competitive advantage FP5 All economies are services economies. All economies are service economies.

Revised Foundational Premises FP6 The customer is always a co-producer The customer is always a co-creator of value FP7 The enterprise can only make value propositions The enterprise can not deliver value, but only offer value propositions FP8 A service-centered view is customer oriented and relational. A service-centered view is inherently customer oriented and relational. FP9 Organizations exist to integrate and transform microspecialized competencies into complex services that are demanded in the marketplace All economic and social actors are resource integrators FP10 Value is always uniquely and phenomenological determined by the beneficiary

S-D Marketing CUSTOMERS PARTNERS CUSTOMERS & PARTNERS Co-Create Service Offering Draw Upon Internal Resources Co-Create Value Proposition Draw Upon External Resources Co-Create Conversation & Dialogue Overcome External Resistances Co-Create Value Processes & Networks Overcome Internal Resistances CUSTOMERS & PARTNERS CUSTOMERS PARTNERS

The Nature of Coproduction and Cocreation Integration With Public-Facing Resources Direct Service Provision Provider of Operand & Operant Resources Service Beneficiary Value in Context Coproduction Cocreation Service Provision via Goods Integration With Private-Facing Resources

Service Exchange through Resource Integration and Value Co-creation Market-facing and public and private resources Service Market-facing and public and private resources Resource Integrator/Beneficiary (“Firm”) Resource Integrator/Beneficiary (“Customer”) Value Co-creation $ (Service Rights)

Common Misconceptions A Theory S-D logic is a logic, an approach, a lens, but not a theory Could be foundation for a general theory of the market and marketing A Reflection of the transition to a services era In S-D logic, all economies are service economies and all businesses are service businesses Restatement Of The Consumer Orientation Consumer orientation is evidence of G-D logic, not a fix to it Consumer orientation is implied by S-D logic Alternative To The “Exchange Paradigm” Problem with exchange paradigm is notion of exchange of output, not the notion of exchange At issue is the “transaction,” not exchange Exchange is a relational concept -- reciprocity S-D logic says service (a process) is exchanged with service

Relationship Orientations G-D Logic Positive: repeated transactions (encounters) Normative: Hug your customer and channel partners S-D Logic Positive Relationship inherent (FP8) Service as benefit – provided by one party, determined by the other Service as reciprocal Value as co-created Network-with-network Value as phenomenological: “value-in-use” and “value-in-context” Economic (and social) actors as resource integrators Normative: collaborate and co-create for mutual benefit

The New Geometry of Marketing? External Resources Needs Resources Resistances RI Value Co-creation Value Co-creation Resource Integration Resistance Reduction Exchange Change Customers Needs Resources Resistances RI Stakeholders Needs Resources Resistances RI Value Co-Creation

For More Information on S-D Logic visit: Thank You! For More Information on S-D Logic visit: sdlogic.net We encourage your comments and input. Will also post: Working papers Teaching material Related Links Steve Vargo: svargo@sdlogic.net Bob Lusch: rlusch@sdlogic.net

Service Exchange through Resource Integration and Value Co-creation Density Value Configuration Resource Integrator/Beneficiary (“Firm”) Resource Integrator/Beneficiary (“Customer”) Value Co-creation

Organizations Evolving to be Service-Dominant Bureaucracy Slow Thinking Quick Thinking & Slow Responding Analyze, Plan & Control Sense, Reflect, Realize, & Learn Slow Thinking & Quick Responding Fast Acting Slow Acting Service-Ecosystem Source: Lusch & Webster Fast Thinking

Difficult Conceptual Transitions Goods-Dominant Concepts Goods Products Feature/attribute Value-added Profit maximization Price Equilibrium systems Supply Chain Promotion To Market Product orientation Transitional Concepts Services Offerings Benefit Co-production Financial Engineering Value delivery Dynamic systems Value-Chain Integrated Marketing Communications Marketing to Market Orientation Service-Dominant Concepts Service Experiences Solution Co-creation of value Financial feedback/learning Value proposition Complex adaptive systems Value-creation network/constellation Dialog Marketing with Service-Dominant Logic (Consumer and relational)

Marketing as Resource Integration Market Facing Resources Non-Market Facing Private Resources Integration Resource Non-Market Facing Public Resources

Breadth of Knowledge Integration Category Time Cited/Mentioned Social Science Citation Index 65 Business Source Premier 105 Google Scholar 264 Google.com 550 Conferences* (call for papers and presentations) 22 Marketing Courses* (subjects and reading lists) 13 Website Posts* (e.g., blogs) 172 *as of December 2006 22

Integration in Marketing Literature Journal of Marketing (7) Journal of Service Research (7) International Journal of Service Industry Management (7) European Journal of Marketing (5) Industrial Marketing Management (5) Journal of Business Research (4) Journal of Retailing (3) Marketing Science (3) International Marketing Review (2) Journal of Business-to-Business Marketing (2) Journal of Public Policy & Marketing (2) Citations Numbers based on Social Science Citation Index. 23

Main Sub-themes of Integration Three main sub-themes underlying the knowledge integration focus on core concepts of S-D logic: The categorization is adapted from marketing schools of thought presented by Shaw and Jones (2005). The numbers represent selected citations relating to or elaborating upon S-D logic (Vargo and Lusch 2004). 24

Service-Dominant Logic: Toward the Unification of Marketing Presented by: Robert F. Lusch, University of Arizona Stephen L. Vargo, University of Hawaii Presented to: Relationship Marketing Summit Buenos Aires, Argentina December 13, 2007

For more information on S-D logic visit: sdlogic.net THANK YOU For more information on S-D logic visit: sdlogic.net For permission to use any information in these slides please e-mail: rlusch@eller.arizona.edu or svargo@hawaii.edu