The Big Picture…
Value is not determined by the manufacturer.
Traditionally we see value as being determined by the manufacturer. And it is measured by the price that customers are willing to pay.
In service-dominant logic, we see value differently. We see a beneficiary who is seeking to make progress in some aspect of their life. And they are hiring a service that proposes to help them in making that progress.
As such, only the beneficiary can determine if they have achieved the progress they were seeking. That is to say if value has been created, and if so, how much. We refer to this as value-in-use (compared to the traditional value-in-exchange).
But this determination of value is complicated by it being experiential. Beneficiaries bring biases, experience, expectations etc – their lived experience – to the service. As well as having experiences of the new instance of service provision – the current context, their mood, experience of interactions, the servicescape etc. Both of those affect their view of created value.
The word phenomenologically is used in the definition. It captures this lived and living experience. However, it’s a bit clumsy. Instead we could make this foundational premise more approachable, as:
Value is always uniquely determined by the beneficiary based on their lived and living experiences
Why is this important? Well, it highlights your approach needs to be beneficiary centric. We have to understand
- what progress they are trying to make
- what generic lived experiences can we leverage or address
- how do we design our service to give the best living experience
The old school view of value is that manufacturers determine it. And that view is captured in the price. In the background, a marketing team has determined and tested if the customer is willing to pay to own that value. And there is a value-in-exchange moment – the sale.
We believe that value is embedded in products at each step in the manufacturing chain. A car, for example, is more valuable than its component parts. And those are more valuable than the raw materials used to make them.
But what if it is not the manufacturer that determines value? What if it is the beneficiary? And they do so during the use of the product? This is the view we take in service-dominant logic. More specifically, foundational premise #10 of Service-Dominant Logic states:
Value is always uniquely and phenomenologically determined by the beneficiaryLush & Vargo (2016) – Foundational Premise #10
And there are four key elements in this premise we will explore. Who is the beneficiary? What is value? And what does “uniquely and phenomenologically determined” mean? Let’s start with the beneficiary.
Who is the beneficiary?
The concept of beneficiary comes from Vargo & Lush (2004) definition of a service:
Service is the application of specialised competencies for the benefit of another entity or the entity itselfVargo & Lush (2004)
We can rearrange this definition to identify the beneficiary:
The beneficiary of a service is the actor that benefits from the application of specialised competencies.
And this could be the entity that owns the specialised competencies. Or, usually, we think of another entity.
If we take a wider view, we see there are often multiple beneficiaries. Customers watch Netflix, for example, to fill a moment of time. They are clearly the beneficiary. But Netflix and other customers also benefit. Netflix benefits from the viewing and usage data it collects. And, other customers benefit from the same data leveraged through Netflix’s recommendation engine. Which “reduce the amount of time and frustration to find something great content to watch”.
There is always though a primary beneficiary. And we often refer to them as simply the beneficiary.
It’s also important to realise that:
The beneficiary is seeking to make progress in some aspect of their life
And that progress could be functional and/or emotional. It might be to achieve some particular task – move a sofa from one house to another. Or to attain status, look fashionable, feel happy within themselves. Which leads us nicely to redefining value.
What is value?
As we discussed earlier, we typically see value as something embedded by manufacturers during the manufacturing process. And it is something customers are willing to exchange cash for in order to own.
In service-dominant logic, we believe value creation happens during the use of a product (goods and/or service). More specifically, we co-create value with other actors involved in the service provision.
Value, then, can not be embedded in a product by manufacturers. Rather it is a measure of how well a product has enabled the beneficiary to make the progress they are seeking. Note the past tense used here.
Value is a measure of how well a product has enabled the Beneficiary to make the progress they are seeking
As Christensen says, the beneficiary hires your product as they have a job to be done. Or as Slywotzky sees it, your product removes a hassle (to which we can add: in the progress the beneficiary is trying to make).
Also, as part of “how well a product has enabled” there are non-functional aspects. Speed, safety, securely, etc.
If you can’t embed value, then you can only offer propositions of value creation. And, importantly, only the beneficiary can determine the amount of value co-created. That is to say:
Value is always uniquely determined by the beneficiary
But this is not a sufficient definition. Beneficiaries are rarely rational beings. And the amount of co-created value is dependent on many variables, that are rarely consistent. Lush & Vargo add “value is also phenomenologically determined by the beneficiary” to the definition to address this.
Phenomenological; do-doo dah do-do.
Hands up those who hear the word phenomenological, and immediately think of this following video:
Me too. But what does phenomenologically mean? Well, an example is always a good way to explore. So let’s look at the recent explosion of self-service checkouts in supermarkets. You know the ones, where instead of a cashier scanning your items, you scan them yourself.
Remember in the old school way of thinking, the supermarket has decided these add real value for you – hence why they’ve removed a lot of normal checkouts. And, cynically, they are, on the surface, cheaper for the supermarket.
But in our service-dominant view, these self-service checkouts are only a value proposition. The progress I want to make is to securely pay for my items. And so they also compete with the manned checkouts (and perhaps autonomous checkouts in the future like Amazon Go)
How much value do these self-checkouts offer/generate? It depends. Maybe you value not having to interact with people. Then it offers value to you. Or maybe you value someone helping you with the scanning (for example it transfers the risk of you making errors in the scanning, and/or looking like a thief, to someone else). In this case, self-scanning offers limited value.
But, like most people, the value offered probably depends on the situation you are in at that moment in time. A rainy Wednesday lunchtime, when you are in a rush to buy a sandwich and drink, and the checkout queues are large, might make the self-checkout attractive. Whereas, a Monday evening weekly shop with many items, might make them unattractive.
So how can we capture this uncertainty? Well, we can start with value is experiential.
Value is experiential
Lush & Vargo identify that “value is experiential” in “Service-Dominant Logic: Premises, perspectives, possibilities“.
What do they mean? Simply, that the beneficiary’s experience contributes to their judgement of value. Before a beneficiary uses a service, they are judging the potential value they can create. And during/after the service, they are judging what value did they create.
However, they had a concern with using the word experience. They view experiential as implying a positive, entertaining experience. A “Disney land feeling” as they summarised. And that is not what they meant. It can be a negative experience. Further, they wanted to steer us clear of a notion they disagree with: the experience economy.
The Experience Economy
Pine & Gilmore (1998) coined the term experience economy in their HBR article: “Welcome to the Experience Economy“. They see staging experiences as a step beyond delivering services. And that staging experiences is the most differentiated competitive position, commanding premium pricing.
They make the distinction between four types of economies, see Figure 2.
In their article and subsequent book (revised 2019), they give several examples of experiences. Such as “eatertainment” in relation to theme restaurants, or Geek Squad, Apple Stores, Disney, LEGO, and Starbucks. A deeper discussion of this would lead us into the field of experience marketing).
Lush & Vargo (2014) problem with this was quite simple. “Can you think of a consumption situation that is not experiential?”. They could not. And so believe there is no such thing as the experience economy.
My view is similar, i.e. the experience economy is part of the service economy. Pine & Gilmore’s work is useful when considering how to stage a service (a performance), making them memorable and personal. Which is relevant when thinking of how to build brands that people love (enable, entice, and enrich).
And so, Lush & Vargo settled on the word phenomenological. Even if it is not going set the lecture tour circuit on fire, there is an academic reason for this choice.
Phenomenological is academically comfortable
Phenomenology is the philosophical study of the structures of experience and consciousness. And the phenomenological method is an established qualitative research method. Groenewald (2004) states the following:
A researcher applying phenomenology is concerned with the lived experiences of the people involved, or who were involved, with the issue that is being researched.Groenewald (2004) “A Phenomenological Research Design Illustrated“
This makes academics comfortable with the discussion. Even if us mere mortals just hear the muppets singing.
But phenomenologically is a mouthful of a word; its use uncommon and is unlikely to set the business world alight with understanding and take up. Let’s talk, instead, of the lived- and living- experience.
The Lived Experience
So, if should avoid using the concept experience, and phenomenological is pretty unapproachable, what could we use instead? For me, the key is in the definition of phenomenology. From above:
…phenomenology is concerned with the lived experiences..
And “lived experience” feels a more approachable term.
But I want to break our thinking about lived experiences into two separate time slots. The first being when a beneficiary is looking at value propositions. For example, when they go to check out in a supermarket and decide between using the manned- or self-checkouts.
At this point, a beneficiary brings a set of expectations, past experience, biases etc. These are the lived experiences of the beneficiary up until this point. And they can come from a range of previous experience. Maybe of this particular service, or from similar services, or from practically anywhere.
This collections of lived experiences are individual and unique to every beneficiary. However, we may be able to tease out group-wide positive and negative lived experiences. And then leverage that knowledge in our service design to offer more value.
Yet, equally important as the baggage a beneficiary brings along, is the actual experience they have of a specific instance of service provision – the value-in-use aspect. And I will call this, the living experience.
The living experience
I will refer to the beneficiary’s experience of a particular service instance as the living-experience. This is relevant when the beneficiary chooses a service, during the service, and at the end. Once the service is over, the lived experience becomes an addition to the past-lived experience.
(I could have used the terms past-lived and lived experience here; but chose the ones I have to reinforce the value-in-use of the latest service provision).
Now we are talking aspects such as the mood of the beneficiary. What context is the service is taking place in? Is it, for example, the Wednesday lunch rush for a sandwich or the Monday evening weekly shop. Does the beneficiary feel like taking a chance on something new?
How is the beneficiary experiencing the interactions that are the heart of service provision? Is the customer service rep going out of their way to be helpful, or are responses from a disinterested person. Perhaps the Artificial Intelligent bot is frustrating the beneficiary with irrelevant questions.
Did the beneficiary want a simple, consistent, item of food but now has to navigate a menu with too many choices? Can they start using the goods straight away? Do the tires on the car need pumping up first? Does the hardware they have to play musical medium work with the media they have?
So, armed with the concept of lived and living experience, we can make the premise definition a little more approachable.
Our approachable definition
Let’s bring the above together to present a more approachable definition value:
Value is always uniquely determined by the beneficiary based on their lived and living experience
Now we still reflect that only the beneficiary can determine the value of a service. And that they do so based on the baggage they bring along – previous experiences, biases, expectations. As well as the experience they have during the use of the service – the context, their mood, interactions, servicescape etc.
OK, so “phenomenologically determined” is a valid term to use. But a bit tough if we want to get service-dominant logic mainstream. Uncharitably we could think it was used to discourage the phrase experience economy.
I believe we can instead use the more relatable phrase “lived experience”. That positions value as experienced by an actor, as part of co-generation of value, rather than a provider arranged (staged) experience.Value is always uniquely determined by the beneficiary based on their lived and living experience Click To Tweet
And the importance of this premise is threefold. We need to be customer-centric and understand:
- what progress is the beneficiary trying to make
- what generic lived experiences of beneficiaries can we leverage (positive things) or address (hindrances)
- how we design our service and servicescape to best enable that progress and deliver the best living experience
Maybe service design is a tool to help.