Evolving to a New Dominant Logic

Vargo, S. L., Lush, R. (2004)

Journal of Marketing; Vol 68; Issue 1; pp 1-17
DOI: 10.1509/jmkg.
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 cocreation 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. The authors explore this evolving logic and the corresponding shift in perspective for marketing scholars, marketing practitioners, and marketing educators.

The first paper that provides a discussion of service-dominant logic and how it has evolved from various discussions within marketing.

It defines services as:

“the application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itself.”

And contrasts the traditional view of marketing:

“In its most rudimentary form, the goods-centered view postulates the following:

1. The purpose of economic activity is to make and distribute things that can be sold.
2. 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.
3. The firm should set all decision variables at a level that enables it to maximize the profit from the sale of output.
4. For both maximum production control and efficiency, the good should be standardized and produced away from the market.
5. The good can then be inventoried until it is demanded and then delivered to the consumer at a profit.”

With a service-centred view:

“The service-centered view can be stated as follows:

1. Identify or develop core competences, the fundamental knowledge and skills of an economic entity that represent potential competitive advantage.

2. Identify other entities (potential customers) that could benefit from these competences.

3. Cultivate relationships that involve the customers in developing customized, competitively compelling value propositions to meet specific needs.

4. Gauge marketplace feedback by analyzing financial performance from exchange to learn how to improve the firm’s offering to customers and improve firm performance.”

They then go on to justify the service-centred view by linking to various other theories and thinking. In particular about it being customer centric – collaborating with customers and learning from them; how firms are “in a process of continual hypothesis generation and testing. Outcomes (e.g.,financial) are not something to be maximized but something to learn from as firms try to serve customers better and improve their performance.”

Interestingly, they point out that “market-oriented and learning organization is compatible with, if not implied by, the service-centered model.” This is interesting as both market and learning orientations are key antecedents for innovation. And they link service-centered dominant logic to Teece and Pisano’s work on dynamic capabilities of firms.

Next comes the first definitions of foundational premises of service-dominant logic. There are 8 in this original version:

  • FP1: The Application of Specialized Skills and Knowledge Is the Fundamental Unit of Exchange
  • FP2: Indirect Exchange Masks the Fundamental Unit of Exchange
  • FP3: Goods Are Distribution Mechanisms for Service Provision
  • FP4: Knowledge Is the Fundamental Source of Competitive Advantage
  • FP5: All Economies Are Services Economies
  • FP6: The Customer Is Always a Coproducer
  • FP7: The Enterprise Can Only Make Value Propositions
  • FP8: A Service-Centered View Is Customer Oriented and Relational

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