The role of cash – as service credits – in a service-exchange economy.

The Big Picture…

At first glance, cash is problematic in service-dominant logic. But, once we detach cash from being a proxy for value, and see it as an implementation of service credits, its role becomes clear and necessary.

Cash is king in the so-called goods-dominant logic – which is the lens through which we traditionally see the world. Where value-in-exchange is the key aspect. And cash is a proxy for value.

But, to better unlock innovation and growth, we want to apply the service-dominant logic lens. Through this lens, we see service as the fundamental basis of exchange. And value relates to progress offered and made which is determined only by the beneficiary. Cash is no longer a proxy for value.

Cash, through a service-dominant logic lens, turns out to be a practical implementation of service credits – promises of future service. I introduce these as a way to track and enable the complex service exchanges we observe. Service exchange is often:

  • separated in time
  • involves service with different magnitudes of effort, and
  • not limited to bi-party exchange – i.e. there is indirect service exchange.

These service credits have no intrinsic worth. Instead they reflect the value proposer’s perceived effort expended (gaining and applying skills and competence) on the value proposition (and profit).

Implication

By disassociating cash from being a proxy of value we find we can discuss i) price setting, ii) how that price feeds into beneficiaries’ decisions to engage a service and iii) the context of self service.

We find price and value are parallel, and separate, attributes. Price is the number of service credits an ecosystem wants to engage in a service. And reflects the effort it puts in to gain and apply the skills and competence (plus “profit”). This is now disjoint to value, which remains viewed as progress offered. And is only determined by the beneficiary, as progress made.

Beneficiaries decide between value propositions, including doing nothing, by determining how much service (effort) they must provide in exchange. In practice, due to indirect exchange, this is how much effort they must provide to gain sufficient service credits (in addition to if the progress offered sufficiently matches progress sought).

Self-service should naturally require less service requests than full service. As the beneficiary is expected to have (or gain) the skills required themselves to perform the self service (see the service-service continuum).

The Idea

We’ve explored previously that there are two lenses through which we can observe our world. Typically, and traditionally, we apply a goods-dominant logic lens. From which we observe producers setting value on goods and services they produce, through price. And a moment of value-in-exchange happens when a consumer buys the product. Typically handing over cash to the producer. Now the consumer owns the value and sets about destroying, or using up, it. And that is done out of sight of the producer. In this logic, the role of cash is as a proxy of value. And it is king.

Alternatively, we could apply a service-dominant logic lens. And I’ve argued that we do want to do that. Doing so, for example, reduces myopia, encourages us to open our solution space, as well as to look beyond the point of sale. It better unlocks innovation and growth. Through this lens, we see service as the fundamental basis of exchange. I do something (apply my skills and competence) for your benefit and, in return, you do something for me. Although, in reality, the exchange may not be so direct. That is to say, indirect exchange masks the fundamental basis of exchange.

What, then, does the pervasive nature of cash as a proxy for value mean through such a service-dominant lens? It can no longer represent value. As we have determined value relates to progress offered and progress made (and is uniquely determined by the beneficiary)

Why not just ignore cash?

One approach is to ignore cash. Or wave it away as something important when applying the goods-dominant lens. But it is less, or not, important when applying a service-dominant lens – since we exchange service, value is created in use, etc.

However, this is not a tenable approach. Cash is all around and is so familiar that attempting to wave it away does a disservice to progressing service-dominant logic as a viable lens on which to view the economy/marketing/innovation.

Additionally, cash has an obvious role in actors’ decisions on which, and whether to, engage in value propositions. So we need to account for it, somehow.

Complexities within service exchange

In a naïve view of service exchange, we see only two parties exchange service (do something for each other). They do so immediately, or at least close enough that neither needs to record that the other owes them a service. And they don’t care if one party puts more effort in than the other (i.e. service could be the unit of exchange).

But those conditions are rarely true. Services are often not:

Therefore we need a way to represent and tack promises of future service (as Vargo & Lush write somewhere).

Service credits mediate the separation in time and magnitude differences in effort of service exchange. As well as enabling indirect exchange of service.
Figure 1: The need for service credits

And I’ll introduce the idea of service credits as that way.

Introducing service credits

Service credit is a well-known concept in the area of outsourcing (especially in the IT world). Typically relating to future discounts on monthly prices if outsource targets (such as server availability or response times) are not met.

What I am talking about is similar but different. Service credits are promises of future service. And can be transferred between entities.

Service credits represent promises of future service

In a simplistic world, each time a value proposition is engaged, the value proposer gains a service token from the beneficiary. That service credit can be used at another time, often towards another value proposer, when engaging in service the initial value proposer wants.

These service credits have no intrinsic value themselves. But we’ll see shortly that they are used to signal the perceived magnitude of effort required in a service.

explore how service credits solve the complexities in realistic service exchange.

Service exchange is rarely immediate

When we talk of service exchange in service-dominant logic, we initially think of a direct exchange between two parties. And that that happens at the same time. Or at least with very little gap in time. That is to say, I apply my skills and competence for your benefit and you apply yours for my benefit in parallel or relatively directly afterwards.

But often there is a gap in time before service is exchanged. Maybe timelines are driven by seasons, or need, or…And I might perform two, or more, services for you before you get to perform one back.

I would want to keep track of how much future service you owe me (and likely you want to track how much you owe). And we’re both likely making exchanges with other party at the same time. So we don’t want to confuse who we owe service to and who owes service to us.

Service credits, that have no intrinsic value, become a useful to mediate service exchange spread over time. Each service I give you, you give me a service credit. When you exchange back a service, I return back that credit.

Service exchange is rarely direct

Our service exchange is rarely direct. Perhaps this is more so between friends, where I do you a favour and at some point in the future you return that favour. But such a world is limiting. And service-dominant logic recognises this by observing that indirect exchange masks the fundamental basis of exchange.

And what we mean here is that service exchange can look one-sided or be hidden.

For example, a supermarket provides a service for conveniently acquiring food items. And you provide your employer with a service through your employment. However, you are unlikely to provide a service to the supermarket. Nor is your employer likely to provide you with a service.

This is an indirect exchange. And it is enabled through service credits.

Indirect exchange in action with the role of service credits identified as enable the exchange to take place
Figure 2: An example of Indirect Exchange in action with the role of service credits identified

You get service credits (promise of future service) for the service you provide your employer. And you give those (or some of them) to the supermarket when engaging with its service.

These service credits still have no value and are still a tracking mechanism. However, we start to see a hint of our next topic: are all service equal?

Not all service requires same effort

In a special type of society, we could see all service as equal. That is to say regardless of the effort required in the service being exchanged, we see them as units of service. Thus our tracking of service credits is simple. I help you move your house in the early summer and that service is equalled out by you helping me lift a box up two sets of stairs just before the end of the year.

But in most societies, we recognise that not all service have the same magnitude of effort. And therefore, we need a way of mediating that.

Step forwards again service credits. A value proposer is welcome to say how many service credits they want for engaging in a service. And conceptually, that will represent the effort proposed to be spent. Where this effort comprises both the effort required to have gained the necessary skills and competence plus the effort required to apply them; plus “profit”.

Perceived magnitude of effort by the value proposer is shown as a number of service credits
Figure 3: “Price” is indicated by number of service credits requested – and that comprises effort required to gain and apply skills and competence together with profit. This is now separate to value, which is captured in the value proposition as progress offered.

Now we can address two aspects that have been difficult in service-dominant logic: setting price of a service and hire that price is taken into account when deciding to engage a service.

Setting Price of a Service

The service delivery needs to be sustainable, i.e. the service credits it requests needs to be at least equal to those credits used in any internal exchanges required to fulfill the service. As value proposers are often an ecosystem, the number of service credits required is likely to come from summing up the requirements of the ecosystem partners plus the coordination effort.

I anticipate that any economic actors will seek to maximise the service credits they receive. Therefore there is a profit aspect. And that “profit” is affected by the usual supply/demand and market processes.

We can therefore see how “price” can be set in service-dominant logic.

But we have to be clear here. We are separating price (amount of service credits requested) from value. Unlike in goods-dominant logic where they are practically the same.

The Value proposition owner needs to present both price and value in parallel. And value remains a function of the potential amount of progress the value proposition helps the beneficiary make.

Which leads us nicely into discussing the other side of this equation: how a beneficiary chooses and decides to engage with a value proposition.

Deciding to engage in a service

A beneficiary is usually presented with many options to help them make progress in some aspect of their life they are seeking. The Value proposition they chose to engage with is a balance between the amount of progress offered and the price. And of course, there is always the do nothing option.

Now remember we’ve just said, from a value proposer’s perspective, price relates to perceived effort they will put in, and is stated in service credits.

A beneficiary also sees price in terms of effort. In this case, the amount of service they have to perform to be able to exchange for the Value proposition.

Cash as service credits

Now, we need a way to implement service credits. And we could do so in many different ways. Individual value proposers could keep their own book of who owes them service. Or we could make it more distributed. Blockchain sounds an obvious modern-day choice with its ledger functionality. But, we already have a relatively stable, long used and (mostly) distributed implementation of service credits: cash.

So how does cash fit in? Simply, it is one implementation of service credits.

Cash is an implementation of service credits – a promise of future service. It has no intrinsic worth.

Forget the value-laden view of cash from goods-dominant logic lens. Instead, think of it as an IOU system (I owe you). When you perform a service for me, I give you an IOU service credit in the form of a coin or note. You can then It holds, through our service-dominant logic lens, no intrinsic value itself. But enables us to exchange service different magnitude service efforts, indirectly, and at disjoint timelines.

Wrapping up

Cash, as an implementation of service credits, lubricants service exchange. It mediates separation in time and differences in magnitude of effort. Additionally, it enables indirect exchange to occur.

This view also allows us to explain concepts we previously struggled with in service dominant logic: price setting and how beneficiaries use that in choosing value propositions to engage with.

There is currently one thought on “The role of cash – as service credits – in a service-exchange economy.”

  • To follow up: does this view of price relating to effort (service the beneficiary needs to give to gain) explain subscription business model?

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