OLD MATERIAL ———————————
Over in part 2,
But as we see a shift to service economies, the question arises: can we, and should we, apply the same goods-dominant logic to services? Or do services require a new way of thinking?
Exchanging Value in Services – Productization of service
We can discuss the definition of services for quite a while. For our current purpose, let’s say they are offerings that offer to get a job done for a customer. And that the classic way of defining services is by comparing them to goods through 5 Is. That is, compared to goods, services are intangible, inconsistent, inseparable, we can create no inventory and they require customer involvement.
In general, to deliver a service (get the job done) requires interaction between the customer and provider.
The key to productization of a service is to observe there are some jobs where the customer is willing to give up (or at least minimise) interaction for simplicity/cost/consistency. As we see in Figure 5. It is also often the case that in productized services the customer believes they have the skills needed to use the service without any help.
As an example, Amazon web services are a set of services that are productized. There is a set of prices for various services and defined outputs. Amazon works at making the service consistent and offers very little in terms of interaction to alter service provision. You can have what is offered, no more, no less. And it works. H1 earning in 2019 for services were $53M.
Banks are similar. They package financial services together into the products they sell. A share trading account, a bank account, mortgages etc. However, the difference to Amazon is that banks recognise the customer may not have the skills necessary to choose the best/right products. And so they typically offer an additional non-productized service – financial advice.
The implications of goods-dominant logic
But there are several (not great) implications for this goods-dominant logic. It is presently failing us, with growth stagnating and successful innovation being hard to find. The main issue, I suggest, is that service is eating the world. In a world that is predominantly service-oriented, a goods-dominant logic is no longer helpful.
Makes services the “bad guys”
Taking a goods-dominant view impacts how we look on services. We define them as poor relatives to goods. First off, we can’t create an inventory of a service. So it is difficult to see how value is embedded. Also, services are seen as inconsistent and intangible; they require involvement of the customer; and delivery and consumption are inseperable. Additionally we need to extend the product marketing mix to cope with these troublesome services.
Though this poor relative view is not really the case. And we can also say that the “extended” marketing mix is better seen as applicable to all goods and services (though some aspects may have less, or no, relevance for some goods).
Encourages Marketing Myopia
Levitt identified Marketing Myopia as a leading cause for companies not surviving. This is a focus on short-term and belief of being in a growth industry (of which Levitt posits there is no such thing).
A goods-dominant logic risks marketing myopia with its focus on value in exchange. Manufacturers are incentivised to sell the next version of their goods. And that means they can get myopic on that goods. How many more blades do we need in a disposable shaver, for example.
Reduces revenue by not seeing past the point of exchange
Manufacturers miss potential additional revenue when they do not look (or are not interested) past the point of exchange. There is no value being seen as created past the point of sale. No relations are being built. Feedback loops are hampered. Customer insights are not obtained readily.
Misses the circular economy
Additionally, by not looking past the point of exchange, there is limited interest in building things that are recyclable, refurbishable or re-usable. And those are 3 of the key aspects of the circular economy.
However, the majority of service need, and benefit, from interactions between the customer and provider.
Using goods-dominant logic gives us a very simplistic view of services (and of goods). It’s like we have a top-performing sports car and are only using the first gear to drive.
Ng et al sum up the challenge of using goods-dominant logic to think of services in their paper that looked at how Rolls-Royce moved from goods-dominant logic. They wrote:
“G-DLogic, when extended to services, results in the reduction of service offerings into exchangeable units such as man-hours, information and other exchangeable artefacts particularly to ‘service and support’ the product….Even if the offering could be articulated, it is often done so with the customer as a passive entity and the service as an exchangeable offering i.e. what the firm does for the customer that could be exchanged for a price, much like the way a product is an exchangeable offering.”Ng et al (2012)
Why goods-dominant logic keeps us in first gear for service
The goods world view has served well for many years as a basic view. But it is full of deficiencies. These deficiencies are becoming more well known as the true service nature of the world becomes more dominant. What are these deficiencies? All, I would suggest, we:
- get too narrow a focus on a solution – something Levitt back in the 60’s called marketing myopia and Christensen calls Job-to-be-done theory.
- miss out on developing business models outside of the “sell this valuable object” type
- have no visibility on how the customer uses the goods – so miss out on opportunities
- miss the realisation that the customer is the
Actorthat decides if an offering is of value, not the manufacturer.
- define services as inferior to goods – the 5 Is are seen as bad things
- struggle to understand what the real marketing mix is
Let’s explore these quickly.
Too narrow a solution focus and missing out on business models
Under goods-dominant logic, we thought of our car manufacturer building a car and adding value as they did so. They were trapped into making a sale in order to exchange value. And then they had to move onto the next sale. Innovation thinking coalesces around making a “better” car.
Levitt’s Marketing Myopia calls for organisations to really think about the business they are in. Gummesson (1995) saw that “customers do not buy goods or services: they buy offerings which render services which create value”. Christensen et al’s came up with “Job to be done” theory which aligns with Gummesson’s view. An interesting example they have is how different customers hire milkshakes to fulfil different jobs depending on the time of day.
Lets instead say we think about the job-to-be-done. That of transporting people from A to B. Now we are less myopic and our solution space opens up. Are we transporting on a road, or in the air; or perhaps on water. Could we identify alternatives to physical transport of people – perhaps we need to get into Virtual Reality?
Miss out on business models
With a goods-dominant focus on exchange, the firm misses the usage rather than ownership business model. Of course, that doesn’t stop others from harnessing it and the firm may be happy with that if it thinks it can sell to those instead of consumers. But, look at what the likes of Uber are doing with self-driving cars.
Ownership rather than usage avoids the sharing economy and subscription services. Where, for example, the dealer becomes a garage and you change your car to suit your needs. Use the SUV during the week, and swap to the open-top sports car for the weekend.
Miss opportunities that arise if we have visibility into the usage
The downside with goods-dominant logic is the lack of interest in building relationships after the exchange. Now, sometimes the dealer may start offering post-sales services. But that is a relationship between the dealer and customer rather than firm and customer.
Over the years there have been several streams looking at how to solve this problem. Saarijärvi et al’s paper “Service-dominant logic and service logic – contradictory and/or complimentary” paper includes Figure 7. This shows the proliferation of logics and approaches that have evolved to get us out of first gear.
If we have visibility after the sales, then we can do things such as remote monitoring the car’s performance and proposing times for services and pre-emptive fixes. And it encourages us to think more about the circular economy. That is, how we design the goods for reuse, refurbishment and recycling. As well as opening those new channels as business streams for the firm.
The 5 Is Can be Positives
The 5 Is. They often are used to describe services as inferior to goods. But:
- Intangible is great. It’s incredibly scalable and cost reductive. Think physical vs digital goods (CD vs Spotify, Books vs Kindle)
- Invert Inconsistent and we get customisation. And customisation requires customer communication, which drives relationships
- Inseparable and Involvement. In service, the customer (beneficiary) always determines the value. And that determination is contextual and experience-based (phenomenological). So inseparability and involvement is a positive thing
- Inventory is a bad thing. It is a cost. And, actually, goods are often perishable. Both deteriorating themselves (for example food) and/or not keeping up with customer’s changing needs (becoming obsolete).
Figure 8 shows the summer of Vargo & Lush (2004) “The Four Marketing Myths”. This paper inverted the “problems” and pointed out inverted implications. For example, rather than intangibility being a “problem” it can be restated as tangibility should be avoided unless there is a marketing advantage.
Realising the 4 Ps of the marketing mix are not sufficient for services
Remember when we looked at the marketing mix’s 4 Ps? All of the 4 Ps in the original marketing mix
And we actually came to a resulting marketing mix for services that took some of those criticisms (and proposed solutions) on board. Most notably, as shown in Figure X:
- Lauterborne’s update of the 4 Ps to the 4 Cs
- Boom & Bitner’s additional 3 Ps for services (updating People with Competences)
- Park, MacInnis and Eisingerich thinking around Enticing, Enabling & Enriching customers.
We ended up at this resulting mix not because we wanted to make services different to goods. Our journey was one of realisation that in services there are additional aspects to address. And that we needed to re-focus some parts of the original mix.
The resulting marketing mix became more customer focussed.
With all this realisation, it is time for us to embrace service-dominant logic.
Embracing tomorrow’s world: Service
So how do we then get access to the 2nd, 3rd, 4th and 5th gears of our top-performing sports car?
We need to evolve our mindset.
Let’s leave behind the mindset of goods-dominant logic. Where the focus is on the embedding and exchanging of value. And where services are seen as add-ons or defined as being the opposite of goods.
It’s time to evolve towards a service-dominant logic. A mindset where service, rather than value is the exchange. Where actions are the focus rather than tangible goods. Indeed, we’ll define service as Vargo and Lush do:
“the application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itself.”(2004)
It is time for us to delve deeper into service-dominant logic.