We saw in part 1 that we usually look at our economy through the lens of goods-dominant logic. That is to say we focus on how goods appear to work – where value is embedded by manufacture, exchanged to a customer, and then destroyed over time. From that point we usually describe services as inferior. Services are inconsistent, intangible etc, we have to add things to the marketing mix and so on.

We saw that applying such goods-dominant logic to service, aka productizing services, only works for a small subset. Those where the customer is prepared to give up (or severely minimise) interactions and get a standardized output (we looked at Amazon Web Services as the example).

However, for the vast majority of services, applying goods-dominant logic is like driving a performance sports-car only in first gear. We want and need to access the other gears. To enter a world based on relationship building. And to see beyond the goods-dominant focus of the exchange.

The solution, I suggested at the end of the first part, is to apply service-dominant logic instead. And in this article we explore what that is.

Rather than being a revolution, it is a natural realisation once you start understanding services. It also removes the goods vs services discussion as goods are seen as a way of distributing services.

At first it you might be tempted to wave this away as semantic or not relevant. The call of goods-dominant logic is strong. But, service-dominant logic helps us understand the world in terms of experiences. It helps place other theories such as Job-to-be-done, marketing myopia, innovation resistance, extended marketing mixes etc in context.

I try and reflect the latest research here, so if you Google service-dominant logic you may find old – but still informative – thinking that has been improved recently.

Back in the “goods” old days

Over in the first part of this article we used the example of a car to understand goods-dominant logic. We saw that value, in that mindset, has a lifecycle. It is added, exchanged and used-up.

And that this logic is pervasive. Which is not to surprising. We tend to believe we experience this world as a set of exchanges of value. Normally through a sales transaction. And that we value ownership (perhaps as proof of those exchanges).

However, over the years the share of the economy driven by services has increased. And it is natural to question if such a goods-centric mindset still works. It turns out that it can. But, doing so limits our thinking/understanding of services. My analogy is that we have a performance sports car that we can only drive around in using 1st gear.

As scholars have studied service they made several realizations. Firstly, a service is customer and resource driven and not goods driven. Secondly that goods are really enablers of service. And in this article’s first part, we observed this through a discussion on how the very goods-dominant 4 P marketing mix had to evolve to be useful for services.

The upshot is, in order to use the sport cars other gears, we need to evolve our thinking from goods-dominant logic.

Introducing Service-Dominant Logic

Service-dominant logic is a mindset shift from how we usually see the world today to a better approximation as to how it really works. Figure X shows the major shifts we have to come to terms with.

We need to remember though, it is not goods vs services. In SD-logic we see goods as a distribution mechanism for services. That is to say it has always been services. The implication is that we are not shifting to service economies, rather we have alwys been in a service economy. However only recently has this been more obvious. Figure X has our old diagram of the economic shift from agriculture, to goods, and onto services. On the right, I’ve overlayed how this might look from a service-dominant logic perspective.

SD-logic is based on 5 concepts and 11 foundational premises (of which 5 are now considered axioms).

The 5 concepts of service-dominant logic

These concepts are:

• actors
• resources
• service exchange
• value co-creation
• institutions

Be aware that institutions is a specific academic term and not what you and I would immediately think of. They are

actor-generated rules, norms, meanings, symbols, and similar aides of communication, collaboration, and decision-making that make value co-creation possible.

Vargo & Lush (2018) The SAGE handbook of service-dominant logic

And these concepts interact as shown in Figure X.

Let’s unpack this briefly. Actors exchange services by integrating their resources together, co-creating value as they do, wihtin the constraints of the institutions, all for the benefit of one particular actor – the beneficiary.

Foundational premises and axioms of service-dominant logic

Vargo and Lush’s original 2004 paper “Evolving to a New Dominant Logic” contained the first drafting of the foundational premises. Those have been updated over time to reflect experience. And by 2014’s paper “Service-Dominant Logic: Premises, Perspectives, Possibilities” there were 4 axioms, from which the other, then, 6 foundational premises can be derived.

2016’s paper “Institutions And Axioms: An Extension And Update Of Service-Dominant Logic” introduced a 5th axiom (and foundational premise). This was to aleviate a limit of “absence of a clearly articulated specification of the mechanisms of (often massive-scale) coordination and cooperation involved in the cocreation of value through markets and, more broadly, in society”.

These 5 axioms are:

1. Service is the fundamental basis of exchange
2. Value is co-created by multiple actors, always including the beneficiary
3. All social and economic actors are resource integrators
4. Value is always uniquely and phenomenologically determined by the beneficiary
5. Value co-creation is co-ordinated through actor-generated institutions and institutional arrangements

So, for example Axiom 1 (which is also foundational premise 1) leads to FP 6. That is to say we can derive that all economies are service economies because service is the fundamental basis of exchange.

Goods are distribution mechansims for service provision

Indirect exchange masks the fundamental basis of exchange

There’s a couple of words that need some definition: phenomenology, operant (and operand).

A note on Axiom 4 and Phenomenology

Phenomenology is the study of how we experience things.

Phenomenology studies conscious experience as experienced from the subjective or first person point of view. This field of philosophy is then to be distinguished from, and related to, the other main fields of philosophy: ontology (the study of being or what is), epistemology (the study of knowledge), logic (the study of valid reasoning), ethics (the study of right and wrong action), etc

Stanford Encyclopedia of Philosophy

So axiom 4 is really saying value is flaky and determined by me – the beneficiary – on a particular day, in a particular context, with a particular bunch of people around me, etc. Tomorrow my experience/perception of value might be different. And it is only me, as the beneficiary, that can determine that value.

A note on Operant and Operand resources

“Operand resources – resources on which an operation or act is performed to produce an effect” ” (2004). primarily physical resources, goods etc

“operant resources – resources that produce effects” (2004). primarily knowledge, skills, competences.

And so we can say the old world was operand resource focused.

Evolution of foundational premises

For interest, Figure X shows the evolution of the foundational premises from original definition in 2004’s “Evolving to a New Dominant Logic“, updates in 2008’s “Service-Dominant Logic: Continuing The Evolution” and current use, from 2016’s “Institutions And Axioms: An Extension And Update Of Service-Dominant Logic“.

I don’t want to just repeat the good material out a there. So I will explore from an innovation perspective rather than just definition. For a latest definition perspective, you can’t go far wrong with The SAGE Handbook of Service-Dominant Logic. (the Kindle preview contains the first couple of chapters)

Dissent

https://journals.sagepub.com/doi/abs/10.1177/1470593111408177 Gronroos, C. (2011). Value co-creation in service logic: A critical analysis, Marketing Theory, 11(3), 279–301.

Gronroos, C. (2006). Adopting a Service Logic for Marketing, Marketing Theory, 6 (3), 317-333.

The emergence of the new service marketing: Nordic School perspectives .  Journal of Service Management 23(4):479-497 · August 2012 

Great comparison paper: Saarijärvi, H., Puustinen, P., Yrjölä, M., & Mäenpää, K. (2017). Service-dominant logic and service logic-contradictory and/or complementary? International Journal of Services Sciences, 6(1), 1-25.

How S-D oriented are you as a firm?

Karpen, I. O., Bove, L. L., & Lukas, B. A. (2012). Linking service-dominant logic and strategic business practice: A conceptual model of a service-dominant orientation. Journal of Service Research, 15(1), 21-38.

Karpen, I. O., Bove, L. L., Lukas, B. A., & Zyphur, M. J. (2015). Service-dominant orientation: measurement and impact on performance outcomes. Journal of Retailing, 91(1), 89-108.

Service Innovation

SerLusch, R. F., and Nambisan, S. 2015. “Service Innovation; A Service-Dominant Logic Perspective,” MIS Quarterly (39:1), pp. 155-175.

Michael Barrett, Elizabeth Davidson, Jaideep Prabhu, Stephen L. Vargo (2015), “Service Innovation in the Digital Age: Key Contributions and Future Direction,”MIS Quarterly

Stephen L. Vargo, Heiko Wieland, Melissa Archpru Akaka (2015), “Innovation through institutionalization: A service
ecosystems perspective,”Industrial Marketing Management

“Key Managerial Insight #4: A service perspective is conducive to and fostering of innovation (of all types).” – Charles R. Greer, Robert F. Lusch, Stephen L. Vargo (2016), “A service perspective: Key managerial insights from service-dominant (S-D) logic,” Organizational Dynamics

Value logics for service innovation: practice-driven implications for service-dominant logic https://link.springer.com/article/10.1007/s11628-018-0361-1

Co-destruction of value

Value co-destruction: A typology of resource mis-integration manifestations Journal of Services Marketing · August 2019 DOI: 10.1108/JSM-01-2019-0022 https://www.researchgate.net/publication/335310054_Value_co-destruction_A_typology_of_resource_mis-integration_manifestations

Resource integration, value creation and value destruction in collective consumption contexts inJournal of Business Research 103 · July 2019 with 37 Reads DOI: 10.1016/j.jbusres.2019.05.007https://www.researchgate.net/publication/334626652_Resource_integration_value_creation_and_value_destruction_in_collective_consumption_contexts

Not always co-creation: introducing interactional co-destruction of value in Service-Dominant Logic. Keywords in Journal of Services Marketing 24(6):430-437 · September 2010 DOI: 10.1108/08876041011072546 https://www.researchgate.net/publication/235263215_Not_always_co-creation_introducing_interactional_co-destruction_of_value_in_Service-Dominant_Logic_Keywords