The New Service-Dominant Logic

THE NEW SERVICE-DOMINANT LOGIC 12

TheNew Service-Dominant Logic

TheNew Service-Dominant Logic

The new service-dominant logic ofthe marketing function emerged in the era between1980 and2000. During thisperiod, various scholars developed a new paradigm that viewedmarketing as a social and economic process. In contrast, the timebefore the paradigmshift, the marketing thought was highly descriptive. The key focuswas on commodities, marketing functions within institutions,and the value addition process. The fundamental idea ofquantification evolved from economics. Consequently, marketingrevolved around the standardization of quantities and the creation ofwealth through acquiring tangible commodities (Vargo &amp Lusch2004, p. 1). The dominant logic calls for themarketers to focus on the customer and the market. It demands forservice marketing, supply chain management, quality, as well as valuechain management. Marketers are required to create networks withinthe entire organization context as opposed to the matters pertainingthe function of their departments. Therefore, the service dominantlogic is based on eight foundational principles. First, it observesthat the fundamental units of exchange are the knowledge and skillswithin organizations. Second, the fundamental unit of exchange isguided by an indirect and intangible form of exchange.Third, the exchange of goods provides the mechanism for serviceprovision. Fourth, knowledge provides a competitive advantage tofirms. Fifth, service dominates the economy and,sixth, that thecustomer serves as a co-producer. Finally, the new logic deducts thatorganizations only makes value propositions and that services requirefirms to be relational, and customer oriented (Vargo &amp Lusch2004, p. 1).The first implication of theservice-dominated logic to businesses is the need to applyspecialized skills and knowledge in promoting the processes ofexchange. The new paradigm observes that corporations are made ofpeople. Besides, it provides that people have two operantresources-mental and physical skills. However, it perceives thatpeople’s skills are not optimal for their survival. Due to thedifference in the possession of competencies, it requires businessesto specialize in what they do best. The key impact of the logic onservice companies entails driving such enterprises towards thegeneration, transformation,and distribution of information to provide services to theircustomers. It obliges organizations to take advantage of thedevelopments in digital information and computing to mobilize andunbundle customer related intelligence. Such knowledge affects howboth services and goods are modified to create value. The modelrelates to the summarized link between information and creation ofvalue,which provides that where intelligence resides, so does value (Vargo&amp Lusch 2004, p. 4).The call for specialization enablesenterprises engaged in the provision of service and goods to obtainscale effects. Specialization further promotes the ability ofbusiness to exchange specialized skills with other businesses as wellas their customers. The idea also builds up for organizations tounderstand the commodities involved in trade. The value of allproducts used in exchange arises from use and not from theirtangibility and,therefore, only services are exchanged for services. The new logichas created the need for businesses to maximize the transfer ofservices through specialization. It has made managers comprehend thebelief that marketing is related to moving and distributing goods astraditional. Instead, in the contemporary world marketing aims atfacilitating the process of exchange by providing various utilitiesof time, place, and possession (Kowalkowski 2010, p. 288).Since the development of the new logic, service companies are obligedto utilize IT developments such as the internet and wirelessnetworks, ATM’s and smart card networks. On the other hand,businesses providing tangible goods are obliged to transform theirphysical products into e-services. For example, the increase in theuse of voice and data has led telecommunication companies to provideadditional services such as web hosting and maintenance portals forend users. The same trend has occurred in the personal computers andinformational products industry. Some of the products previouslybuilt in the computers are currently provided via the internet.Similar to the invention of power lines that reduced the need forcorporations to have their generators, they will soon be freed fromhaving their computing software as an effort to increase thetechnology that enhances customer experience (Ansari &amp Carl 2003,p. 138).Second, the new pattern ofmarketing requires organizations to change their approach to theprovision of products. The sale of goods or services for monetarycompensation represents an indirect trade that masks the fundamentalmode of exchange. The focus on production of goods has continuouslyeroded the fact that organizations exchange skills for skills,which has, in turn, ledbusinessesto ignorethe customers. Mostcompanies rely on wholesalers and retailers to distribute theirproducts, and the process further creates a gap between producers andthe consumers. Similarly, service provision companies haveover-relied on micro-specialists who interact with the clients.Such practicesmask the organizations from their clients since they depend on theminute and separate provision of products (Kowalkowski 2010, p. 289).The new shift calls for goods aswell as service providers to eliminate the barriers that have longseparated them from their customers.Moreover, it requiresthe businesses to create linkages with their consumers. Organizationsdealing with physical products are required to adopt technology thatenhances the provision of information to their clients as well as theprovision of feedback on any needs by the customers. For example,service delivery organizations have developed e-services platforms toincrease the level of customer service and experience. Besides,multinationals such as Dell computers have launched a website,“Dell Works”, whichenhances one on one communication with their clients. It creates aconsulting environment where the organization can interact with thecustomers and provide additional services such as web hosting.Governments have also been affected by the new shift as theyestablish online platforms to increase citizen and businessexperience (Vargo &amp Lusch 2004, p. 1).Third, the new trends discern thatgoods are only a distribution mechanism for the provision ofservices. People buy products because they provide services. Forexample, pharmaceuticals sell medicine that provides health services.Pulleys provide services that eliminate the need for physicalstrength. A razor blade removes the need for a barber’s services.Similarly, computers and the applications eliminate the need foraccountants, physicians, and attorneys. The new trends have ledbusinesses to understand that the fundamental importance of physicalproducts lies not in owning the goods but in the services obtainedfrom such goods (Vargo &amp Lusch 2004, p. 4).Consequently, both service andphysical goods provision companies have designed marketingcommunications at the organization and one on one level with theircustomers. They aim at reaching the individual customers at thelowest costs possible. Afterward, organizations are now obliged touse sophisticated algorithms to provide unique content to eachclient. Businesses have focused their attention on the need tounderstand the preferences of their customers as an approach to findthe most appropriate products and content. Besides, others havedeveloped customized search engines to assist the clients in thepursuit of information and conducting product comparisons. Suchapproaches aim at increasing the level of satisfaction of theconsumers by reducing their search efforts and improving the qualityof their purchase decisions (Vargo &amp Lusch 2004, p. 5).Fourth, the service dominated logichas demonstrated that businesses require the understanding thatknowledge is the key source of competitive advantage. The new trendsobserve that information is an essential operant resource. It callsfor organizations to distinguish between the two types of knowledge,which include propositional and prescriptive knowledge. Althoughpropositional information is general, prescriptive knowledge isspecific and involves the acquisition of skills. Prescriptiveknowledge requires the purchase of a competitive advantage by makingbusinesses proactive. Regarding knowledge, the new trends furthercall for companies to adopt technology. It demands organizations tocreate new know-how to products, processes as well as management.Businesses currently use information as the basis for theircompetitive advantage. The information extends to the entire supplychain or the service provision chain. Companies involved in thedelivery of goods acknowledge the need to have information as a guidein their products centered model. Consequently, the new paradigm hascreated the need for organizations to shift from supply drivenproduction method (build to forecast) and adopt a more sophisticatedmanufacturing method driven by demand (build to order) (Kowalkowski2010, p. 288). Besides, manufacturers haveadopted modern information systems that integrate the wholeproduction process from ordering, manufacturing to delivery. Besides,they have focused more on the production of customized goods byeliciting mechanisms that create customer interaction. Suchinformation is further used to fabricate the products to thecustomers’ needs and deliver the goods in time. For example, clothand sportswear companies such as Nike enable their customers topersonalize their tennis shoes. Others such as Levi Strauss can sellcustomized jeans while Andersen windows can produce windows that canfit any house. Manufacturers have further created information systemsthat connect the various players in the supply chain to increase theprovision of value to the customers. On the other hand, serviceprovision businesses have adopted the use of knowledge in determiningthe clients in need of the services. Similarly, the companies nowaccommodate the flow of information to other firms such as thesuppliers and the distributors (Vargo &amp Lusch 2004, p. 1).Fifth, the service dominant logic requires companies to understandthat the provision of services fuels all economies. The evolution ofhuman economies from hunter-gatherers, industrialization tomanufacturing is characterized by the development of skills oroperant resources. Virtually, all the economic activities conductedin the modern world have been performed in another manner in thepast. The only difference is the level of specialization adopted bythe modern world, which is further exchanged in the market.Consequently, in the contemporary world, services are not onlybecoming more important but more apparent since specialization hasled to increasing the fit between what is provided and what isneeded. Despite all that, services have become an important aspect ofthe contemporary economic activity. Consequently, businesses havebecome more interested in creating customer equity models to evaluateservice variances in the industry. The models enable managers toidentify customer retention techniques and acquisition approaches.Organizations can forecast the potential impact of alternativeexpenditures in marketing and provide a data-driven basis for tradingoff organizations marketing actions. Businesses have also becomeinterested in identifying customers switching behaviors to determinehow the client moves from one competitor to the other. Such advancesin knowledge have improved the approach of the organization indesigning products and services to create customer satisfaction andloyalty. Consequently, the new trends in marketing have increased theneed to provide strategic marketing efforts as compared togeneralized marketing campaigns used in the past. Businesses can usepersonalized expenditures that have more impact on sales due to thepersonalized experience of the customers. The need for customerequity has further created the need for organizations to shift theirfocus from the product to the creation of knowledge about thecustomers. Subsequently, firms can calculate customer lifetime value,which is a primary strategic resource of the organizations (Ansari &ampCarl 2003, p. 138) Sixth, the new model, calls fororganizations to understand that the consumer is always aco-producer. In the past, the producers and consumers have beenseparated as a strategy to increase manufacturing efficiency.However, the service dominant logic observes that the productionefficiency comes at a cost that minimizes marketing capabilities inacquiring customer responsiveness. During the provision of tangiblegoods, manufacturing is an intermediary process. Products are aimedat providing a service, and consequently, there is the need for thecustomer to learn how to use, repair as well as adapting the productto the client’s behavioral conditions. As a result, the customer,during the production process, extends the marketing, value creationand delivery process (Kowalkowski 2010, p. 288). The paradigm shift has resulted in giving more power and control tothe consumers. On the other hand, it has created the need forbusinesses to increase their involvement during customers’purchases. Service companies have also increased the features offeredby their e-services based on their evaluations of the customers. Inthe effort to ensure customization, organizations have adopted toprovide extra services to their clients. For example, the automobileindustry has taken the provision of motor insurance, car repair, andfuel services as an effort to accommodate for customers transport.Besides, the additional services have resulted in customer retentionas well as boosting the revenues of organizations (Ansari &amp Carl2003, p. 138).References

Ansari, A. &amp Carl F. (2003),“E-Customization,” Journalof Marketing Research,Vol. 1, NO.1:131-145.

Kowalkowski, C. (2010).What does aservice-dominant logic really mean for manufacturing firms?CIRP Journal ofManufacturing Science and Technology.Vol. 4, NO.3:285-292

Vargo, S. &amp Lusch, R. (2004),“Evolving to a new dominant logic for marketing.” Journalof Marketing, Vol.68,No.1: 1-17.