Service Dominant Logic

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Goods-dominant logic:

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 (usefulness) and value (benefit) 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.

Firms should focus on maximum sales and therefore profit

Impact on servitization

G-D logic views the primary focus of the firm as the production of outputs to be sold to customers. Traditionally, this output has been conceptualized in terms of tangibles (goods), intangibles (services), or some combination of these.

This output-centered thinking was so pervasive that even ‘‘services’’ firms sought to become and were advised to become more manufacturing-like—for example, to become ‘‘service factories.’’ These service factories tried to standardize services by borrowing concepts from manufacturing.

a G-D orientation views the central purpose of the firm as producing and selling outputs. Coincidental with this orientation is the belief that value is created by the firm and delivered to customers. This, in turn, informs the firm to focus attention on revenue chasing (value in exchange) as a dominant pursuit. Firms therefore conclude that to produce more revenue they need to manufacture and sell more units of output.

SDL

This primary focus on operand resources by organizations embracing a G-D philosophy is reflected in firm behaviour. For instance:

(1) organizations have historically been viewed primarily as manufacturers that exchange goods (operand resources);

(2) the customer was usually seen as an operand resource, ‘‘something’’ to be segmented, attracted, distributed to, and promoted to

(3) assets were conceptualized as being obtained from the tangible resources upon which firms perform value-adding activities; and

(4) traditionally exchange was seen as a method for maximizing profits

In SD- logic, service is defined as the application of specialized competences (knowledge and skills – operant resources) for the benefit of another entity, rather than the production of units of output.

Emphasis is on dialogue (2 way communication), collaboration, networks (not only you and the customer but others e.g. Rolls Royce to offer power by the hour there were a lot of other companies involved – govt regulations, suppliers etc).

Operant resources

Working together with customers – but also always a network involved

New perspective on the nature of marketing

Competences are fundamental units in the exchange process and not goods as in the GD logic

Humans exchange “service” (application of skills and knowledge) that they can provide to others for the “service” that they need from them. Thus, service is exchanged for service through relationships

Competences that you are exchanging

e.g. Apple offered skills and competences in making a laptop and you exchanged your competences in how to use a laptop (otherwise would not be worth it to them) – plus price was paid

Interactive process of exchange – continuous series of economic and social processes. Marketing is seen as a continuous series of social and economic processes - also has social dimensions

Relationship between a service and a good – SDL perspective

A good is an appliance (a tool, a distribution mechanism) used in service provision. It is a special case of service provision (an alternative to direct service provision)

Function of goods is to enable/deliver service – e.g. mobile phone offers communication (a service)

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Distinguishing between “operand” and “operant” resources

Operand: Resources on which an operation or act is performed to produce an effect. Examples are: Acting on the land, animal and plant life, minerals, natural resources

Operant: Resources that produce effects on other operant resources or operand resources. They are often invisible, intangible, dynamic, and infinite core competencies or organisational processes. Examples are: Skills and knowledge

In SD L, operant resources are perceived to be primary as they are producers of effects

Value-in-use: value can only be created with and determined by the user in the consumption process and through use or what is referred to as value-in-use

Before, we would say - provider should present a value proposition to target segment of customers who need the benefit of the company’s competencies

Now what we are seeing - customers co-create value in the interactive co-creation process during which customers evaluate the company’s value proposition and assess its actual value. You can give feedback to your suppliers and co-create products.

Both parties are value creators and value beneficiaries. Thus, value is co-created by both parties and for both parties

Focus is on intangibles (skills, information, knowledge), interactivity, connectivity, and ongoing relationships

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