The Stephen Vargo and Robert Lusch paper “Evolving to a New Dominant Logic for Marketing” (2004, Journal of Marketing) redefines and redirects the age-old economic view of goods and services. Their paper states, “Over the past several decades, marketing has been evolving toward a new dominant logic… The evolving logic represents a shift away from the exchange of tangible output (goods) toward the exchange of services, which are defined as the application of specialized competences (knowledge and skills), through deeds, processes, and performances for the benefit of another entity or the entity itself.”
This philosophy of marketing argues that firms are not really providing goods, but are actually rendering a service to consumers through their goods. This new service-dominant logic view of marketing has already made a huge impact on both the strategic marketing and relationship marketing of firms and will continue to further impact future marketing strategy.
For nearly a century, firms have placed the marketing emphasis on their products. Companies focused on the benefits and competitive advantages that their specific product provided. Whether it was a car, a toaster or a can of soda, the marketing stemmed from what was great about that product. This goods dominant logic was based on economics and the movement of goods from producer to consumer. This philosophy was unchallenged until the early 90s. Then it was questioned as the discrepancies between goods marketing and service marketing came into view.
This philosophy of Vargo and Lusch redefines marketing so that it is primarily, a service providing activity. They states that all firms sell services to consumers and their goods are only the medium for their service to the customer. One example they provided is a razor explaining that companies do not sell the razor, but sell the service of a barber through the use of the razor.
The service-dominant logic view of marketing shifts the emphasis from product to consumer service. Instead of offering the consumer a reliable car, the firm is providing the service of consistent mobility to the consumer. Instead of a multi-level toaster, the firm is offering the service of a warm breakfast; and instead of a tasty can of soda, the firm is giving the consumer a thirst-quenching service.
This shift from product to consumer means that firms will need to have more of a relationship than ever with their potential consumers. Instead of providing consumers with a physical good, they are meeting their needs through a specific service, so they will need to understand their wants, desires and lifestyles.
Firms will have to get intimate with their target market and let their feedback guide the firm’s decisions on future offerings. This service-dominant logic relationship will have massive impact on both their strategic marketing and relationship marketing.
Impact of Service-Dominant Logic on Strategic Marketing
Firms that currently have a strong practice of strategic marketing are already focusing the overall direction of their company with consumer targeting. They are using demographic, geographic and psycho-graphic segmenting to pinpoint their target market. This means they are striving to know the values, attitudes and lifestyles of their target and what motivates them to purchase. It is important for these firms to look at the company from the consumer’s point of view.
A strong belief in the service dominant logic will take these firms to the next level of consumer consideration. As they make their strategic plan, they will need to ask questions like: What needs or desires are we meeting with our service? What can our service do to improve our customers’ lives? What trends or changes in the future will lead potential new customers to need our service?
Once they have a realistic grasp on these answers, then they can develop their strategic marketing plan again with the service-dominant state of logic.
As they look at their situational analysis and where the company currently is, they should look at it from the service-dominant logic and determine how their service currently fits in the economic environment. Instead of studying a product profile — they will be looking at the service received through their product and how their consumers perceive the value of it.
As they project where they want their company to go and the firms’ objectives, this service dominant logic will open up their views and direction to possibly improve their offerings. Over time, it may even lead them to look for new opportunities to provide their customers with the service they desire versus just a physical good. One example of this is an automotive company. When they adopt the service dominant logic, they may see that it is not the physical good (the car) that is what their customers value, but the service of being transported reliably. This in turn may lead them to a new offering of a car rental service or a transportation service providing customers the service of reliable transportation and not the actual car.
Another good example of this is what Apple has done with the iPhone. While it is a physical good, they are really providing the service of communications to their customers. When looked at from the service angle, one can see where a customer may want the service of the applications and not necessarily the wireless. From this idea, the iPod touch developed to offer some of the services without the wireless phone aspect. Again from the service dominant viewpoint, the newly introduced iPad developed. It is geared toward what services the consumer values and not necessarily the manufactured product.
Impact of Service-Dominant Logic on Relationship Marketing
Firms that rely on relationship marketing are also intently focused on the consumer and strive for customer retention and satisfaction. If service dominant logic is factored in, it again takes this form of marketing to a new level. Firms will be reaching out to these consumers to form a long-term relationship based on the service provided versus a physical good. Relationship marketing recognizes the value of keeping customers coming back. The service-dominant logic further emphasizes this relationship because it redirects a firm’s objective from “making the sale” to maintaining a strong and consistent relationship with the customer.
The service-dominant logic redefines this relationship between the consumer and the firm. In traditional goods dominant perspective, the products and the consumers are separate. However in service-dominant logic, the consumer becomes a “co-producer” of the service offered by continuously providing feedback. When a consumer purchases a good, he can only benefit from the service by using that product and adapting it to his needs. It becomes a continuous process of where the consumer is involved in developing the value of the service versus a separation of production and consumption. If the service-dominant logic is adopted, firms will have the consumer as an active participant in the process.
As firms begin to change marketing perspectives, they are moving away from gearing messages toward consumers and instead engaging in dialog with their consumers. They are digging deep into the relationship of firm and consumer and really getting to know the later. With recent advancements in technology, they are able to gather information about their consumers easier than ever.
Internet marketing is the fastest growing medium to gather information on consumers both through feedback from the firm’s own website as well as search engine marketing. Companies are finding out what consumers are searching on a daily basis, what motivates them to click-through and what motivates them to buy. In addition, companies have greater access to consumer feedback through their web responses as well as social media networks. Facebook and Twitter give consumers a worldwide forum to talk about value of services and their likes and dislikes.
Advancements in marketing research also provide much needed information about consumers and their needs. Everything from new test market technology to focus groups contributes to knowledge of consumers. This knowledge makes it easier for a company to adopt the service dominant logic because they begin to understand what value the consumer places on their service offering and take their feedback into consideration.
Service-dominant logic affects every aspect of their marketing plans from research to implementation. After firms gather information on their customers and their feedback, they will have to use this information to reach out to their customers in a way they never have before.
For example, this new philosophy is recently seen through more and more creative messages. One doesn’t buy a mattress; one buys “a good night’s sleep.” One doesn’t buy a frozen dinner; one buys “more time with her family.” It’s not the tennis shoes for sale; it’s the service of a better game or a better workout that results when the consumer extracts the value from the new shoes. Marketing managers are offering services, not just products, through their creative message.