Chapter 19: Service Dominant Logic Abstract

This paper examines chapter 19 of the book “Marketing Theory” by Michael J Baker and Michael Saren. Within chapter 19 a host of relevant terms are discussed and compared. This paper seeks to shed illumination on the intricacies of markets within an already complex society. First the good-dominant worldview is discussed and what is means as a foundational perspective of the world and of economic systems. This paper compares that perspective to one founded more exclusively in Service. The differences between these two perspectives is discussed at length, as are some of the related terms such as firm-centricity, actors, producers, exchange and value. This paper examines how value can be co-created and how a “simple” economic exchange can actually be an example of two parties transcending their roles and co-creating value in a new way.

Introduction

The introduction discusses how Vargo and Lusch published an article referred to as “Evolving to a new dominant logic for marketing” and how this piece attempted to pinpoint and reassess the underlying assumptions as well as refocus on the obstacles present within this perspective. A certain amount of overlaps, realizations and developments converged into a perspective now viewed as “service-dominant (S-D) logic.” The main idea of S-D logic is that service is traded for service: “humans apply their competencies to benefit others (i.e. service) and reciprocally benefit from others’ applied competencies, which has, over the past decade, found increasing resonance among theorists in business and economics, as well as others studying social collaboration” (459). S-D offers a logical mindset to create new opportunities for how we view markets, marketing and innovation and modernity.

Complexity of the Markets and Society

Complexity is an inherent part of the human condition and part of human experience on this planet. Part of complexity originates in the fact that humans have continually developed more precise skills and sought to trade these skills with others. Much of this section demonstrates the theory of collective survival and how much of the human race has depended on that. With interdependency in society has emerged the complexity of markets. This complexity is both a blessing and a challenge.

Challenging the Goods-Dominant Worldview

The goods-dominant worldview asserts that goods offered to customers and the general exchange of goods is what keeps the world moving. The G-D perspective sees the productions and exchange of goods and the main pillars of both business and economics. The function of economic exchange is seen in creating and disseminating products of some sort. Challenging the goods-dominant worldview means the customer and the seller have new roles for one another and help one another in their own value creation. Challenging the G-D worldview means that individuals are actually exchanging services only. Re-evaluating this particular worldview means that people are able to appreciate concepts such as value in use and value being created in a more effective way. This is more transcendent ideology than simply better goods and services by themselves. Challenging the good-dominant viewpoint means that instead of firms being pushed to market to customers, there’s a pressure to market in conjunction with their clients, along with other value-developing individuals within their greater community. The key point to remember is that the firm is not central to the exchange: there are two important parties.

Goods-Centricity and Goods Versus Service Dichotomy

Figure 19.1 demonstrates the overall focal areas of G-D logic: the three circles show: goods, the firm, value-in-exchange. This diagram essentially summarizes the main principles of G-D logic: the firm (which is shown in the center) makes products (or goods) and sells them via a model which puts value in exchange.

Hence, as this model clearly demonstrates, G-D logic fosters a sense of good-centricity. Moreover, the goods versus service dichotomy the mentality, which dictates that goods and services are completely separate entities. Many disagree with this notion, and view goods and services as clearly interdependent, with both having increases and decreases within their demands for services. Many have suggested that if goods and services are viewed in a more interdependent manner, there might be greater illumination regarding the inner-workings of economies.

Firm-Centricity and Producers

This section stresses how goods are not the main focus of exchange and how firms and companies are not the main entities of exchange either. All of these entities should be viewed as vehicles people created in order to make their lives more convenient and to assist them in solving problems connected to the complexity of...

Humans are always combining resources to address challenges within the context of their own lives. The ongoing market-facing public and private exchange allows the many individuals who are a part of it to help contribute to the well-being of others.
Exchange-value Centricity and Firm-created Versus Customer-created Value Dichotomy

Exchange-value centricity is one of the byproducts of G-D logic and is yet another reason why this perspective is problematic. Use-value of an object should be of central importance. Firm-created value essentially means that value of an object is in its exchange rate. Customer-created value refers to the more nebulous and organic ways in which customers can singularly ascribe value to an object through their use and interaction with it.

The Transcending Nature

This term refers to the transformative and mercurial nature of markets in general. As a result of the fact that markets are used and controlled by humans and/or firms that are run by people means that they are subject to changes both good and bad. These markets and the human interactions within them can be changed for the better depending on the dynamics inherent. These dynamics offer the potential to change things for the better or to transform things drastically. Some experts might argue that this level of transcendence is more possible with service-centered logic as it allows all involved parties to transcend their immediate roles and values.

The Four Axioms of Service-Dominant Logic

The first axiom is that Service is the fundamental basis of exchange. This dictates that service and the use of resources is to benefit of the actor and essentially the foundation of all relevant exchange, with service being traded for service.

The second axiom states that “the customer is always a co-creator of value.” This axiom suggests that there is an interactional implication within value development.

The third axiom states that all economic and social entities are integrators of relevant resources. This axiom suggests that the framework of value development is located in networks. The fourth value asserts that value is uniquely and phenomenologically determined by the beneficiary. This implies that value is unique, full of meaning and specific to the situation or at times determined specifically by the involved parties.

From Goods versus Service to Service

This section describes how making the distinction between G-D logic and S-D logic revolves around the notion of service. S-D logic defines service as “the application of competences.” S-D logic indicates a transformation in the overall logic of exchange rather than a change in the goods being examined. S-D logic does not mean that service is more prioritized, but about positive transformation regarding what is viewed as service.

For example, figure 19.2 offers a clear illustration of the simplicity of this concept: when goods and services are combined with strategy and with a new outlook, they can create something transcendent, creating a form of service via applied operant resources.

From Producers versus Consumers to Resource Integrating Actors

This section describes how S-D logic implies that production and consumption are for the most part accurate, they are applicable to all relevant and participating entities. This section wisely uses the example of a producer who uses a car to teach at a university, and asks the question whether he is a producer or a consumer. This section illustrates how all economic entities both produce and consume, but that these characterizations don’t offer anything useful. It’s most important to think of all social and economic actors as actors.

Figure 19.3 refers to a diagram where one end shows the flow of producers meshing towards the other end, which are the consumers. When the two resources come together they integrate, making a collection of actors.

From Firm-created Versus Customer-created Value

Firm-created values towards goods and markets are generally more rigid and more connected to the identity of the object. On the other hand, customer-created value of a good (or service) is more organic and more specific to context. When these two forces combine, they can create something that is far more nuanced in terms of value. Co-created value is more mercurial and more singular and possesses more subjective qualities.

Figure 19.4 shows an illustration of the conglomerate of firm created value, flowing into an opposite end of customer-created value. Together they merge in a new direction that is towards co-created value.

The Systemic and Institutional Nature of Value

Institutions have a tremendous role to play within markets and within society. Institutions are both enabling and constraining and help to shape the…