Service-Dominant Logic in a Nutshell

LuschBy Robert F. Lusch

There is no other Business than a Service Business

Ingrained in our mindset, through schooling, industry practices and government accounting is the belief that the economy consists of primary or extractive industries such as mining, fishing, forestry and farming; secondary industries such as manufacturing which takes the outputs from primary industries and produce stuff (units of manufactured goods); and tertiary industries, referred to as services, which are essentially defined in contradistinction to what is not primary or secondary or what is not “tangible” or “goods” like. These industries include finance, insurance, government, transportation, wholesaling and retailing, education, healthcare and many others. These industries produce intangible units of output vs. the primary and secondary produce tangible units of output. In Service-dominant logic (S-D logic) Steve Vargo and I show that is blatantly incorrect.

When I teach executive MBA students and other executives I often give them the example of an early stage economy from thousands of years ago of two tribes or villages near the sea. One village over the centuries has become quite skilled at tilling the soil and producing grains. The other has obtained knowledge and skills to build boats, spears and other tools and has the knowledge of what time of day or year to go out to sea to gather fish. Of course we know as humans specialize they produce more than they need for their own uses and then exchange their surpluses with others that specialize in other types of production. My question to my students is the one I pose to you? What do the two tribes exchange? Most state the obvious which is they exchange fish for wheat. Virtually all economists would embrace this answer as correct.

With not a very good reaction from the class I tell them their answer is wrong! What is being exchanged is the protein gathering knowledge and skills of one tribe with the carbohydrate gathering skills of the other tribe. I then tell them to think of service as the application of skills and knowledge to benefit another or oneself. Do not think of services as what goods are not! I tell them that all of exchange (regardless of the tangible nature or not) is an exchange of service[1].

Historical distinction between extractive, manufacturing, services then becomes artificial and misleading to firms and governments. All businesses and industries are in service industries that can be facilitated by tools or appliances (tangible things) that help leverage the power of humans in their specialized tasks of serving one another. A service mentality thus is one that focuses on the process and flow of serving others and not the production of units of output whether they are cars produced or beds filled in a hotel.

Another step away from the Goods-dominant logic (G-D logic) inevitably leads us to challenge the entrenched belief that what distinguishes goods from services are the IHIP characteristics. Services are intangible, heterogeneous, inseparable and perishable; at least that most professors and consultants tell us that distinguishes services from goods. But if all industries and business are service businesses then all market offerings should strive to be IHIP[2].

Let us take something as good-like or tangible as a manufactured automobile. When it comes to the use of the automobile it turns into an appliance for providing transportation and other service. And the memory of driving that car filled with children to a soccer game or camping event is intangible. Services are viewed as heterogeneous and goods – homogeneous. But only in the factory is the tangible product homogeneous as it meets standardized engineering design and production criteria. The automobile, when it is used as a service appliance, is heterogeneous; some use it for work, recreation, romance, convenience, status enhancement and many other purposes. Undoubtedly, the new Ford Mustang, BMW, or Lexus is only homogeneous in the factory but like any service it is heterogeneous when it interfaces with and is evaluated by the customer user. We also say services are inseparable between producer and user. But as we just illustrated, the automobile, when in use, becomes a cocreated inseparable value experience. Finally, we willingly accept the dogma that services are perishable and cannot be stored and argue that is a disadvantage of services. However, in a world where natural resources and related environmental concerns are of increased importance, it appears that being perishable is a great advantage (not disadvantage) that should be sought after by every business. Perhaps that is why we see the rise of car sharing services where the inventorying of a car is shared by hundreds instead of sitting unused in a garage or parking lot 20 or more hours a day.

Hopefully, I am making a convincing point “it is all about service”. If everyone applies their knowledge and skills to help others; sometimes directly or sometimes indirectly via a tangible good, then we not only all serve one another but we also do jobs for one another. This leads us to ask ourselves what is the job that the customer hires the firm’s market offering (product) to do for them[3]? Tide, for example, is a top-selling Procter & Gamble (P&G) laundry detergent. Its success can be attributed to a long history of helping customers to better do the job of cleaning clothes.[4] P&G understands that Tide is simply a means by which individuals obtain the service of fresh and clean clothes and other fabrics. For over sixty years, Tide has taken a service-centric view of its brand by making improvements to help customers better do their job. Liquid Tide was launched in 1984 and much of its success was due to package design – especially the cap on the bottle. Two critical activities in the job of cleaning clothes are measuring the amount of detergent and pre-treating stained clothes, and the little cap on the bottle was an appliance for getting both of these tasks done better! Bleach was added to Tide in 1989 to better brighten clothes, and Febreze was added in 1998 to add freshness to clothing. Touch of Downey was added in 2004 to enhance clothing softness, and Tide Coldwater was introduced in 2005 to allow households to save energy while cleaning clothes.

In my new book with Stephen L. Vargo, Service-Dominant Logic: Premises, Perspectives, Possibilities, published in 2014 by Cambridge University Press, we offer a more complete explanation of S-D logic. As Jim Spohrer, a thought leader in service science at the IBM Almadem Research, writes in the forward to the book: “Lusch and Vargo correctly note that IBM’s focus on service science, management, and engineering (SSME) is a direct reflection of the two-decade transformation journey of one whole firm from G-D logic toward S-D logic. Furthermore, everyone in the service science community can most certainly benefit from a deeper appreciation of S-D Logic, as that community works together to build the body of knowledge and tools (service appliances) that will help us to better understand service systems and value cocreation phenomena.”

You can learn more about S-D logic, view our many presentations and upcoming speaking events at www.sdlogic.net. Some of the more foundational writings on S-D logic can be found in our over two-dozen coauthored articles[5]. Anyone who is interested in the subject, regardless of discipline or industry background, is also invited to participate in the Naples Forum on Service next held during June 9-12, 2015 in Naples, Italy (http://www.naplesforumonservice.it/public/index.php). The Naples Forum is organized around three pillars S-D logic, Service Science, and Systems and Networks. It represents dozens of disciplines and brings attendees from throughout the world.

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twitterRobert Lusch is the Muzzy Chair in Entrepreneurship and Innovation at the University of Arizona. Lusch is past Chairperson of the AMA and Editor of the Journal of Marketing. In 2013 he received the AMA/Irwin Distinguished Educator Award. He is the author of 18 books and over 150 articles and is a member of the Center for Services Leadership Faculty Network as Distinguished Faculty.
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References:

  1. To our knowledge, Fredric Bastiat first formally recognized the fundamental nature of service-for-service exchange. See Bastiat, Fredric (1860). Harmonies of Political Economy. Patrick S. Sterling, trans. London: J. Murray. Bastiat, Fredric (1964). Selected Essays on Political Economy, (1848), Seymour Cain, Trans., George B. de Huszar, ed. Reprint, Princeton, NJ: D. Van Nordstrand.
  2. This idea is more fully explored in: Stephen L. Vargo and Robert F. Lusch, “The Four Service Marketing Myths: Remnants of a Goods-Based, Manufacturing Model,” Journal of Service Research, 6 (May 2004), pp. 324-335.
  3. C.M. Christensen, S.D. Anthony, G. Berstell, and D. Nitterhouse, “Finding the Right Job for Your Product,” MIT Sloan Management Review, 48/3 (Spring 2007): 2-11. L.A. Bettencourt and A.W. Ulwick, “The Customer-Centered Innovation Map,” Harvard Business Review, 86/5 (May 2008): 109-114. A.W. Ulwick and L.A. Bettencourt, “Giving Customers a Fair Hearing,” MIT Sloan Management Review, 49/3 (Spring 2008): 62-68.
  4. A.G. Lafley and R. Charan, The Game-Changer: How You Can Drive Revenue and Profit Growth With Innovation (New York, NY: Crown Business, 2008).
  5. S.L. Vargo and R.F. Lusch, “Evolving to a New Dominant Logic for Marketing,” Journal of Marketing, 68/1 (January 2004): 1-17. S.L. Vargo and R.F. Lusch, “The Four Service Marketing Myths: Remnants of a Goods-Based, Manufacturing Model,” Journal of Service Research, 6/4 (May 2004): 324-335. S.L. Vargo and R.F. Lusch, “Service-Dominant Logic: Continuing the Evolution,” Journal of the Academy of Marketing Science, 36/1 (March 2008): 1-10.

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4 thoughts on “Service-Dominant Logic in a Nutshell

  1. Pingback: Service-Dominant Logic in a Nutshell | Services...

  2. Colleen Miles

    Excellent article. In a recent discussion regarding service vs. goods I made th point that today’s consumers truly only purchase services and relationships. Goods, with very rare exceptions, are mass marketed. Consumers, more often, will shop for their desired purchase in advance. For example: They know what vehicle they want, the average cost of the vehicle, features available, performance records and even available colors. What gets them in your oo, to buy you vehicle is trust that you will be there if anything goes wrong. They value the relationship, not the product you sell. After all, how long does it take for them to start thinking of their next car purchase? People buy service, expertise, support and relationships. The tangible product has become secondary to that transaction.

    Reply
  3. Robert F. Lusch

    To expand a bit on this thinking might be helpful. It is true that the tangible is secondary or even tertiary. We need to keep in mind that the relationship extends out to other actors in the ecosystem. Take that new vehicle and consider that it is integrated with a lot of other resources. Some can be market facing such as fuel, phone, financing and insurance. But some can include public resources such as roadways and traffic laws. Yet other resources can be social such as who you use the vehicle with…driving it to work daily or on a weekend camping trip with your children or others. I mention this because the relationship, expertise, support, etc. are part of a larger value constellation where resource integration occurs and the service offering your firm provides needs to be understood in this larger service ecosystem. In fact, I think it can be a key source of inspiration for service innovation.

    Reply
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