Central characteristics

One of the central notions of S-D logic is the distinction between the traditional way of perceiving value creation and exchange, i.e. the G-D logic, and the new and emerging perspective, where service is underlined as the fundamental construct in marketing. In G-D logic, the focus was on tangible output and value was perceived to be created during the manufacturing process. Firms embedded goods with value and consumers destroyed the value. Marketing absorbed a considerably goods-centered view on value creation; marketing evolved a tangibility fixation (Lusch, Vargo, & Malter, 2006). Lusch, Vargo and Malter (2006) have argued that this development was also due to the fact that marketing thought was based on the foundations of economics, which in turn, was highly affected by Adam Smith’s focus on the creation of national wealth through the export of surplus tangible goods. Secondly, the general model of science favored the ‘Newtonian’ mechanical

6 This is in line with Edvardsson, Gustaffson and Roos (2005), who asked several leading international scholars within service research to describe how they perceived and defined service.

The basic finding was that it was regarded more as a perspective than activity.

7 For a discussion of the positive/normative nature of the S-D logic, see Vargo (2007b).

model of tangible things that were embedded with different properties. Perceiving goods as embedded with value served the marketing discipline’s need for justification. Lastly, they emphasize that marketing practice originally developed as a business function in the context of industry and agriculture and focused on the distribution of tangible products. Later, G-D logic as a perspective has proven to be inadequate, especially in contemporary markets. According to Lusch, Vargo and Malter (2006), marketing models such as market orientation, customer orientation, CRM, service quality, to name but a few, are all as such evidence of the G-D logic’s inadequateness to explain marketing phenomena. They have been created to adjust or reframe the old G-D logic without changing its very foundation. However, as time passes, anomalies⁸ may arise for which normal science fails to provide adequate answers. When such anomalies build up and scientists are losing faith, the field enters a crisis stage. This culminates in a scientific revolution, and a new paradigm emerges (compare with Arndt, 1985) that eventually will go through the same cycle.

Altogether, what is important in the context of this research is to understand the

‘new’ perspective to goods and services. Whether the customer buys goods or services as such is irrelevant. What the customer buys are resources or processes that support the customer’s own value creation (see also Humphreys & Grayson, 2008). As is argued by Gummesson (1995, 250–251):

Customers do not buy goods or services: they buy offerings which render services which create value… The traditional division between goods and services is long outdated. It is not a matter of redefining services and seeing them from a customer perspective; activities render services, things render services. The shift in focus to services is a shift from the means and the producer perspective to the utilization and the customer perspective.

Instead of focusing on a single good or service, the focus should be shifted toward the customer context, to customers’ own value-creating processes and to the way the customer uses the resources provided by the firm in his or her own value creation.

S-D logic does not make a distinction between goods and services (Lusch, Vargo, &

Malter, 2006). According to the S-D logic, since goods as such are not embedded

8 For a similar discussion concerningbreakdownsresulting from misfit between an empirical finding and current theory, see Alvesson and Kärreman (2007, 1270–1271).

with value firms can only offer value propositions⁹. To elaborate on the basic idea of the S-D logic and capture its basic tenets, Vargo and Lusch introduced what they called foundational premises, which were published already in the seminal article on S-D logic (2004). Since 2004, they have modified the existing premises (Lusch &

Vargo, 2006a; Vargo & Lusch, 2006) and added two more (Vargo & Lusch, 2006;

Vargo & Lusch, 2008a) resulting in altogether ten foundational premises (see also Grönroos, 2011). These premises form the basic structure of the S-D logic. The foundational premises are presented in Table 4.

Table 4. The foundational premises of S-D logic (Vargo, S. L., & Lusch, R. F.

(2008a). Service-dominant logic: Continuing the evolution. Journal of the Academy of Marketing Science, 36 (2), 1–10)

No. Foundational premise Explanation

FP1 Service is the fundamental basis of exchange

The application of operant resources (knowledge and skills), ’service’ as defined in S-D logic, is the basis for all exchange. Service is exchanged for service.

FP2 Indirect exchange masks the fundamental basis of exchange.

Because service is provided through complex combinations of goods, money, and institutions, the service basis of exchange is not always apparent.

FP3 Goods are a distribution

mechanism for service provision.

Goods (both durable and non-durable) derive their value through use – the service they provide.

FP4

Operant resources are the fundamental source of competitive advantage.

The comparative ability to cause desired change drives competition.

FP5 All economies are service economies

Service (singular) is only now becoming more apparent with increased specialization and outsourcing.

FP6 The customer is always a

co-creator of value. Implies value creation is interactional.

FP7

The enterprise cannot deliver value, but only offer value propositions.

Enterprises can offer their applied resources for value creation and collaboratively (interactively) create value following acceptance of value propositions, but can not create and/or deliver value independently. customer-determined benefit and co-created it is inherently customer oriented and relational.

Value is idiosyncratic, experiential, contextual, and meaning laden.

9 For the discussion about nature of value propositions, see e.g. Anderson, Narus, and van Rossum (2006). For a more recent exploration, see Kowalkowski (2011) and Frow and Payne (2011).

In the end, when discussing what S-D logic is all about, one can refer to Lusch, Vargo, and Malter (2006, 267):

It provides a mental model of exchange with different implications for practitioners and public policy makers than the prevailing dominant logic in much the same way as an understanding of justice can refocus the notion of democracy, and understanding of love can refocus the notion of sex, and an understanding of strategy can refocus the practice of management.

What S-D logic offers, is a new perspective to value creation – one of the most central issues in marketing.