From goods to service ( s ) : Divergences and convergences of logics

There are two logics or mindsets from which to consider and motivate a transition from goods to service(s). The first, “goods-dominant (G-D) logic”, views services in terms of a type of (e.g., intangible) good and implies that goods production and distribution practices should be modified to deal with the differences between tangible goods and services. The second logic, “service-dominant (S-D) logic”, considers service – a process of using ones resources for the benefit of and in conjunction with another party – as the fundamental purpose of economic exchange and implies the need for a revised, service-driven framework for all of marketing. This transition to a service-centered logic is consistent with and partially derived from a similar transition found in the business-marketing literature — for example, its shift to understanding exchange in terms value rather than products and networks rather than dyads. It also parallels transitions in other sub-disciplines, such as service marketing. These parallels and the implications for marketing theory and practice of a full transition to a service-logic are explored. © 2008 Elsevier Inc. All rights reserved. Over the last several decades, leading-edge firms, as well as many business scholars and consultants, have advocated the need for refocusing substantial firm activity or transforming the entire firm orientation from producing output, primarily manufactured goods, to a concern with service(s) (see, e.g., Davies, Brady, & Hobday, 2007; Gebauer& Fleisch, 2007). These initiatives can be found in both business-to-business (e.g., IBM, GE) and businessto-consumer enterprises (e.g. Lowe's, Kodak, Apple) and in some cases entire industries (e.g., software-as-a-service). The common justification is that these initiatives are analogous with the shift from a manufacturing to a service economy in developed countries, if not globally. That is, it is based on the idea that virtually all economies are producing and exchanging more services than they are goods; thus, services require increased attention. This perception suggests that firms need to redirect the production and marketing strategy that they have adopted for manufactured goods by adjusting them for the distinguishing characteristics of services. ⁎ Corresponding author. Tel.: +1 808 956 8167; fax: +1 808 956 9886. E-mail addresses: svargo@hawaii.edu (S.L. Vargo), rlusch@eller.arizona.edu (R.F. Lusch). 1 Tel.: +1 520 621 7480. 0019-8501/$ see front matter © 2008 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2007.07.004 Please cite this article as: Vargo, S. L., & Lusch, R. F., From goods to service(s): (2008), doi:10.1016/j.indmarman.2007.07.004 This logic of the need for a shift in the activities of the enterprise and/or industry to match the analogous shift in the economy is so intuitively compelling that it is an apparent truism. It is a logic that follows naturally from marketing's traditional foundational thought. But is it the only logic; is it the correct logic? Does it move business-to-business (B2B) firms and/or academic marketing thought in a desirable and enhanced direction? While we agree that a shift to a service focus is desirable, if not essential to a firm's well being and the advancement of academic thought, we question the conventional, underlying rationale and the associated, implied approach. The purpose of this commentary is to explore this traditional logical foundation with its roots in the manufacturing and provision of tangible output and to propose an alternative logic, one grounded in a revised understanding of the meaning of service as a process and its central role in economic exchange. It is a logic that represents the convergence and extension of divergent marketing thought by sub-disciplines and other research initiatives. We argue that this more service-centric logic not only amplifies the necessity for the development of a service focus but it also provides a stronger foundation for theory development and, consequently, application. It is a logic that provides a framework for elevating knowledge discovery in business marketing (as well as other “sub-disciplines”) beyond the Divergences and convergences of logics, Industrial Marketing Management 2 S.L. Vargo, R.F. Lusch / Industrial Marketing Management xx (2008) xxx–xxx ARTICLE IN PRESS identification and explanation of B2B marketing differences from other forms of marketing to a level capable of informing not only the business-marketing firm but “mainstream” marketing in general. Thus, we argue a service-centered focus is enriching and unifying. 1. Alternative logics Broadly speaking, there are two perspectives for the consideration of service(s). One views goods (tangible output embedded with value) as the primary focus of economic exchange and “services” (usually plural) as either (1) a restricted type of (intangible) good (i.e., as units of output) or (2) an add-on that enhances the value of a good. We (Vargo & Lusch, 2004a; Lusch & Vargo, 2006a) call this logic goods-dominant (G-D) logic. Others have referred to it as the “neoclassical economics research tradition” (e.g., Hunt, 2000), “manufacturing logic” (e.g., Normann, 2001), “old enterprise logic” (Zuboff & Maxmin, 2002), and “marketing management” (Webster, 1992). Regardless of the label, G-D logic points toward using principles developed to manage goods production to manage services “production” and “delivery”. The second logic considers “service” (singular) – a process of doing something for another party – in its own right, without reference to goods and identifies service as the primary focus of exchange activity. We (Vargo & Lusch, 2004a, 2006) call this logic service-dominant (S-D) logic. In S-D logic, goods continue to play an important, service-delivery role, at least in a subset of economic exchange. In contrast to implying the modification of goods-based models of exchange to fit a transition to service, S-D logic provides a service-based foundation centered on service-driven principles. We show that this transition is highly consistent with many contemporary business-marketing models. 2. Goods-dominant logic As the label implies, G-D logic is centered on the good – or more recently, the “product”, to include both tangible (goods) and intangible (services) units of output – as archetypical units of exchange. The essence of G-D logic is that economic exchange is fundamentally concerned with units of output (products) that are embedded with value during the manufacturing (or farming, or extraction) process. For efficiency, this production ideally takes place in isolation from the customer and results in standardized, inventoriable goods. The roots of G-D logic are found in the work of Smith (1776) and took firmer, paradigmatic grasp in the context of the Industrial Revolution during the quest for a science of economics, at a time when “science” meant Newtonian mechanics, a paradigm for which the idea of goods embedded with value was particularly amenable. Management and mainstream academic marketing, as well as society in general, inherited this logic from economics (see Vargo, Lusch, & Morgan, 2006; Vargo & Morgan, 2005). However, since formal marketing thought emerged over 100 years ago, G-D logic and its associated concept of embedded value (or utility) have caused problems for marketers. For exPlease cite this article as: Vargo, S. L., & Lusch, R. F., From goods to service(s): (2008), doi:10.1016/j.indmarman.2007.07.004 ample, in the mid 20th Century, it caused Alderson (1957, p. 69) to declare: “What is needed is not an interpretation of the utility created bymarketing, but a marketing interpretation of the whole process of creating utility”. But the G-D-logic-based economic theory, with its co-supportive concepts of embedded value (production) and value destruction (consumption) was itself deeply embedded in marketing thought. It was not long after this period, we believe for related reasons, that academic marketing started becoming fragmented, with various marketing concerns taking on an increasingly separate, or sub-disciplinarian, identity. 3. Subdividing and breaking free from G-D logic Arguably, the establishment of many of the sub-disciplines of marketing, such as business-to-business marketing, services marketing, and international marketing, is a response to the limitations and lack of robustness of G-D logic as a foundation for understanding value creation and exchange. That is, while GD logic might have been reasonably adequate as a foundation when marketing was primarily concerned with the distribution of commodities, the foundation was severely restricted as marketing expanded its scope to the more general issues of value creation and exchange. 3.1. Business-to-business marketing Initial sub-disciplinary approaches have typically involved trying to fit the models of mainstream marketing to the particular phenomena of concern. For example, as marketers (both academic and applied) began to address issues of industrial marketing and found that manymainstreammarketingmodels did not seem to apply, the natural course of action was not to question the paradigmatic foundation but rather first to identify how B2B marketing was different from mainstream, consumer marketing and then to identify the ways that business marketers needed to adjust. Thus, early attempts led to the identification of prototypical characteristics of business marketing — derived demand, fluctuating demand, professional buyers, etc. (see Fern & Brown, 1984). But we suggest that the creation of business-tobusiness marketing as a sub-discipline was more because of the inability of the G-D-logic-grounded mainstream marketing to provide a suitable foundation for understanding inter-enterprise exchange phenomena than it was because of any real and essential difference compared to enterprise-to-individual exchange. Support for this contention can be found in the fact that busin